DON
MCGARVEY
The economic downturn of
the past few years has forced
many businesses to face a harsh
reality: Some of their employees
are dishonest. This unfortunate
fact has focused fresh attention
on fidelity insurance as a way to
effectively manage the risk of in-house fraud.
Fidelity insurance provides
coverage for losses resulting from
fraud, theft or other crimes
perpetrated by employees,
whether they are acting alone or
in collusion with others.
Since the economic downturn
in 2008, many of us who practice
in the area of fidelity insurance
have noticed an increase in claims
activity. Whether this means
there is more fraud today than
during more prosperous economic times is open for debate.
There are two schools of thought
here: In difficult times, employees are more likely to engage in
dishonest conduct at the expense
of their employer to make ends
meet; the second is that during
tougher economic times employers are more likely to scrutinize
their books and employees more
carefully, thereby uncovering dishonest conduct that may have
been present for years.
Mark Abbott, for one, subscribes to the latter: people steal
from their employer all the time,
but their crimes are more likely
to get exposed by questioning
managers or co-workers who
become more vigilant during
tough economic times.
As assistant vice-president of
fidelity claims for Chubb Insur-
Fidelity insurance
provides coverage for
losses resulting from
fraud, theft or other
crimes perpetrated by
employees, whether
they are acting alone or
in collusion with others.
don mcGarvey,
mcLennan ross LLp
ance Co. of Canada, the largest
writer of fidelity insurance in
Canada according to the most
recently published industry sta-
tistics, Abbott describes a phe-
nomenon he terms the “top pro-
ducer syndrome.” It involves a
seemingly high-achieving indi-
vidual in a relationship-manag-
ing capacity who begins taking
advantage of some of the liber-
ties of his or her role for addi-
tional improper personal finan-
cial gain. “Like Icarus, these
star performers can rise up only
to fly too close to the sun, melt-
ing their own wings and
resulting in a dramatic fall,”
Abbott says. “In the process,
they can cost their employers a
great deal of money, not to men-
tion embarrassment.”
Numerous high profile Ponzi
schemes and rogue traders cases
have filled the financial news in
the past few years that speak to
the need for the protection
offered by fidelity insurance.
While cases such as Bernie Mad-
off’s have been much publicized,
smaller frauds are being uncov-
ered every day by small- and
medium-sized employers.
honesty, extending to burglary
and losses as a result of counter-
feit, forgery and computer crime.
Fidelity insurance, contrary to
the views of some, is not “fraud
insurance” or liability coverage. It
is first-party insurance for “direct
financial loss” sustained as result
of an employee’s “dishonest or
fraudulent acts.” That direct financial loss can’t be for employee
benefits such as wages, salaries,
commissions and the like.
Coverage isn’t triggered until
several additional conditions in
the insuring agreement are met.
For example, the employer must
be able to demonstrate a two-fold
intention: that the rogue
employee had both an intention
to cause the direct financial loss,
as well as to either personally
profit or cause a profit to be realized by another party at the
expense of the employer.
Attention also must be paid as
to when the loss was discovered—it must be within the
policy period or a specified period after the end of the period.
Typical exclusions in fidelity
coverage include consequential
loss (for example, it does not
recover potential income that
could have been earned if not for
the wrongful or fraudulent act of
the employee).
Don McGarvey is a partner with
McLennan Ross LLP practicing in
the areas of commercial litigation
and commercial insurance.
Court highlights evidence preservation
The importance of ensuring
that effective institutional protocols are in place to preserve evidence, in advance of receiving
formal notice of litigation, was
recently highlighted in a Georgia
court decision, which arose from
a motor vehicle accident on a
rain-soaked road.
In Algeria v. Howard and
AAA Transportation Inc., the
Georgia court was reported to
have determined that the
defendant trucking company
had, among other things, commenced repairs to its truck
within days of the collision. The
presiding judge concluded that
she did not believe “that a company of such substantial size and
intentional destruction of evidence relevant to continuing or
contemplated litigation in circumstances where a reasonable
inference can be drawn that the
evidence was destroyed to affect
the litigation.
The principal remedy for the
spoliation of evidence is the
imposition of a rebuttable presumption that the lost or
destroyed evidence would not
assist or would be unfavorable to
the spoliator. In such cases, the
presumption can be rebutted by
showing that the spoliator did
not intend, by destroying the evidence, to affect the litigation or
by other evidence prove or repel
the case. Other remedies avail-
MICHAEL J. L. WHITE
means, in tandem with its
learned counsel, could inadvertently make so many mistakes”
and ultimately struck the trucking company’s defence.
In Canada, as noted by the
Alberta Court of Appeal in
McDougall v. Black & Decker
Canada Inc., a finding of spolia-
tion does not occur merely
because evidence has been
destroyed. The current state of
the law of spoliation requires the
able to the court have included
financial sanctions or, in rare cir-
cumstances, dismissal.
