Employee Theft under Management Liability Policies: Understanding Cover and Claims

Berkley Insurance Australia (BIA) Management Liability (ML) policies are designed to cover businesses against management liability risks and exposures. Among the risks that ML policies cover, one relevant cover is employee theft, an unfortunate reality many businesses have to contend with.

This article delves into the specifics of cover for employee theft under an ML policy and explores some claims examples to show how typical business processes have been compromised by employee theft and the resulting loss.

Understanding ML Policies and Employee Theft Coverage

A fundamental feature of BIA’s ML policies is cover for loss arising from the theft of money, securities or property. This includes assets belonging to the company or in its care, custody, or control, stolen by employees or identifiable customers or contractors. Notably, employee theft is not limited to physical assets but can also encompass digital assets such as electronic data or computer systems.

In addition to providing cover for the stolen assets, ML policies also cover the costs associated with investigating the matter. This is crucial as determining the extent of theft and identifying the perpetrators can often involve a complex and costly process requiring the services of forensic experts and legal professionals.

Another significant aspect of cover is the cost associated with the reproduction of electronic data or computer systems damaged in the course of fraud. With an increasing amount of business conducted digitally, this cover can prove vital in ensuring business continuity following an incident of employee theft or fraud.

Real-World Claims Examples

To further illustrate how ML policies respond to incidents of employee theft, let’s examine a few claims examples:

1. Anomalous Payments Totalling $425,000: The insured noticed an unusual payment of $6,000 to purchase a coffee machine on a corporate credit card. Upon further investigation, it was found that an employee had made a number of unauthorised payments totalling $425,000. The ML policy responded by granting indemnity to the sub-limited sum of $250,000 plus $50,000 for defence and investigation costs.
2. Fraudulent Invoice Payment: The insured discovered that an employee had fraudulently added her bank account details to an invoice sent to a customer. The payment of $35,640, intended for the insured, was redirected to the employee. After immediate termination of the employee and notification to the police, the ML policy covered the stolen amount.
3. Long-Term Theft by Accounts Receivable Clerk: The insured reported an employee theft of $38,000. However, a forensic investigation revealed that the Accounts Receivable Clerk had been manipulating bank deposit slips, revising payments, crediting invoices, and altering records for 5 years amounting to a total theft of $521,000. BIA covered the loss under the policy sublimit ($550K) and took over the recovery action.

Why do Businesses Need ML Cover?

In today’s complex and dynamic business environment, an ML policy may assist by covering loss arising from employee theft and the associated costs of investigation and data or system recovery. The claims examples referred to above illustrate the vital role ML policies play in safeguarding a business’s financial health, further emphasising the importance of obtaining comprehensive management liability cover.

To explore your client’s specific needs for their business, contact one of our specialist Management Liability Underwriters.

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Berkley Insurance Company (limited company incorporated in Delaware, USA) ABN 53 126 559 706 t/as Berkley Insurance Australia is an APRA authorised general insurer. Information provided is general only, intended for brokers and has been prepared without taking into account any person’s particular objectives, financial situation or needs. Insurance cover is subject to terms, conditions, limits, and exclusions. When making a decision to buy or continue to hold a financial product, you should review the relevant Policy Wording.