Construction Success Story: Contractor Mulls Commercial Crime Insurance

A contractor in a busy urban area was worried. A local electrical subcontractor, with whom he’d worked, had been victimized by fraud. Over a period of years, two employees had been stealing inventory, tools and equipment. The loss had amounted to more than $100,000.

The contractor started wondering how he might manage the risk of fraud. His insurance rep had mentioned once that there were policies available, but the contractor was concerned about the cost. So he talked to his CPA about whether commercial crime insurance was a worthy investment.

Factors to consider

His CPA told him it depends on a number of factors and suggested some things to consider. First, the contractor should look closely at his inventory of materials, tools and equipment. What steps does he currently take to track and secure it?

Also, does he keep quantities of cash or securities in his office? If so, are these items routinely transported off-site? The contractor should document and review his existing security measures here, too.

“Do you ever hire part-time, temporary, or volunteer help?” the CPA asked. If so, the contractor must consider whether these workers ever have access to cash, securities, financial records or customer data.

A contractor who can answer these questions thoroughly and confidently might not need to buy coverage. But, if there are noticeable gaps in his company’s security, he might want to talk to his insurance provider about available policies and their respective costs.

Coverage and exclusions

A solid commercial crime policy, the CPA said, will generally include protection against employee dishonesty (with or without third-party collusion), fraud, embezzlement, robbery, counterfeiting and forgery. It should also cover damage to company property that occurs in the course of a theft. Some policies even cover hacking of company computers to steal funds, property or securities.

There are typically exclusions, the CPA warned. Crime insurance generally won’t cover loss of income resulting from crime. In addition, it usually won’t cover the actions of part-time employees not working on your premises, or employees who have previously been caught committing dishonest acts. And crimes committed by company owners or top management aren’t covered under most policies.

Purchase decision

Ultimately, the CPA said, commercial crime policies offer the most benefit to newer construction companies, those that have grown suddenly or those that work in particularly high-risk areas. After discussing the issue with his CPA and insurance agent, this contractor decided to hold off on buying a policy. He felt it would be more cost-effective to tighten up his existing security and antifraud measures.

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