United States

Insuring private clubs against employee crimes

An interview with L. Alan Lund


While private clubs are often serene environments where members are able to enjoy a feeling of security, crimes are still committed behind many gates and those crimes are sometimes committed by employees. L. Alan Lund, senior vice president at Brown & Brown Insurance in Florida, appreciates this reality and has focused much of his more than 40-year career on helping private clubs insure against employee crime.

Lund recently agreed to be interviewed by the professionals at McGladrey. What follows are several of the questions posed and his responses that highlight some concepts related to insurance options private clubs might want to consider discussing with their agents in order to protect themselves from employee crime.

Q:   What are the most common examples of employee dishonesty you see at private clubs?

A:   For the first half of my career, I could only cite general descriptions of the types of losses that would be covered by this type of insurance since none of my clients had never experienced a loss as a result of a dishonest employee. In the last few years, I have seen a variety of incidents occur at clients though. In every case, there was a common thread—the employee, once caught, indicated that he or she had come upon tough times and fully intended to pay it back.

Many of the losses involved surprisingly simple schemes. In one case, a bookkeeper routinely submitted a stack of checks for signature, one of which was for $400-500 to the local office supply store (an amount at or below the monthly budget). What was not clear was that the bookkeeper was only paying the monthly minimum but had also run up a substantial balance. One might ask what she was doing with all the office supplies she was buying. Actually, she wasn’t buying very much at all.  Instead, she was buying Visa Gift Cards.

In another situation, a trusted employee, an office manager, was given access to the corporate credit card and had over time accumulated a large number of purchases that were mostly for personal use.

Many others examples like these exist, but a common element in all of them is that the employees learned where the soft spots were in procedures and then exploited them. When employers develop and place a great deal of trust in an employee, they sometimes let their guard down and that is when employee theft can take place.

Q:   What types of insurance are available to clubs to help manage the risk of employee dishonesty?

A:   The cornerstone of the typical crime policy is employee dishonesty coverage. Most employers know that this covers employee theft, but it can be amended to cover third party theft by employees, which is a coverage that is often overlooked. In a country club setting, employees can sometimes have access to members’ property and valuables and the third party coverage extension could address this exposure. Other components of the crime policy include money and securities coverage, forgery and alteration, computer fraud and funds transfer fraud. These latter options go beyond the scope of an employer/employee relationship and address exposures not addressed by other types of insurance.  For example, many clubs, even those that operate via member charge accounts, have some form of cash exposure. In one case, a client indicated that the only cash they had on hand occurred when they rented out the facility to outside parties for weddings, etc. While many managers might jump to this conclusion, further discussion revealed another source of cash as the bar receipts could total $10,000 in cash.  This exposure is addressed with money and securities coverage on the crime policy.

Q:   What type of employee dishonesty insurance are you most disappointed that clubs do not have?

A:   The most commonly underserved areas involve third party employee dishonesty and funds transfer fraud with the latter being a somewhat new phenomenon. The best way to bring these potential exposures and many others to the surface is by means of a periodic comprehensive review conducted by an agent.

Q:   What other types of fraud can clubs insure against other than that committed by employees?

A:   As mentioned earlier, clubs can insure against forgery and alteration of various types of financial instruments, including checks, cash losses due to certain perils, such as robbery and burglary, and certain types of computer fraud. Other types of property are exposed to fraud, primarily via theft and are commonly insured as contents of the buildings. Mobile equipment, such as maintenance equipment and golf carts, are separately insured on an equipment floater policy.

Q:   Much is said and written about fraudulent activity involving the use of technology. Are private clubs able to hedge their exposure in that area with insurance products?

A:   Computer fraud is a rapidly evolving problem and the product solutions are evolving as well. It is important for club management and their agent to discuss thoroughly internal procedures and identify the exposures that exist. One potential loss scenario would be where an employee hacks into the computer systems of a group of members and changes the bank account and routing number to the employee’s personal account thus diverting members’ payments to that personal account. This type of loss can be addressed by computer fraud coverage. Had the club’s employee hacked into the members’ bank accounts directly then that exposure would be addressed by funds transfer fraud coverage. This latter coverage also addresses situations where an outside party hacks into a club’s computer system and is able to transfer funds to the hacker’s bank account. Since the club’s bank was not hacked in this situation, the bank would most likely not offer any restitution.

Q:   What about member fraud? What can clubs do in that area?

A:   If a member were to steal property belonging to the club, such as pro shop merchandise, this would be addressed by the traditional contents coverage mentioned earlier. More complex situations, such as a version of the hacking scenario previously discussed, would be addressed via one or more of the computer fraud coverage options available.

Q:   Any final thoughts that might be appreciated by private clubs?

A:   As you can imagine, a club cannot cover every situation imaginable with insurance so it is equally important to review internal procedures and controls frequently to close potential loopholes. A club’s insurance agent should be a part of the review process so that any new exposures can be identified and addressed. It is also important to remind readers that these insurance coverage options are subject to the terms and conditions of the specific insurance company providing coverage, so it is imperative to review the details of all policies thoroughly.

Lund may be contacted with questions at alund@bbhomestead.com.