In this practice area
Disputes under commercial crime and fidelity policies after employee theft, fraud, payment redirection, cyber fraud or social engineering losses.
When these disputes arise
Crime and fidelity insurance covers a business's own financial loss caused by dishonest conduct, most commonly theft or fraud by employees, and often third party fraud such as forged instruments, computer fraud and payment redirection. These policies are usually written on a discovery basis, responding to losses first discovered during the policy period, even if the conduct occurred earlier.
Disputes commonly concern whether the loss was a direct loss, whether the employee acted with the intent the policy requires, whether a social engineering or fake invoice loss falls within the computer fraud cover or a lower sublimit, when the loss was discovered, and whether notification and proof of loss were given on time.
The legal framework
Employee dishonesty clauses often require that the employee acted with the manifest intent to cause the insured a loss, or to obtain a financial benefit for themselves or another. Direct loss requirements exclude consequential losses, and many policies exclude loss caused by an employee after the insured learned of that employee's prior dishonesty. Social engineering extensions typically require verification procedures to have been followed, and carry sublimits.
The Insurance Contracts Act 1984 (Cth) applies, including section 54, which can assist where notice or proof of loss was late or a verification procedure was not followed, unless the omission could reasonably be regarded as capable of causing or contributing to the loss. The insurer's duty of utmost good faith under section 13 governs its investigation of the claim. Where criminal proceedings or recovery actions against the wrongdoer are underway, the insurer's subrogation rights and the insured's obligation to cooperate must be managed carefully.
How these matters run
A crime loss is often uncovered suddenly, and the insured must act on several fronts at once: preserving evidence, stopping further loss, reporting to police and banks, attempting recovery, and notifying the insurer within the time the policy requires. Most policies also set a period for delivering a detailed proof of loss.
The insurer will investigate how the loss happened, often with forensic accountants. Documenting the loss thoroughly, and linking each item of loss to the dishonest conduct, is central to the claim.
How GopherWood Lawyers acts
We act for businesses from the point of discovery. We coordinate notification and proof of loss, advise on recovery proceedings against the wrongdoer, including freezing orders where appropriate, and deal with the insurer's investigation and subrogation position.
Where cover is declined, we test the insurer's reliance on intent, direct loss, discovery and verification requirements against the wording and the Act.