Protect Your Business from Employee Fraud & Dishonesty —
Fidelity Guarantee Insurance, the insurer

The fundamental difference is WHO causes the loss:

Burglary Insurance:
→ External threat — a stranger breaks into your premises by force
→ Requires visible, forcible entry (broken lock, forced door, etc.)
→ Employee theft is explicitly EXCLUDED from Burglary

Fidelity Guarantee Insurance:
→ Internal threat — your own employee, who has legitimate access, commits fraud
→ No forced entry needed — the employee already has the keys
→ Employee dishonesty (fraud, embezzlement, theft by employee) is the CORE cover

A thief who breaks your shop's lock and steals stock = Burglary Insurance claim.
Your cashier who skims from daily collections = Fidelity Guarantee claim.

Both policies cover entirely different risks and most businesses need BOTH. Together with Money Insurance (for cash in transit and safe), they provide complete theft protection.

From IRDAI definition:

Fraud or Dishonesty means: "The act of stealing, embezzlement, misappropriation, or fraudulent conversion by the employee."

Specifically covered:
→ Stealing: Taking money or stock belonging to the employer
→ Embezzlement: Taking money entrusted to the employee for safekeeping/use on behalf of employer
→ Misappropriation: Using employer's money or assets for personal purposes
→ Fraudulent conversion: Converting employer's property to personal use (e.g., selling company stock privately)
→ Forgery: Signing documents, cheques, or authority letters fraudulently
→ Larceny: Theft of money or goods from employer's custody

What does NOT qualify:
→ Unexplained inventory shortages (stocktaking discrepancies without proven employee fraud)
→ Trading losses (bad business decisions)
→ Negligence or incompetence (honest mistakes, even costly ones)
→ Consequential losses from the fraud (lost profits, business disruption)

The key is PROVABILITY — the loss must be proved to have been criminally misappropriated by a specifically identified employee.

Type 1 — Individual Policy:
→ Covers one specific named employee
→ Name + occupation + SI stated in schedule
→ Best for: Small businesses with 1–2 high-risk cash-handling employees

Type 2 — Collective Policy:
→ Covers multiple named employees with varying SI each
→ Schedule lists each person by name + duties + their individual SI
→ Best for: Mid-size businesses with several specific cash-handling staff
→ Limitation: Schedule must be updated when employees join/leave

Type 3 — Unnamed Floater Policy:
→ Covers a group of employees of the same status/class without naming individuals
→ Total group count is fixed; SI floats across the group
→ Claims reduce the floating SI (must be reinstated)
→ Best for: Retail branches with same-grade cashiers, or any rotating staff group

Type 4 — Position Policy:
→ Covers designations/roles, not named individuals
→ "Branch Manager" = ₹25L; "Head Cashier" = ₹15L — regardless of who holds the role
→ No schedule update when person changes — the position is covered
→ Best for: Large organisations, banks, NBFCs with frequent staff rotation

Call 022 4302 0000 — our specialists will recommend the right type for your specific business structure and help calculate the SI per employee/position.

The discovery period defines when you must DISCOVER the fraud for a claim to be valid.


The loss must be discovered:
→ During the policy period itself, OR
→ Within 12 calendar months of: (a) the policy expiring, OR (b) the employee's death, dismissal, or retirement from service
→ Whichever of these events occurs first is the trigger for the 12-month clock

Example:
Employee leaves on January 1, 2025. If you discover their fraud before January 1, 2026 — claimable. If you discover it on January 2, 2026 — not claimable. Even if you can prove the fraud conclusively.

Why this rule exists:
"Once the discovery period has expired, no claim can be raised even if a fraud is discovered at a later date. This is equitable, as the insured's system of check should be such that even the most serious defalcations should come to light within a reasonable time."

Practical implication:
Annual audits must be completed within the policy year. If an employee leaves, conduct an immediate audit of their accounts within a few months — don't wait a full year to discover what's missing.

Critical answer: Keeping a known-dishonest employee VOIDS your Fidelity cover for their future acts.

Confirmed from IRDAI policy wording: "Loss arising by an act committed subsequent to an earlier act of dishonesty which had come to the notice of the Insured / Insured's representative / supervisor" — is EXCLUDED.

What this means in practice:
→ If your accounts manager steals ₹2L and you discover it but give them "another chance"
→ They then steal another ₹5L
→ The second ₹5L is NOT covered by Fidelity — you bear that loss entirely
→ Even the first ₹2L may be complicated if it's linked to ongoing conduct

The rule extends to supervisors:
If a supervisor discovers an employee's dishonesty and doesn't report/act on it — the company is deemed to have knowledge. "Insured's representative/supervisor" knowing = Insured knowing.

What you MUST do:
1. Dismiss the employee immediately
2. Lodge police complaint
3. Notify the insurer
4. Begin recovery proceedings

There is no room for compassion in this situation if you want Fidelity cover to remain operative.

NO — Unexplained stocktaking shortages are explicitly excluded.

Confirmed from IRDAI policy wording: "Unexplained losses or shortages discovered at stocktaking are NOT covered."

