Employee Theft Coverage for Construction Companies

August 10, 2021

Many construction companies don’t realize how susceptible they are to financial loss caused by the fraudulent acts of their employees.

Every year, millions of dollars are lost due to employee dishonesty causing businesses to suffer severe financial damage. Employee theft insurance, also known as crime coverage, protects the employer from financial loss due to the fraudulent activities of an employee or group of employees. It provides coverage for employee theft of: money, securities, forgery, alteration, theft, unauthorized electronic funds transfers, credit card fraud, computer fraud, money order fraud and counterfeit fraud.

Most importantly for construction companies, you can also add endorsements for additional coverage, such as third party coverage. This can be added to protect clients from damage or loss to property, money or securities leased or owned by the client from theft by your employees. It includes coverage for theft or crimes taking place at the client’s premises as well as at your place of business. This is a valuable coverage to consider adding if you have a significant portion of your revenue coming from just a handful of large clients.

There is no way to completely prevent a theft. According to statistics from the Association of Certified Fraud Examiners, losses due to employee dishonesty can range from hundreds of thousands to millions of dollars a year. All businesses are susceptible to employee theft and fraud, even with background checks and other means of ensuring a quality workforce. Most employees that steal are first-time offenders with a clean employment history.  

CLAIM SCENARIOS: The following are some actual claim scenarios from Travelers Insurance that were directly associated with construction companies.

Scenario 1
An insured's employee and an outside accomplice stole cable from inventory, which was subsequently discovered at a local salvage yard. The employee confessed to police, saying he had been taking the wire from the insured and trying to sell it as scrap to the salvage yard. Travelers paid approximately $73,000 to the insured.

Scenario 2
The CFO and the director of a construction company and two hospital employees made arrangements to hire a contractor if he would overbill the hospital and kickback the difference to them. The loss was well in excess of $1 million.

Scenario 3
Over a period of several years, a project manager for an apartment management company approved duplicate payments to a construction contracting firm. The firm's owner had formerly been an employee of the apartment management company and had become friends with the project manager. They were also co-owners of other rental properties. Travelers paid approximately $540,000 to resolve the claim.

Employee theft insurance should be a critical part of your plan that can help mitigate the associated expenses of an employee theft. The standard commercial general liability (CGL) policy excludes employee theft losses. In addition to implementing a loss prevention program, you need to purchase employee theft coverage to close the gap. It’s important to discuss with your qualified construction insurance broker who understands the latest available coverages to help protect your company.

Kim Anderson is a Senior Account Manager with over 15 years of experience in the insurance industry. She specializes in the placement of Property & Casualty insurance programs for the construction and manufacturing industries. Kim's responsible for providing answers and solutions in the daily service of existing and prospective clients and also helps plan and analyze coverage options, as well as negotiate coverage and pricing with carriers. She’s earned Construction Risk Insurance Specialist (CRIS) and Management Liability Insurance Specialist (MLIS) designations.