Employee theft and embezzlement: why does property insurance exclude it, and what covers it?

Fire and burglary top the lists of losses at business premises, but ask around among company managers and the picture is different: most SMEs have at some point been burnt by a warehouse worker, a cashier, a bookkeeper or a “trusted” long-standing colleague who for months took goods home, transferred money to themselves or ran invoices through a non-existent supplier. In 2026, too, the press reported one embezzlement and breach-of-trust case after another. As a broker, I see that the discovery of the loss is followed by a second disappointment: the company's property insurance does not pay for it. This article goes through why not, what employment law says about the employee's liability, and what the separate cover designed for this risk is.

Why does property insurance exclude theft by your own employee?

The logic of property insurance is the external, sudden, violent event: fire, storm, burst pipe, break-in. It is no accident that theft cover is called “burglary”: the conditions require forced entry, traces of it, or entry proven to have been gained with an unauthorised tool – I have described this in the articles on burglary and on theft committed with a key. Someone who takes from the assets entrusted to them with their own key, their own password, during working hours, is not breaking in and not robbing: they are embezzling, committing fraud or committing a breach of trust. One Hungarian insurer's all risks property insurance conditions, for example, state that the cover does not extend to theft (except burglary), nor to the disappearance of insured property as a result of fraud, breach of trust, embezzlement, extortion, inventory shortage, pilfering and other events of unexplained origin – the wording differs from insurer to insurer, the logic does not. The same is true of cash: under the cash cover, money kept in the till or the safe is insured against burglary and robbery, but not against misappropriation by the person handling it. The reason for the exclusion is simple: internal crime goes on for months, comes to light after the event, its amount can often be established only by reconstructing the accounts, and preventing it depends on the company's internal controls – this is not the world of fire and burglary risk but a separate class of insurance.

Theft, embezzlement, fraud, breach of trust: what is the difference, and why does it matter?

Among the offences against property in the Criminal Code (Btk.), everyday usage often blurs the terms, but the insurance and employment-law consequences are not the same. Under Section 370 of the Btk., theft is when the perpetrator takes another person's property from someone in order to appropriate it unlawfully – the warehouse worker who takes goods home is stealing. Under Section 372 of the Btk., embezzlement is when the perpetrator unlawfully appropriates another person's property entrusted to them, or disposes of it as if it were their own – the cashier who takes money from the takings entrusted to them is embezzling. Under Section 373 of the Btk., fraud is when someone, for unlawful gain, leads another person into error or keeps them in error and thereby causes loss – the purchasing officer who has invoices issued by a fictitious supplier. Under Section 376 of the Btk., breach of trust is when a person entrusted with managing another's assets causes financial loss by breaching their duty – typically the case of a colleague with managerial or financial decision-making powers. The distinction matters to the company because the facts of the criminal complaint must be stated precisely – according to an article in a labour-law journal, the authority may reject an incomplete or inaccurate complaint; the legal classification is the authority's job, while a precise description of the facts, supported by evidence, is the complainant's – and because the conditions of crime insurance also use these concepts to define what is and what is not an insured event. A police report is, incidentally, typically also a precondition of an insurance claim: without a criminal complaint, theft-type covers typically do not pay under the conditions.

What employment law says: how much can the company claim from the employee?

Under Section 179 of the Labour Code (Act I of 2012, Mt.), an employee must compensate for damage caused by breaching their obligations arising from the employment relationship if they did not act as would generally be expected in the given situation; for damage caused negligently, the compensation may not exceed four months' absence pay (távolléti díj) of the employee, but for damage caused intentionally or through gross negligence, the full damage must be compensated – theft and embezzlement are intentional, so the full damage can be claimed. Under the act, a collective agreement may raise the cap for negligent damage to eight months' absence pay. For employees handling money and goods, the law is stricter: for a shortage in items received for safekeeping with an obligation to return them or account for them, on the basis of a list or receipt, the employee is liable regardless of fault and is relieved of liability only by proving that the shortage was caused by an unavoidable cause – cashiers, cash handlers and those handling valuables bear this liability even without a list (Mt. Section 180), and separate rules apply to inventory shortages on the basis of an inventory liability agreement. So the damage can legally be claimed – in practice, however, the embezzled money is rarely still there, recovery from the employee's income takes years, and a civil claim brought in the criminal proceedings brings in no money either if there is nothing to pay it from. This is the point where insurance makes sense: it does not substitute for the employee's liability but for the fact that the money cannot be recovered.

