Surety Bond Quarterly - Fall 2016 - 11


CONTRACTORS OF ALL sizes and types
deal with various aspects of risk management. Risk management strategies also come in all sizes and types,
including risk avoidance, loss control
and prevention, contractual shifting
of risk to other parties, and the decision to self-insure the risk.
Risk managers are very familiar
with common third-party insurance
policies, such as for commercial
general liability, business automobile, professional liability, workers
compensation, director and officers
liability, fiduciary, and employment
practices liability insurance, where
the contractor seeks protection
from claims brought by third parties
against the company. With first-party
insurance, the company seeks protection for covered losses to its own
various types of property.
Some property insurance forms and
packages provide some coverage for
losses due to criminal acts, but they
have limitations on the type of property covered, the amount of coverage available, and the causes of loss
that apply. Property insurance forms
usually exclude money and securities
coverage and always exclude coverage for losses arising from employee
theft and extortion.
In response to these market conditions, insurers developed commercial crime insurance policies.
Insurers write crime insurance as a
stand-alone product or as part of a
package policy. This article examines
why commercial crime insurance is
worthy of consideration for a contractor's risk management portfolio and a
commercial crime insurance policy's
various coverages and exclusions.
The sordid tales giving rise
to employee dishonesty and
employee theft claims
The ingenuity of someone willing to
steal from his or her employer often
knows no bounds. While one might
think that employee dishonesty and
employee theft is most often limited to industries where large sums
of money are readily accessible,
such as the banking and financial
services industries, losses due to

theft and dishonesty take many
different forms.
For instance, consider the story of
one John Speer, Sr. For more than
25 years, Speer served as a job superintendent for Deleson Steel Company,
Inc., a New Jersey-based general contractor. Part of Speer's job duties and
responsibilities involved transporting
payroll from Deleson's office to an
elementary school job site in Newark.
One day, Speer showed up at the
job site bright and early, in fact, about
45 minutes prior to the scheduled
arrival of the balance of the workers. He parked his Deleson van on
the site, placed the payroll under the
driver's seat, and locked the doors.
Speer then proceeded to participate in
other aspects of his job, such as talking with the operating engineer who
was responsible for oiling and starting
the machinery and equipment that
was to be used that day. After about
30 to 35 minutes, Speer then returned
to his van, only to discover that a window had been broken and the payroll
stolen. The theft was subsequently
reported to the Newark police and a
claim was made under an insurance
policy Deleson purchased for situations such as this.
Or, ponder the saga of Suzanne
Snyder. Snyder worked as a bookkeeper for Beckley Mechanical, Inc.
Over a period of six years, Snyder
falsified Beckley's records to conceal
almost 300 checks that she had unlawfully drafted to herself. Her run as a
thief came to an ignominious end, as
she was charged with and pled guilty
to six counts of felony embezzlement,
leading to a sentencing of six terms
of one to ten years, running consecutively, in a West Virginia prison.
While Snyder was embezzling from
Beckley, Beckley maintained an insurance policy, under which Beckley
pursued a claim after it discovered
Snyder's scheme by which she stole
almost $425,000 from her employer.
Finally, contemplate the tale of
Elizabeth Kunst. She worked as a
secretary and bookkeeper for Atlas
Metals Products Co., Inc. for a number
of years. During that time, she not only
misappropriated funds from Atlas, but

also managed to gain access to and
cash checks from a separate entity,
R&R Realty Trust, because Atlas was
providing administrative services for
the processing and payment of R&R
bills. In the course of writing checks to
pay the R&R bills, Kunst fraudulently
wrote checks payable to herself from
the R&R bank account.
After Kunst's deeds were discovered, Atlas submitted a claim on its
employee dishonesty protection
policy, not only for the losses that it
suffered, but also for the money stolen
from R&R Realty Trust.
As discussed below, each of the factual scenarios set out above presents
questions for coverage consideration
under various insuring agreements of
commercial crime insurance coverage.
Commercial crime insurance
policy insuring agreements
Each of the common commercial
crime insurance policy forms provides
eight separate insuring agreements.
The most common coverage agreements are discussed below.
Employee dishonesty
and employee theft
The commercial crime policy or
blanket crime policy provides coverage for a variety of risks, including
specifically the "loss of money, securities and other property" resulting
from certain employee dishonesty
or fraudulent conduct. Generally
speaking, the employee's act must
not only be dishonest, but must also
be done with the "manifest intent"
to cause the insured a loss and to
obtain some sort of financial benefit
(excluding typical employee benefits earned in the normal course
of employment) for the employee or
for someone he or she intends. For
example, the employee dishonesty
insuring agreement would apply
to cover losses resulting from an
employee scheme to siphon cash
from accounts receivable.
More recently, some insurers also
offer alternative forms of coverage
for loss caused by employees, specifically in the form of a variety of
"theft" coverages. These policy
forms do not require a demonstration

