Economic Downturn Affects Claims

September 17th, 2009

The current economic downturn in the United States has affected most segments of American business. The handling of crime related claims is no exception. The slump has produced substantially more claims than in previous years and insurers are taking a hard line on the degree of proof of those losses. The result is that claims are more difficult to prove and taking a great deal more time to settle.

Satisfactory proof of bonding claims requires that the insured (not the insurer) prove:

  1. that there was a a delfalcation by a covered employee,
  2. that the defalcation benefited the Principal under the bond or some other person or business for whom benefit was intended, and finally
  3. proof of the amount of the loss to the insured.

The standard of proof required of the insured has always been less than “beyond reasonable doubt” as required for a criminal conviction and in many cases less than the “proof by a preponderance of evidence” as required in civil cases. Most cases were settled on a good faith showing of prima facie evidence of the default and subsequent loss.

Several major bond and crime coverage underwriters are now demanding proof beyond a reasonable doubt…and more. In one recent matter handled by MAI, the Insured was called upon to produce more than 10,000 documents to prove its loss of more than US$3.5 million. This demand for evidence created a great burden of time and expense for the Insured. Where the bond or policy contains coverage for investigative and accounting expenses, these demands for seem less prevalent.

There are several strategies available to the insured at the time of suspicion or discovery of a loss that can pave the way to a timely and cost-effective filing of a satisfactory Proof of Loss. There are also mistakes that can complicate and delay the discovery and compilation of the necessary facts and data. MAI tries to take advantage of the early strategies immediately upon being retained in a bonding matter.

It has never been more important for the victim of white collar crime to get immediate advice from a knowledgeable professional whether it be your insurance agent or broker, an attorney that specializes in insurance matter or, of course, Management Analysts, Inc. Doing so can save thousands of dollars and months of time.