Employee’s Stolen Wages Not Covered by Employer’s Insurance for “Employee Dishonesty”

By Ted Olsen

Bishop Fulton Sheen is credited with the adage, "The big print giveth and the fine print taketh away."  No words were more apt in a recent case arising in Iowa, R&J Enterprizes v General Casualty Co. of Wisc., 2010 U.S. App. LEXIS 25616 (8th Cir. Dec. 16, 2010).  Although the employer in that case had purchased special optional insurance for losses resulting from acts committed by employees with the intent to "[o]btain financial benefit. . . ," the Eighth Circuit held that other language in the policy precluded coverage for employer losses of more than $100,000 caused by employee time card fraud and the employer's overpayment of wages.

An R&J service technician, over a five-year period, overstated his working hours on his time card, resulting in his overpayment.  The insurer denied coverage when the employer submitted a claim for these losses, as ". . . salaries . . . or other employee benefits earned in the normal course of employment" were exceptions to the special "employee dishonesty" coverage. 

The Court rejected the employer's argument that the service technician had not "earned" the overpaid wages, and therefore, the exclusionary language should not apply.  Whether the employee had or had not earned the wages, there was no dispute that the money at issue had been paid to him in the form of wages earned in the normal course of employment.