Employee Theft Not Fully Covered Under Policy, Says Court
Employee theft is a leading form of fraud that is often overlooked. Wescott Electric Company found that out the hard way.
Over the course of 10 years, from 2003 to 2013, a single employee at Wescott was able to steal nearly $3 million before getting caught. In the last year of theft, the employee stole $700,000 worth of copper wire, selling it for scrap.
During the time of the theft, Wescott had four consecutive insurance policies issued by Cincinnati Insurance Company. When the theft was discovered, Wescott was under the period of the fourth insurance policy, which stated that in order for the policy to take effect, the loss had to be discovered during the policy period.
Policy wording became the crux of the legal debate: Wescott was insured by Cincinnati under four policies; could multiple policies come into play? Cincinnati did not think so. It paid $100,000 — the limit for a single “occurrence” of employee theft under the 2013 policy. It said the previous policies did not apply.
Wescott, however, did not accept this as final. The 2010 policy ended on January 31, 2013; then the 2013 policy kicked in. The employee’s theft was discovered in July 2013. Wescott discovered that $300,000 was stolen between July 2012 and January the next year — falling under the 2010 policy. From January till July 2013, under the 2013 policy, the employee stole roughly the same amount.
Wescott said that in the year leading up to the discovery of theft, $700,000 was stolen. The company believed the theft that occurred under the 2010 policy should be covered by that policy. When Cincinnati refused, Wescott brought a claim for breach of contract against the insurer.
Cincinnati filed a motion to dismiss, arguing the theft was only discovered under the 2013 policy and therefore should only be covered under the 2013 policy.
The court reviewed and sided with Cincinnati. It agreed with Wescott in that the company was entitled to coverage for a single “occurrence” of employee theft under the 2013 policy. It also determined that the 2010 policy would not apply, because the policy had ended.
When Wescott pushed, the court further stated that “coverage … applies to loss … which is ‘discovered’ by you during the Policy Period — not losses discovered up to one year after the policy period.”
Scorecard: Cincinnati Insurance Company is only responsible for employee theft discovered under the 2013 policy.
Takeaway: When working with a company for multiple policy periods, it is best to review policy wording with clients so that the parameters of the policy are understood. &