1. Recovering Employee Dishonesty Claims
David P. Bender, Jr., Haynes and Boone, LLP
Christopher Giovino, Aon

2. Crime Pays: Recovering Employee Dishonesty Claims
CFE’s estimate that occupational fraud amounts to 5% of gross revenues
Median Loss caused by occupational fraud was $140,000
20% involved losses of at least $1 million
Typical fraud lasted two years

3. Crime Pays: Recovering Employee Dishonesty Claims: Context
Of the reported domestic cases
40% committed by employees ($60k)
37% committed by managers ($180k)
17% committed by owners/executives ($485K)
65% MEN; 35% WOMEN
Size of loss correlates with annual income level, tenure, age, education, level of collusion
87% were first-time offenders
36% judged as “living beyond their means”
27% experiencing financial difficulties

4. Crime Pays: Recovering Employee Dishonesty Claims: How Fraud Occurs
Incentive or pressure to perpetrate a fraud
Business (making the “number”)
Personal (usually financially motivated)
Opportunity to carry out a fraud
Access to assets
Inadequate or nonexistent controls
Authority to dissuade detection
Attitude and ability to rationalize fraudulent action
Management culture
Financial aggressiveness

5. Crime Pays: Recovering Employee Dishonesty Claims: First Step When Fraud Suspected
The Policyholder’s Team
In-house and outside counsel
Security and internal audit teams
Investigative specialist and forensic accountant
Broker claims advocate
Business representatives
The Insurer’s Team
In-house adjuster (usually an attorney)
External counsel (acts as adjuster and potentially litigation counsel)
Forensic accountant (usually represents only insurers)

6. Crime Pays: Recovering Employee Dishonesty Claims: The Investigation
The Internal Investigation
What are the objectives?
Factual determination of events
Preliminary quantification of damages
Determination of coverage and probable recovery
Who conducts?
In-house counsel and internal audit staff
External counsel and investigative specialists including forensic accountant

7. Crime Pays: Recovering Employee Dishonesty Claims: Typical Mistakes
Lawyers with no insurance coverage experience
Reliance on Law Enforcement
Missing Deadlines
Reliance on Insurer Team for Proof of Loss

8. Crime Pays: Recovering Employee Dishonesty Claims: Evidence Needed
Damages Quantification and Proof
Calculate – do not estimate
Insurers have no incentive to pay “estimates”
Fine creative ways to quantify damages
Use historical trends
Identify statistical anomalies
Prepare to defend any assumptions

9. Just What is a Proper Proof of Loss???
The carriers ALL expect the insured to provide them with a FULL report
BAD – What will most always get you in trouble is executing their “form” and sending batches of documents and data
BEST – What they really want: Their executed and notarized “form” supported by a solid comprehensive narrative; accurate quantification with schedules and workbooks ... and a repository of all supporting documents that they can search

10. Crime Pays: Recovering Employee Dishonesty Claims: Other Tools
Civil Litigation

11. Crime Pays: Recovering Employee Dishonesty Claims: What To Expect
Expect Pushback
Typical Conditions Defenses
Failure to give prompt notice of loss
Prejudice subrogation rights
Failure to disclosure prior acts of fraud or dishonesty
Involvement of officers in the fraudulent scheme
Failure to prove “manifest intent”
Typical Damages Defenses
Loss not fully documented or proven
Claim includes indirect, consequential, or excluded losses (e.g., potential income)
Loss does not reflect credits for recovery

12. CONTACT LIST David P. Bender, Jr. Haynes and Boone, LLP 214-651-5223
Christopher J. Giovino
Director, Aon Global Risk Consulting
Aon Risk Solutions