Home > Property & Casualty > A look at the recent MBTA pass scam – would crime insurance pay?

A look at the recent MBTA pass scam – would crime insurance pay?

Massachusetts prosecutors announced a case against an employee of a contractor of the public transit agency, the MBTA. The contractor produced the monthly transit fare cards sold to tens of thousands of persons each month. The employee allegedly made many more of the passes and then sold them on websites like eBay and Craig’s List.

The scam had been going on since 2007 and is alleged to have garnered the employee in question as much as $4 million. The case was exposed by a train conductor who became suspicious that one of the cards did not look appropriate. Otherwise, they may not have been stopped since the cards worked in all of the transit agency turnstiles.

The MBTA General Manager has announced the agency’s intention to pursue full reimbursement from the contractor for its lost revenues. He also announced that he believes that the contractor is responsible under its contract with the MBTA to make good these losses. The agency also will move its business to a new vendor.

Assuming the likelihood that the perpetrator’s employer was unaware of the alleged fraud, there are some interesting insurance coverage questions that this case amplifies. First, does the MBTA have the possibility of filing a claim under its Crime Insurance coverage? Many standard language Crime Insurance policies might not pay for this claim without amendment for this type of loss. It is not a theft by an employee. And it is not a standard robbery by a third-party like a conventional hold-up.

For the contractor, this type of claim is often referred to as a Third Party Crime loss. Most businesses do not buy this coverage as part of their Crime Insurance. But the coverage is certainly available in the insurance marketplace.

The most curious matter, to this author, is that the MBTA did not notice that their passes were being sold online at such visible sites.

About the Author

Phil Edmundson is the Chairman and CEO of William Gallagher Associates (WGA), insurance brokers and consultants for businesses with over 30 years in the insurance industry. He manages strategy, talent acquisition and development, and management / acquisitions at WGA.

617.646.0229 | PEdmundson@wgains.com | Connect with Phil on LinkedIn |
Follow Phil @PhilEdmundson

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