Insuring Against Embezzlement

Court rules that insurance policy covered employees’ embezzlement.

Cincinnati Insurance Company v. Tuscaloosa County Parking and Transit Authority, 2002 WL 254108 (Ala. 2002).

A public charity purchased a "fidelity" insurance policy that provided coverage in the event of various kinds of employee theft or dishonesty. Over the course of a few years, two employees embezzled over $300,000 by issuing payroll checks to themselves in excess of their salaries. When the scam was detected, the charity sought to recover its losses from its fidelity insurer. The insurer denied coverage on the basis of a provision in the policy that excluded coverage for any "salaries." The Alabama Supreme Court ruled that the exclusion did not apply, since the employees' payment of amounts to themselves in excess of their stated salaries could not reasonably be construed as "salaries" and so the policy exclusion did not apply. It concluded, "Embezzled funds received in the form of payroll checks were not part of the employees' salary because those funds exceeded the fixed compensation that was to be paid for the services provided."

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