Declining Asset Values and Fidelity Insurance Coverage

As lenders discover losses from employee dishonesty, forgery and other fidelity risks in the current economic downturn, insurance companies have attempted to avoid coverage by arguing that the losses are attributable to declining collateral values rather than the fraud that initially induced lending. Acceptance of that argument would erode the fundamental protection of the fidelity and commercial crime insurance commonly purchased by financial and commercial policyholders.Fortunately, however, courts recently have recognized that the decline in real estate and other asset values does not constitute a basis for denying coverage for employee dishonesty, forgery and other covered losses.