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Q: Employee Theft Using a Corporate Credit Card We have a client that suffered a six-figure theft claim at the hands of its employee executive director. The director used a corporate credit card for gambling and personal items. The insurance carrier is denying the claim on the basis the employee used a credit card. The Crime form providing the coverage is ISO CR 00 20. Following is an excerpt from the denial letter: VIRTUAL UNIVERSITY ASK AN EXPERT ?

We have reviewed coverage under the Employee Theft Coverage and conclude there is no coverage for this loss because theft of covered property did not take place. Employee Theft is covered for loss or damage to “money”, “securities” and “other property” resulting directly from “theft” committed by an “employee”. While we have confirmed that [the executive director] was an employee at the time of the loss and it is believed that he made unauthorized financial transactions on the Company Credit Card for personal use; unauthorized use of the company credit card would not be considered as theft of money, securities or other property as defined in the policy language.

Employee Theft is covered for loss or damages to money”. The employee did not directly steal or take the Company’s currency, coins or bank notes in current use and having a face value. These unauthorized charges and uses would not be considered negotiable or nonnegotiable instruments.”

A: The insurer is wrong. The policy form reads: 1. Employee Theft We will pay for loss of or damage to “money”, “securities” and “other property” resulting directly from “theft” committed by an “employee”, whether identified or not, acting alone or in collusion with other persons. The insurer is going to have to pay the credit card bill, thus they will suffer a loss. Pay the claim ------------ The carrier is wrong. The form definition of “theft” is “any act of stealing.” • The insured has a direct loss of money over $100K. There is no loss to the credit card. The credit card was just a means to steal money. The money came from their bank account. It makes no difference if the person wrote personal checks to himself, a check was written directly to a gambling facility or other businesses for personal expenses, or a check was written to a credit card company who in turned made payments for personal expenses. Regardless, there is a direct loss of money” as a result of employee theft. • The policy states the loss must directly result from an occurrence” (as per the definition). There was an occurrence. The policy also states the loss must result directly from theft” (unlawful taking of property to the deprivation of the insured) - “Theft” is any act of stealing. Is there another reason they lost over $100K? • It is not an indirect loss as per exclusion D.1.f. If it’s not an indirect loss, it has to be a direct loss. • If this loss isn’t covered under the basic Crime policy, then I don’t see any way to cover it. There is a reason there is no endorsement you can add to cover employee theft by credit card. And if it were unclear (ambiguous), ISO would have an endorsement to clearly exclude. Also there are no Exclusions in the form for this loss. Here are the exclusions in the form: D. Exclusions 1. This insurance does not cover: a. Acts Committed By You, Your Partners Or Your Members Loss resulting from “theft” or any other dishonest act committed by: b. Acts Committed By Your Employees Learned Of By You Prior To The Policy Period c. Acts Committed By Your Employees, Managers, Directors, Trustees Or Representatives d. Confidential Or Personal Information e. Data Security Breach f. Governmental Action g. Indirect Loss Loss that is an indirect result of an “occurrence” covered by this insurance including, but not limited to, loss resulting from: Note this was clearly a direct loss h. Legal Fees, Costs And Expenses i. Nuclear Hazard j. Pollution k. War And Military Action 2. Insuring Agreement A.1. does not cover: a. Inventory Shortages b. Trading c. Warehouse Receipts ------------ I believe the insurer is correct, unfortunately. ------------ I think the carrier is wrong. To me, this is clearly the theft of money the definition of money” includes deposits in the named insured’s financial institution. The insurer needs to explain how unauthorized financial transactions by the use of the credit card is not considered the theft of money. The insurer seems to suggest the employer is free to not pay from their financial institution the debts incurred. This is analogous to saying that the use of a check is not direct theft because the employer is not required to honor the check. ------------ It wasn’t clear from your description exactly how the transaction worked. You said the loss involved unauthorized use of a credit card, so I’m guessing these transactions would have appeared on a monthly credit card bill which was subsequently approved and paid by the employer. On the other hand, it could be that the charges appeared and were disputed, but the credit card issuer refused to take them off the bill. One way or the other, this loss should be paid. It’s the same as if the employee went to a store and charged a bunch of personal purchases to his employer’s account. As for the property being covered, the definition of “money” includes funds on deposit in the employer’s account. Qualification as a “theft” is equally clear--the employee didn’t take the money by mistake. He deliberately used his employer’s credit to gamble. That fits the definition perfectly. Here’s another way to look at this: Suppose an employee used his employer’s card to fly to New York and charged his plane fare, a luxury hotel, expensive meals, and theater tickets, all without his employer’s approval or knowledge. That loss is clearly covered, and so is this one. It’s also interesting that credit card losses are excluded for coverage A.6 but not for A.1. If the insurance company wanted to exclude such losses, they should have included A.1. in that exclusion.