Crime and fraud

Employee theft and fraud insurance: how fidelity cover works in the UK

Reviewed by the Apex broking team · Last reviewed 2026-10-29

Employee theft and fraud insurance, often called fidelity or employee dishonesty cover, pays for money, goods or securities your business loses through the dishonest acts of its own staff. It matters because internal fraud often runs for years before anyone notices.

Part of: Commercial crime insurance

In short

Fidelity cover sits within a commercial crime policy, or as a section of a management liability package, and responds when an employee steals from the business or defrauds it. The key questions are which trigger the policy uses, discovery or loss-sustained, whether directors and partners count as employees, and whether you can prove the amount lost. Losses calculated only from stock or profit shortfalls are commonly excluded. Cover usually stops for any employee once you know of their dishonesty. All cover is subject to the insurer's acceptance and the policy terms.

What employee dishonesty looks like

Internal fraud is usually unglamorous and slow: a bookkeeper paying fake invoices to a company they control, a payroll clerk adding a ghost employee, a warehouse supervisor selling stock out of the back door, or a sales manager inflating expenses. Because the person is trusted and understands your controls, the loss can grow over many years.

Illustrative: a family-owned wholesaler's long-serving finance manager creates a dormant supplier on the ledger and pays it small, regular sums. A new auditor spots that the supplier's bank account matches the manager's. Forensic review finds £186,000 paid over six years.

See our fidelity guarantee insurance entry for the older terminology you may meet in contracts.

The legal definitions behind the cover

Crime wordings usually require a dishonest or fraudulent act, sometimes with an intention to cause loss to the business or gain for the employee. That tracks the criminal law. Under section 1 of the Theft Act 1968, a person is guilty of theft if they dishonestly appropriate property belonging to another with the intention of permanently depriving the other of it.

The Fraud Act 2006 sets out three ways of committing fraud: false representation, failing to disclose information, and abuse of position. Section 4 covers someone who occupies a position in which they are expected to safeguard another person's financial interests and dishonestly abuses it. That describes most finance staff fraud.

A conviction is not normally required before an insurer pays, but the policy wording decides what evidence is needed. Many wordings simply require the loss to result directly from the dishonest act.

Discovery vs loss-sustained: which trigger applies

Because internal fraud is often found long after it started, the trigger is one of the most important terms in the policy.

Feature	Discovery basis	Loss-sustained basis
Which policy responds	The one in force when the loss is discovered	The one in force when the loss happened
Older acts	Usually covered back to a retroactive or continuity date, if one applies	Only if a policy was in force at the time, with run-off or prior-loss terms
Changing insurer	Continuity of cover dates matter	Gaps can appear unless the new policy picks up prior losses
After the policy ends	Often a short discovery period, if any	Can respond to losses during the period found later, within a time limit

Discovery is commonly defined as the moment a senior person, such as a director or risk manager, becomes aware of facts that would cause a reasonable person to believe a covered loss has occurred, even if the amount is unknown. That moment also starts the clock on notification, so delay can be costly. Our dishonesty of employees cover under PI guide explains how a similar idea works in professional indemnity, where the loss is to a client rather than to you.

Proving the loss

Insurers pay what can be shown, not what is suspected. Claims commonly stall on proof rather than cover.

Inventory and profit shortfalls: many wordings exclude losses whose existence or amount depends solely on stock counts or profit comparisons. You need evidence linking the shortfall to a specific dishonest act.
Identified employee: some policies require the dishonest person to be identified, others accept proof that an employee was responsible without naming them.
Documents: bank statements, ledger audit trails, emails and access logs. Do not let a suspected employee keep access to systems once you act.
Investigation costs: forensic accountants' fees to establish the amount may be covered as an extension, often sub-limited, and usually only with consent.

Recoveries, such as money frozen or repaid by the employee, are normally applied to reduce the claim.

Common conditions and exclusions

Prior knowledge: cover for an employee usually ends once a director or senior manager learns of any previous dishonesty by them, whether at your business or elsewhere.
Owners and directors: majority shareholders, partners or owner-managers may be excluded or treated differently, because insuring an owner's own fraud against the business is problematic.
Collusion and third parties: fraud by outsiders working with staff is often covered, but losses caused purely by outsiders may sit in a different section.
Controls: proposal forms ask about segregation of duties, reconciliations and audits. Answer carefully: the fair presentation duty under the Insurance Act 2015 applies.

For how a dishonesty exclusion works in other policies, see dishonesty exclusion.

Crime policy or management liability section?

Smaller firms often buy employee dishonesty as part of a management liability package alongside D&O and employment practices cover. That can be cost-effective, but the crime limit may be modest and occasionally shared with other sections. A standalone commercial crime policy usually offers higher limits and more extensions, such as social engineering and funds transfer fraud. For outside impersonation risks, compare CEO fraud and deepfake scams and crime vs cyber cover.

How Apex helps

Apex arranges commercial crime and fraud cover, including employee fidelity. A broker reads each enquiry and comes back with options, and there is no fee for a quote. Cover is subject to the insurer's acceptance and the policy terms. We need your business activities, turnover, location and claims history, plus staff numbers, who can make or approve payments, how often accounts are reconciled and audited, and the limit you want.

Sources

Frequently asked

Does business insurance cover theft by employees?

Not usually under standard contents or property cover, which commonly exclude theft by employees. Staff dishonesty is normally insured under a fidelity or employee dishonesty section of a commercial crime policy, or within a management liability package. Cover is subject to the insurer's acceptance and the policy terms, including any trigger and proof requirements.

What is the difference between discovery and loss-sustained crime cover?

A discovery policy responds to losses discovered while it is in force, even if the fraud started years earlier, subject to any retroactive date. A loss-sustained policy responds to losses that happened while it was in force. Discovery is common for internal fraud because it is often found long after it began.

Do I need the employee to be convicted before I can claim?

Usually not. Most crime wordings require proof that the loss resulted directly from a dishonest act by an employee, not a criminal conviction. You still need evidence, typically bank records, ledger trails and a forensic accountant's report. Some policies require the employee to be identified, so check the wording.

Are directors covered for stealing from their own company?

It varies. Many policies treat directors and officers as employees for some purposes, but majority owners, partners or sole shareholders are often excluded or limited. The reasoning is that a business cannot easily insure against fraud by the people who control it. Check the definition of employee carefully.

What happens to cover once we know an employee has been dishonest?

Cover for that person normally stops as soon as a director or senior manager learns of their dishonesty, including dishonesty before they joined. If you keep them in a role handling money and they steal again, the later loss is unlikely to be covered. Record what you knew and when.

How much employee dishonesty cover should a business buy?

There is no set rule. A common approach is to look at the most money one person, or two people acting together, could move before your controls would catch it, such as the gap between reconciliations or audits. Payment approval limits, cash and stock values and how long a fraud could run undetected all feed into the figure.

Talk to a broker about this cover

Tell us what your business does, your turnover and any claims. A broker reads every enquiry and comes back with options. No fee for a quote. Or call 0117 325 0027.

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Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales, company number 07014570. This page is general information, not advice on your individual circumstances, and it does not guarantee that cover will be available or on what terms.