Author: Tim Wahl
When Businessowner’s Policies (BOP) were introduced in the 1980s, they were said to be the “end all, be all” of policies. Instead of using a commercial package policy and being able to tailor coverage by adding endorsements to grant additional coverages, BOP’s automatically added additional coverages and even allowed increased limits on them. However, BOP coverages are not always the same as commercial packages.
Employee dishonesty coverage is one coverage difference. In today’s marketplace, BOPs allow employee dishonesty limits of $5,000 to $500,000 or more. Agents and insureds often think employee dishonesty coverage on a BOP is the same as coverage provide by Commercial Crime policies or forms. Sadly, that is not always the case!
Case in point: an office manager stole $450,000 from a business over a four year period. The business was insured under a BOP. Realizing that the business handled significant amounts of money, the agent increased employee dishonesty coverage on the BOP to $250,000. The insured filed a claim and was paid $250,000, the policy limit. The good news was that the office manager still had in her possession approximately $150,000 in stolen cash and assets which she had purchased with the stolen money. The insured was excited to learn of this and thought they would get this money and assets to help cover their uninsured loss (the additional $200,000 the insured lost, but didn’t have insurance coverage for). The insured was shocked and upset to learn that the insurance carrier had first right of recovery up to $250,000. Recoveries beyond that would go to the insured. Many agents will realize that this is NOT how Commercial Crime Coverage and Employee Theft and Forgery policies usually work. Let’s look at this more closely.
Commercial Crime Coverage forms and Employee Theft and Forgery Policies allow for recovery as follows:
(1) Any recoveries, whether effected before or after any payment under this insurance, whether made by us or you, shall be applied net of the expense of such recovery:
(a) First, to you (meaning the insured) in satisfaction of your covered loss in excess of the amount paid under this insurance;
(b) Second, to us in satisfaction of the amounts paid in settlement of your claim;
(c) Third, to you in satisfaction of any Deductible Amount; and
(d) Fourth, to you in satisfaction of any loss not covered under this insurance
This indicates that after recovery expenses are paid, the insured gets first right of recovery for the uninsured loss. Then right of recovery shifts to the insurance company, allowing it to be made whole. Thereafter, if any assets remain, right of recovery shifts back to the insured for recovery of their deductible. Finally, it says any recovery remaining after that can be used by the insured to satisfy losses that weren’t covered under this insurance policy form.
BOPs allow for recovery as follows:
Transfer Of Right Of Recovery Against Other To Us (under Common
1) Applicable to Business Property Coverage:
If any person or organization to or for whom we make payment under this policy has right to recover damages from another, those rights
are transferred to us to the extent of our payment. That person or organization must do everything necessary to secure our rights and must do nothing after a loss to impair them.
Recovered Property (under Property Loss Conditions)
If either you or we (insurance carrier) recover any property after the loss settlement, that party must give the other prompt notice. At your option, you may retain the property. But then you must return to us the amount we paid you for the property. We will pay recovery expenses and the expenses to repair the recovered property, subject to the Limits of Insurance of Section I - Property
Simply said, the insurance carrier gets first right of recovery until it is repaid for the loss it paid. Once the insurance carrier is made whole, the insured is in line for recovery. (However, the carrier might not work for recovery once it is made whole.) The policy goes so far as to say under Recovered Property that if the insured recovers any property, it must give prompt notice to the carrier. The insured has the right to keep the recovered property but must pay the
carrier back the amount they paid.
The rights of recovery between the Commercial Crime Form/Employee Theft and Forgery policy and the majority of Businessowner’s policies are completely different! Even more troublesome is that the costs for coverage are very similar. The cost for $250,000 in employee dishonesty coverage on the BOP is similar to a stand-alone Crime Policy or Employee Theft Policy.
If your insured has a need for increased employee dishonesty coverage beyond what comes on the BOP, look at the BOP you are selling. If first right of recovery goes to the insurance carrier, your insured would be better served with a stand-alone Commercial Crime Policy or Employee Theft and Forgery Policy.
Commercial Crime policies and forms also provide additional coverages far beyond what many BOPs provide, e.g., Computer Fraud, Funds Transfer Fraud, Money Orders and Counterfeit Money protection. Until ISO and insurance carriers change how BOPs handle recovery in cases of employee theft, these policies will provide sub-par coverage for the insured.
Tim Wahl, CIC, is the commercial marketing manager at Gallaher Insurance Group, Mexico, Missouri. He has been an active member of the MAIA Coverage Committee since 2008 and is a regular participant in the Mid-America Insurance Conference.
Reprinted from the Missouri Association of Insurance Agents’ Missouri Agent, January-February 2015.
I enjoyed reading Tim’s article on the BOP Employee Dishonesty option versus the Crime policy. I recently discovered another difference – one that is perhaps more insidious. At least the problem he mentioned can be solved by carrying an adequate amount of coverage. There is no solution for this problem: The BOP employee dishonesty option limits coverage to business personal property covered by the BOP (plus money and securities). Property Not Covered includes automobiles, trucks, watercraft and computers in vehicles. This limitation also means that the BOP won’t cover employee theft of building property (such as copper wiring in building components) or other items of real property.
Last Updated: May 26, 2015