Why this exclusion exists:
Stocktaking shortages can arise from many causes that are not employee fraud:
→ Accounting errors (counting mistakes, system errors)
→ Shrinkage (genuine breakage, expiry, wastage)
→ Administrative errors (incorrect stock entries)
→ Supplier short-deliveries
→ OR genuine employee theft

Fidelity Guarantee covers only losses PROVED to have been caused by a specific employee's criminal misappropriation. A general shortage number from a stocktake — without identifying which employee stole what — does not qualify.

What you need for a valid Fidelity claim on stock:
→ Identification of which specific employee is responsible
→ Evidence that the employee fraudulently took or diverted the stock (CCTV, transaction records, employee admission, audit trail)
→ Quantification of the loss attributable specifically to that employee

Moral: Never rely on Fidelity as your only protection against stock loss. Combine with proper inventory controls, CCTV, and regular stock audits.

"Preferably the policy should be restricted to cover only full-time employees." (confirmed from Link-K/IRDAI underwriting guidance)

What this means:
→ Full-time permanent employees: Fully eligible — standard Fidelity cover
→ Part-time employees: May be coverable but requires specific declaration and the insurer's acceptance
→ Contract staff: Can be covered if declared — typically requires declaration of contract duration, nature of duties, and level of access to financial assets
→ Temporary staff: Can be declared but each case is assessed individually by the insurer
→ Outsourced/agency staff: Typically excluded from the insured's own Fidelity policy — they are employed by a third-party agency, not directly by the insured

Key consideration:
If you use contract or temporary staff for cash-handling, stock management, or accounts — declare them to the insurer at policy inception. Covering only some employees while omitting others who also handle cash can create gaps.

Call 022 4302 0000 for specific guidance on covering non-permanent employees under Fidelity Guarantee — our specialists can advise based on the insurer's current underwriting appetite.

Immediate actions — in this order:

Step 1 — Dismiss/Suspend the employee immediately
Do not allow the employee to continue in their role. If dismissal requires HR process, suspend immediately. Any further theft by a known-dishonest retained employee is NOT covered.

Step 2 — Secure all relevant documents and access
Revoke the employee's system access, collect company assets (laptop, keys, ID), and secure all financial records they had access to — before they can destroy evidence.

Step 3 — Call the insurer (022 4302 0000) immediately
Written notice to the insurer as soon as possible. The discovery period clock starts from when you discover the fraud — early notification protects your claim.

Step 4 — Lodge police complaint / FIR
File FIR against the employee. the insurer's confirmed condition requires you to prosecute the employee. Police complaint is essential for the claim and for preventing the employee from repeating the fraud elsewhere.

Step 5 — Compile evidence
Don't disturb financial records. Engage your accountant/auditor to quantify the exact loss with supporting documentation — bank statements, cash records, stock records.

Step 6 — Attempt recovery
Begin legal proceedings to recover the stolen amount from the employee. Any amount you recover after the insurer settles your claim must be returned to the insurer up to the amount paid.

This is a nuanced question answered by a landmark NCDRC case involving Probitas Insurance Brokers itself.

The NCDRC confirmed:
In a case where an employee of a collateral manager committed fraud causing loss to both the employer and the bank (Dena Bank), NCDRC held that the insurer's Fidelity Guarantee policy covered the employer's direct pecuniary loss — even though the loss manifested as the employer's liability to the bank.

The court found: "When the employee entrusted with the safe custody of the goods committed a fraudulent act, the resultant financial liability imposed on the complainant was a direct consequence of that employee's infidelity, squarely within the scope of the policy coverage."

What this means practically:
→ If your employee's fraud creates a liability for your company to a client, the insurer's Fidelity may cover that loss as a "direct pecuniary loss"
→ However, the insurer initially argued this was "indirect" or "contractual" — courts disagreed in that case
→ Each case is fact-specific

Important:
This is not a guaranteed outcome in every case. For businesses that hold third-party assets (warehousing, collateral management, trust management), discuss with 022 4302 0000 whether your specific Fidelity policy wording covers third-party loss scenarios or whether an additional endorsement is needed.

Your internal control quality affects Fidelity in TWO critical ways:

1. PREMIUM (at policy inception):
the insurer evaluates your accounting system, supervision practices, and internal checks before issuing the policy. Businesses with strong controls are considered lower risk and may receive better premium terms. Confirmed from underwriting guidance: "The proposal should be considered from firms of reputed standing whose business methods including accounting system, supervision and checks have to be satisfactory."

What strong controls look like:
→ Monthly financial reconciliation
→ Segregation of duties (cash handling ≠ reconciliation)
→ Dual authorisation for payments above threshold
→ Regular internal/external audits
→ Periodic staff rotation in financial roles

2. CLAIM ELIGIBILITY (at claim time):
Confirmed from IRDAI: "Loss due to non-observance or relaxation of system of checks and precautions" — EXCLUDED. If the fraud succeeded because you abandoned your agreed internal controls, the insurer can deny the claim.

Specifically: if you agreed to conduct monthly audits and didn't, and a fraud went undetected that would have been caught in the agreed audit — your claim is vulnerable.

Practical conclusion:
Your internal controls are not just best practice — they are the foundation of your Fidelity Guarantee coverage. Maintain them consistently. If you change your control structure, notify the insurer in advance (changing controls without the insurer consent is itself an exclusion).