Surety Bond Quarterly - Fall 2016 - 13


them knows has engaged in dishonest acts or has committed theft prior
to the policy period, coverage does
not apply to any loss caused by that
employee. Notwithstanding, coverage would apply if the dishonest
employee acts in collusion with a
representative of the named insured
who was the only person aware of
the employee's dishonest act.
Additionally, the "automatic termination" condition found in most
commercial crime insurance policies
is intended to prevent the shifting of
the risk to the insurer of the insured's
hiring or continuing to employ a
person known by the insured to be
dishonest. Should an insured choose
to do so, this condition places the
employer on notice that it retains
such employee at its own risk. The
automatic, immediate termination of
coverage for such employees upon
the insured's gaining knowledge of
a prior dishonest act requires the
employer to act responsibly in its
hiring and supervision practices.
Moreover, diligence with respect
to oversight of employees, particular those with control over funds,
can be rewarded, while a lack of
attentiveness can be punished. For
instance, in the case of Suzanne
Snyder and Beckley Mechanical,
Inc. and her years of embezzlement, Beckley asserted that its
significant losses were the result
of multiple separate occurrences.
In response, the insurer argued that
her multiple acts of embezzlement,
over the course of several years,
constituted one occurrence, limiting the loss to just $10,000 of coverage. Because the policy's language
construed a "series of acts" to be
one occurrence, the court agreed
with the insurer and confirmed that
Berkley was entitled to recover only
$10,000 despite suffering losses of
nearly $500,000.
Indirect loss
As mentioned above, commercial
crime insurance coverage is firstparty coverage and is generally not
available to cover losses incurred
by third parties that are not named
insureds. This particular issue was

pertinent when the insurer, and later
the court, considered the claim of
Atlas Metals Products, discussed
above. Upon considering the claim,
the insurer took the position that the
policy covered only the acts of dishonesty by Kunst that resulted in a
direct loss of Atlas covered property,
but excluded from such coverage
any indirect losses to third parties,
such as R&R Realty Trust, and any
damage payments Atlas may be
required to pay to third parties-
even if such damages were caused
by the dishonest acts of one of Atlas's
employees, and even if Atlas were
legally liable for such damages. The
court, in considering Atlas's claim,
ultimately sided with the insurer,
holding that the employee dishonesty policy could not be construed
to render the insurer responsible for
any legal liability incurred by Atlas
and any damages paid to others by
Atlas on account of dishonest acts
of Atlas employees.
The indirect loss exclusion to
commercial crime insurance policies addresses the lack of coverage
for claims such as loss of income
as a result of not being able to use
money, securities, or other property that was stolen, loss of income
on stock holdings that could appreciate in the market, and the loss
of the opportunity to sell product
that was stolen from an insured.
Of course, business income coverage is available in commercial
property insurance forms for the
loss of income on property other
than money or securities.

Why should a bond producer
recommend that a contractor
include commercial crime
insurance coverage?
Of course, insurance is a an integral
part of a contractor's risk management strategy; and risk and project
managers for contractors, as well as
their insurance brokers and bond producers, are engaged on a daily basis
in insuring real and personal property
and negotiating contracts where liability and other types of insurance are
required. Indeed, risk management
and contract management often overlap during the course of managing
complex insurance issues.
While commercial general liability
and builder's risk policies are part
of the typical insurance portfolio
for contractors, a contractor's risks
and exposures are broader than
their usual work product. Attention
should be paid to all of the perils to
which a contractor is exposed, including coverage for the varied schemes
that come to the deceitful mind of a
dishonest employee.
●
Mike Pipkin, Esq. is a partner in
the Dallas office of the law firm of
Weinstein Radcliff Pipkin LLP, where
he provides construction counseling and litigation to sureties, private
owners and developers, contractors,
subcontractors, and design professionals. He is a co-editor of bond
default manual, 4th Edition, published
in May 2015 by the ABA. He serves
on the NASBP Attorney Advisory
Council. He can be reached at mpipkin@weinrad.com and 214.865.7012.

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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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