Say a family-owned HVAC distributor in Tarrant County notices that its cash balance never quite matches the jobs it billed. An outside accountant finds that the long-time bookkeeper had been writing small checks to a look-alike vendor for three years. The owner assumes the business policy will pay, and learns that property and liability coverage do not reach money an employee took.
Employee theft is generally covered by commercial crime insurance, not by the property, liability or cyber policies most businesses already carry. A crime policy can respond to money, securities and sometimes goods taken by employees, forged checks and certain kinds of fraud, though terms vary widely. If your business has no crime coverage, the loss usually stays with the owner. Most small businesses never think about it until the bank statements stop adding up, which is why a quick review now is worth the time.
Why theft by an employee falls through the usual policies
Property policies typically exclude dishonest acts by employees, because they are built for fire, wind and similar physical losses. General liability pays for injury or damage to other people, not for money your own staff took from you. Neither one was designed for this problem. The result is a gap that many owners discover only after the loss, when the claim has already been turned down.
Cyber coverage is closer, but it generally focuses on data breaches and related costs, and it may or may not include funds transfer fraud. We cover that in more detail in
what cyber liability insurance does for a Texas small business. Check your own policy wording instead of assuming, and ask your agent where each gap sits.
What a commercial crime policy can cover
A crime policy is built from insuring agreements, each covering a different kind of loss, and the coverage you get depends on which ones are included. Common agreements can include employee theft, forgery or alteration of checks, theft of money and securities inside the premises, and theft outside the premises, such as money in transit to the bank.
Other agreements can include computer fraud, funds transfer fraud, and losses involving money orders and counterfeit money. Not every policy includes every agreement, and limits are often set separately for each one, so read the declarations carefully. A policy with a high limit for one agreement and a low limit for another may not match the way your business actually handles money.
The fake invoice and the spoofed email
Another common loss starts with a convincing email. A criminal spoofs a vendor, says the bank details have changed, and your accounting team pays the next invoice into the wrong account. That is called social engineering, and the money is often gone before anyone notices.
Many crime policies exclude this under computer fraud unless it is added by endorsement, or they cover it only up to a small sublimit. Ask about it by name. A callback to a known phone number before any change to vendor bank details is one of the most effective habits a business can adopt. Share the habit with whoever answers the phone or opens the mail, since the first email often goes to someone outside accounting.
Discovery, limits and how long you have to report
Crime policies are written on either a discovery basis or a loss-sustained basis. A discovery form generally responds to losses you find during the policy period, even if they began earlier, while a loss-sustained form looks at when the theft actually occurred. That difference matters for a scheme that ran for three years.
Policies also set deadlines to report a loss, so notify your agent and carrier promptly once you suspect something. If you know an employee has been dishonest, coverage for that person generally ends, so removing access quickly matters. Many policies pay reasonable investigation costs, and some offer help with the downtime that follows, as we explain in
business income coverage after a loss.
Size limits to your real exposure, such as cash flow and receivables, not to a round number. Ask what happens if several people are involved in one scheme, since limits may apply per loss rather than per person. Your agent can also explain whether the policy has a deductible and how it applies to a loss that stretched across several years.
Controls that help the claim and the price
Underwriters often ask what controls you have in place, and good answers can help both the price and the claim. Dual signatures on larger checks, separate duties for whoever writes the checks and whoever reconciles the bank, and positive pay services at your bank are all common examples.
Callback verification for vendor changes and background checks for people who handle money round out the list. Some policies make coverage conditional on keeping certain controls, so confirm what your policy expects of you. Even where controls are not required, they are the best defense against a loss that could take years to uncover.
Where crime coverage fits with the rest of the program
Retirement plan bonds. If your business sponsors a retirement plan, a federal fidelity bond may be required under ERISA. That is a separate requirement, so confirm the details with an attorney or plan advisor. It protects the plan, not the company checking account.
Business income. Theft can slow a business down, and that downtime is handled by different coverage, not by crime insurance.
Package policies. Some small businesses start with a package policy that includes a small employee dishonesty add-on, which can be a useful first step but is often limited.
A full review. Match your crime limits against your cash handling, not against what the policy happens to include. Review it each year as the business grows, since a limit that fit a small shop may fall short once more people touch the books.
TAP Insurance Agency is an independent agency that shops multiple markets, so we can compare crime coverage from several carriers. A business owner's policy
may include a small employee dishonesty add-on, and we can show you how it stacks up against a stand-alone crime policy.
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Educational only; coverages and availability vary by carrier. TAP Insurance Agency, PLLC — Rhome, TX, licensed in Texas and Oklahoma.
