- It is important to draw a distinction between the general shrinkage of stock and an employee’s theft of stock over long period. Although the latter is covered, it is not the intention to cover the former for several reasons including:
- This is a trade risk
- Mostly it would not be possible to show what portion of the stock was missing due to the dishonesty of employees (as opposed to non-employees).
- In fact, in some cases it might be difficult to show what portion of the loss was even due to dishonesty. The drop in weight of a consignment of fruit could, for example, be partly due to storage temperature.
- For these reasons specific stock shrinkage/pilferage exclusions are common on Commercial Crime policies.
A Commercial Crime policy protects the Insured’s money and other property against theft by employees. It also covers malicious damage and theft committed by non-employees through computer hacking, extortion and fraudulent transfer instructions.
In addition, the policy also covers the contractual penalties which businesses often face when they can't deliver as a result of theft.
Suppose the Insured is an IT company. The Insured’s technician visits a customer’s premises to upgrade their software and while he is there he steals that customer’s property. Would the policy pay if the Insured is held liable for the customer’s loss?
- Yes, if the property was in the Insured’s care. There would be cover if, for example, while working in the customer’s computer room the Insured’s employee steals its computers.
- However there would be no cover if the stolen items were not in the Insured’s care. There would be no cover if, for example, after completing the work in the customer’s computer room, the Insured’s employee steals the customer’s toilet spray dispenser. Unlike the computer equipment, the spray dispenser was not in the care of the Insured’s employee.
- The indemnity limits are typically VAT exclusive which means that, where appropriate, VAT will be paid over and above the indemnity limit.
- The quotes that Camargue provides are typically VAT inclusive.
Yes, theft by groups of Employees is covered, even if the Insured is unable to pinpoint which employees are guilty.
The following risks cannot be placed on Camargue’s SME scheme (although many can be written on a non-scheme discretionary basis):
- Companies that are domiciled outside South Africa
- Financial Institutions (as defined below)
- Agricultural Co-operatives
- Cell phone retailers (air time and handsets)
- Motor spares
- Gambling of any nature
- General hauliers (including logistics and 3rd party warehousing)
- Security companies and cash distribution
- Financial institutions (e.g. banks, insurance companies, fund managers, stock brokers, etc)
Also note that indemnity is limited to R500,000 per event on the SME scheme.
- The policy is issued on a losses-discovered basis which in some ways is similar to claims-made basis.
- The Contractual Penalties cover is issued on a claims-made basis.
- Some people may mistakenly think that the rest of the policy is also issued on a claims-made basis, but this is not the case because ‘claims-made’ refers to the time when a third party makes a claim against the Insured.
- Since most of this policy covers ‘own damage’ and not ‘third party liability’, ‘claims-made’ is not an appropriate term.
- It may be more appropriate to describe the policy as being issued on a ‘losses-discovered’ basis.
- Average is not applied.
- The limit of indemnity is the most that the Insurers will pay (which does, in some ways, resemble a first loss type of cover).
- The Insurers are typically willing to give around two years retroactive cover even if the Insured has not previously had a Commercial Crime policy.
- This means that there is cover for the events which were
- committed on or after the Retroactive Date but
- only discovered during the Period of Insurance.
- The retroactive cover is charged for and is not a free extension to the cover.
- The Period of Insurance is typically one year. At the end of the Period of Insurance the indemnity limits of the policy are ‘reset’.
- In other words, at the start of each Period of Insurance the Insured starts with a clean slate and the full limit of indemnity is available to pay the claims arising during this new period of insurance.
- If the indemnity limit is R1m then over a period of three years the policy could have paid three R1m claims – one each year. (For the sake of simplicity we are ignoring any reinstatement of indemnity limit extension.)
- Based on this, some might ask: “If the policy runs for three years and the indemnity limit was R1m during that time, would the Insurers pay all of a R3m claim submitted during the third year if that was the first claim?”
- The answer is no, because the indemnity limits are not accumulated from one Period of Insurance to the next.
- The definition of an employee is wide and includes temporary staff as well as contractors who are treated like employees.
- When employees leave the employ of the Insured they are still considered employees for 90 days after they have left.
- This is important because these people sometimes retain their passwords and are able to use this and other ‘inside’ knowledge to commit a theft.
- Likewise, suppliers might not know that the employee left their employer and this also presents an opportunity for fraud.
Often thieves cause considerable damage in the course of committing crimes. Where the theft is covered by the policy there is also cover for the resulting damage to
- Physical records (e.g. arch level files and the cost of the paper in the file)
- Electronic storage media
- The following malicious damage caused by anyone (including employees) is covered:
- Electronic data (excluding damage caused by employees using a computer virus)
- Electronic storage media (e.g. computer memory stick, CDs, DVDs and computer hard drives)
- Computer programs
- Physical records (e.g. arch level files and the cost of the paper in the file) provided that they are damaged as part of a theft
- An important exception to this is that there is no cover for any loss caused by a non-executive who is director, partner, member or principal in the Insured.
- There is no cover for malicious damage caused to other property (including computers – except for the data storage media mentioned above).
- Although the policy covers events committed worldwide, Camargue only insures companies that are domiciled in South Africa.
- These companies can have foreign branches: losses arising out of those branches would also be covered.
- Many, if not most, South African companies have been the victim of theft committed by their own employees.
- Many South African companies have experienced losses as a result of third-party computer crime.
- Cover for theft committed by an Insured’s own employees is typically excluded from most insurance policies. There are exceptions such as Money policies.
- According to the IOL article published on 9 September 2011, Commercial crime hike ‘a big concern’, the incidence of white collar crime had increased by 76.5% since 2004.
- The effects of the economic downturn are likely to have an ever increasing effect over the next few years resulting in dramatic increases in the level of white collar crime.
A Commercial Crime policy protects the Insured’s money and other property against theft by employees. It also covers theft committed by non-employees through:
- Computer hacking
- Fraudulent transfer instructions
In addition the policy also covers
- The contractual penalties which businesses often face when they can't deliver as a result of the theft
- Malicious damage
The policy is not intended to cover ‘shrinkage’ where the loss cannot be attributed to a specific event.