Maximizing Fidelity Loss Recoveries
Originally published in Corporate Counsel, September,
2009.
Just as a rising tide lifts all boats, receding prosperity
reveals unsuspected threats. From corporate counsel's
perspective, the risk is not just the phantoms of the deep
— massive monsters like Madoff and the subprime meltdown
— but also shallow scum like embezzling employees,
computer hackers, forgers and other ordinary cheats.
The risk of loss from crimes like these should be addressed in
every corporate insurance program through commercial crime or
"fidelity" coverage. If a loss emerges, corporate counsel
and risk managers should immediately focus on maximizing insurance
recovery. This is easier said than done, since the discovery of
betrayal by a trusted employee or business contact typically leads
to disbelief, shock, anger and shame. Paralysis is understandable,
but it only brings additional risk. Prompt analysis and action is
necessary.
Responding To A Fidelity Loss
Upon learning of a loss due to theft or fraud, corporate counsel
or risk managers should:
Immediately send notice of the loss to all potentially
responsible insurance companies, even if the full details remain to
be determined. Many insurance policies state a specific period
within which notice must be given. Failure to provide
prompt notice may forfeit coverage.
Conduct an immediate, discreet investigation focusing on the
scope of the loss, the identity of participants, and the
disposition of stolen assets.
Implement immediate safeguards to prevent further losses.
Gather information for a fraud audit and an asset seizure
action.
Attempt to interview, secure a statement, and secure
restitution from any dishonest employees.
Terminate dishonest employees.
Prepare and submit a "proof of loss" regarding the
insurance claim. Most insurance policies state a specific time
period within which a sworn proof of loss must be submitted;
policyholders should comply or obtain a written extension.
Failure to submit a timely sworn proof of loss may forfeit
coverage. The initial submission may be supplemented, if
the full nature or extent of loss is not known by the applicable
deadline.
Identify and calendar the earliest possible date when the
policyholder may have to file suit, and file a timely action if
necessary. Many fidelity insurance policies state that an action
against the insurance company must be commenced within two years of
the discovery of a covered loss. Note that extending the deadline
for a proof of loss, supplementing the proof, or ongoing
"investigation" by the insurance company will not
necessarily toll or extend the contractual suit limitation, which
typically runs from discovery of the loss. Failure to file
a timely lawsuit may forfeit coverage.
Throughout this investigation process...
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