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11


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Table of Contents for the Digital Edition of Surety Bond Quarterly - Fall 2016

NASBP Upcoming Meetings & Events
2016-2017 Executive Committee
From the CEO: Success Comes with Sharing Perspective and Knowledge
Practical Insights: A Contractor’s Risk Management Portfolio Should Include a Commercial Crime Policy
Rethinking the Change Order Process: NECA Foundation’s Guidelines Offer New Approach, Substantially Reducing Change Order Costs
Six Considerations in Underwriting Subdivision Bonds (Part 2 of 2)
Affirmative Action and the Office of Federal Contract Compliance Programs: What Surety Professionals and Their Contractors Should Know
Surety Data Standards: What are They, and Why Should Surety Professionals Care about Them?
2016 NASBP Resource Directory
Index to Advertisers
Surety Bond Quarterly - Fall 2016 - cover1
Surety Bond Quarterly - Fall 2016 - cover2
Surety Bond Quarterly - Fall 2016 - 3
Surety Bond Quarterly - Fall 2016 - 4
Surety Bond Quarterly - Fall 2016 - 5
Surety Bond Quarterly - Fall 2016 - 6
Surety Bond Quarterly - Fall 2016 - 2016-2017 Executive Committee
Surety Bond Quarterly - Fall 2016 - From the CEO: Success Comes with Sharing Perspective and Knowledge
Surety Bond Quarterly - Fall 2016 - 9
Surety Bond Quarterly - Fall 2016 - Practical Insights: A Contractor’s Risk Management Portfolio Should Include a Commercial Crime Policy
Surety Bond Quarterly - Fall 2016 - 11
Surety Bond Quarterly - Fall 2016 - 12
Surety Bond Quarterly - Fall 2016 - 13
Surety Bond Quarterly - Fall 2016 - Rethinking the Change Order Process: NECA Foundation’s Guidelines Offer New Approach, Substantially Reducing Change Order Costs
Surety Bond Quarterly - Fall 2016 - 15
Surety Bond Quarterly - Fall 2016 - 16
Surety Bond Quarterly - Fall 2016 - Six Considerations in Underwriting Subdivision Bonds (Part 2 of 2)
Surety Bond Quarterly - Fall 2016 - 18
Surety Bond Quarterly - Fall 2016 - 19
Surety Bond Quarterly - Fall 2016 - Affirmative Action and the Office of Federal Contract Compliance Programs: What Surety Professionals and Their Contractors Should Know
Surety Bond Quarterly - Fall 2016 - 21
Surety Bond Quarterly - Fall 2016 - 22
Surety Bond Quarterly - Fall 2016 - 23
Surety Bond Quarterly - Fall 2016 - Surety Data Standards: What are They, and Why Should Surety Professionals Care about Them?
Surety Bond Quarterly - Fall 2016 - 25
Surety Bond Quarterly - Fall 2016 - 26
Surety Bond Quarterly - Fall 2016 - 2016 NASBP Resource Directory
Surety Bond Quarterly - Fall 2016 - 28
Surety Bond Quarterly - Fall 2016 - 29
Surety Bond Quarterly - Fall 2016 - 30
Surety Bond Quarterly - Fall 2016 - 31
Surety Bond Quarterly - Fall 2016 - 32
Surety Bond Quarterly - Fall 2016 - 33
Surety Bond Quarterly - Fall 2016 - 34
Surety Bond Quarterly - Fall 2016 - 35
Surety Bond Quarterly - Fall 2016 - 36
Surety Bond Quarterly - Fall 2016 - 37
Surety Bond Quarterly - Fall 2016 - 38
Surety Bond Quarterly - Fall 2016 - 39
Surety Bond Quarterly - Fall 2016 - 40
Surety Bond Quarterly - Fall 2016 - 41
Surety Bond Quarterly - Fall 2016 - Index to Advertisers
Surety Bond Quarterly - Fall 2016 - cover3
Surety Bond Quarterly - Fall 2016 - cover4
Surety Bond Quarterly - Fall 2016 - outsert1
Surety Bond Quarterly - Fall 2016 - outsert2
Surety Bond Quarterly - Fall 2016 - outsert3
Surety Bond Quarterly - Fall 2016 - outsert4
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