Fidelity and crime cover: what it is for, and what it is not for

The cover known internationally as fidelity insurance or commercial crime insurance reimburses the direct financial loss caused to the company by a dishonest act committed for gain by an employee – and, depending on the conditions, possibly by an agent or a home-based outworker: misappropriated money or goods, a forged transfer, a fictitious invoice. Some conditions can be extended to transfer fraud committed by a third party and to payments obtained through fake instructions from a manager – the latter is an area bordering on cyber insurance, which is the subject of the article on cyber risk. The cover works according to its own logic, which is worth understanding before the company asks for a quote. The insured event is typically the discovery of the loss within the period of insurance, while the act itself may have taken place within a specified retroactive period; a continuous series of acts by one person usually counts as one loss event, with one deductible and one limit. The conditions typically exclude acts of the owners and executive officers themselves, losses “calculated” solely from inventory shortages or the profit and loss account, consequential losses and loss of profit; a criminal complaint is required, and the existence of internal controls (four-eyes principle, payment authorisations, stocktaking) must be declared when the policy is taken out. On the Hungarian market, this cover is offered by a few insurers, typically with an international background, mainly to medium-sized and large companies; for SMEs the offering is narrow, and pricing depends on the activity, the cash flow and the control system – I cannot promise anything here, only check whether there is an offer for a company of that size. Here, too, the insurer pays only for what is an insured event under your contract.

What should the company do – before a loss and after its discovery?

Before a loss, controls are worth more than insurance: cash handling and payments should involve two people, purchasing and invoice checking should not be done by the same colleague, stocktaking should be regular and independent, there should be written safekeeping or inventory liability agreements with the staff handling money and goods, and access rights should follow job roles. If the company is considering crime cover, the insurer asks about these when the policy is taken out, and the premium and the cover depend on the answers. After discovery, the order is: preserving the evidence (logs, camera footage, accounting records, e-mails) and securing it intact; involving a lawyer to state the facts of the criminal complaint precisely and to end the employment relationship – according to case law, summary dismissal on the grounds of loss of trust is possible, but its form and the reasons given for it are strictly regulated; the police report; and, if there is crime cover, reporting the loss on the insurer's claims line within the deadline set in the conditions, because under Section 6:453 of the Hungarian Civil Code (Ptk.) a delay has legal consequences if it makes it impossible to establish material circumstances. It is also worth reporting the loss to the property insurer if the theft also involved forced entry – there, the boundary is drawn by the definition of burglary in the conditions. As a broker, I do not act on the company's behalf in a claim; if the question is whether cover of this kind exists on the Hungarian market for the company's risk, and on what conditions, I help with this where I can.

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Sources

• UNIQA All Risks property and business interruption insurance conditions (31 July 2024), point 2.2.2(r) – exclusion of theft, fraud, breach of trust, embezzlement and inventory shortage; point 2.6.16 – definition of burglary
• Labour Code (Mt.) – Act I of 2012 (Section 179 the employee's liability for damages, Section 180 liability for items in safekeeping, inventory liability)
• Criminal Code (Btk.) – Act C of 2012 (Section 370 theft, Section 372 embezzlement, Section 373 fraud, Section 376 breach of trust)
• Hungarian Civil Code (Ptk.) – Act V of 2013, Section 6:453 (notification of the insured event, consequences of delay)
• Jogászvilág: What to do if an employee commits embezzlement or breach of trust?
• Pénzcentrum (3 June 2026): Embezzlement, fraud, breach of trust – what the Criminal Code (Btk.) says about these offences

Related articles

• Burglary and robbery: what does the insurer expect?
• Stolen with a key, by sneaking in, during opening hours: why is it not “burglary”?
• Cash and valuables: small items, separate rules
• Cyber risk and traditional property insurance: where's the boundary?