Collusion is the case where an employee and a third party act together, and it deserves a lesson because it escapes the product's very structure. A crime policy separates internal from external, with distinct definitions, conditions and sometimes sub-limits. Collusion is neither: it is an act by two, each half of which, taken alone, fails the definition that would fit it. It is the configuration where a real loss stands the greatest chance of being covered by nobody.
The commonest form is shared over-invoicing. A buyer accepts inflated prices from a supplier, who pays part back. Seen from the supplier's side there is no misappropriation: it invoiced, the company approved, it was paid. Seen from the buyer's side there is no outflow to his benefit in the company's accounts: he signed purchase orders. The loss is nonetheless certain and quantifiable, and it is worth the difference between the price paid and the market price.
Two other forms recur and are handled differently. The invoicing of fictitious services, where the third party exists only on paper and the demonstration is simpler because it suffices to establish that nothing was delivered. And the rigging of a tender, where the third party is real, the work performed, and the loss is not an undue payment but an overcharge, which is hardest to quantify and often largest in amount.
One must know what wordings make of all this, and they do three different things. Some name collusion and include it expressly, which settles the question. Others do not name it and leave the insured to show that the employee's act, taken in isolation, falls within the definition of misappropriation, a hard demonstration because the employee took nothing directly. Others exclude it, on the ground that the loss arises from a contract the company itself performed. A professional must know which of the three it holds, and that reads in a minute.
The evidential difficulty is particular and must be described. In ordinary internal fraud the money goes from the company's account to the employee's, and the path can be traced. In collusion the money goes from the company to the supplier, which is regular, then from the supplier to the employee, which does not appear in the company's accounts. The proof therefore lies outside: in the employee's assets, in the supplier's flows, in exchanges. It is the only case in this line where the insured must demonstrate something that appears nowhere in its own records.
The question of recourse must be added, and it is more promising here than elsewhere. The supplier is solvent, identifiable and often still in a business relationship. Part of the loss is therefore recoverable contractually, and that route must be preserved from day one: do not settle outstanding invoices, do not sign a general release, do not renew the contract while things are unclear. An insurer that indemnifies will be subrogated to those rights, and an insured that abandoned them will have that raised against it.
The discipline comes to three steps. Read, before any loss, what your policy makes of collusion, knowing that silence is not inclusion. On a file, build the demonstration on the employee's act, the only one most wordings allow to be invoked, rather than on the overall loss that leaps to the eye. And preserve the recourse against the third party from day one, because that is where the money is and because abandoning it out of commercial awkwardness is paid for twice.
A contract catering group discovers that a regional purchasing manager and a fresh produce supplier had been acting together for three years. The supplier invoiced prices 11 percent above market on an annual volume of 2.4 million euros, and paid the manager back around 90,000 euros a year through a consultancy owned by his sister-in-law. The manager is dismissed. The supplier, representing 18 percent of the region's supply, offers to continue the relationship at market prices and to make a commercial gesture of 150,000 euros, subject to a global settlement agreement. The crime policy covers "the misappropriation of funds or securities committed by an employee, alone or in concert with a third party". What should be done?
The wording is the best of the three possibilities and that should be measured at once: "alone or in concert with a third party" names collusion and includes it, which removes this lesson's principal difficulty. The question therefore becomes evidential and strategic, not definitional. On quantum, two figures the file conflates must be distinguished. What the manager received, around 270,000 euros over three years, is the easier to prove, through the consultancy's flows. What the group lost is something else and it is more: 11 percent overcharge on 2.4 million a year for three years, of the order of 790,000 euros, to be established by comparison with documented market prices. It is that second figure that founds the claim, and the first serves to establish the act rather than to measure the loss. On proof, collusion's particular difficulty is present: nothing in the group's accounts shows a payment to the manager, since the money passed through the supplier and then a third company. The demonstration is therefore built outside, on the flows to the consultancy and on the family link, and those elements must be secured before they disperse. The supplier's offer is the file's real trap, and it is skillful. A global settlement at 150,000 euros would discharge a loss of the order of 790,000, and above all it would extinguish the recourse against the only solvent actor, at the precise moment when the insurer, if it indemnifies, will be subrogated to that recourse. Signing it would mean giving away the right the insurer buys by paying, and it will be raised against the group. Three steps follow. Sign nothing with the supplier, do not settle outstanding invoices, and inform the insurer of the offer rather than deciding alone. Document the period's market prices, which is quantum's central document and can still be reconstructed. And treat the commercial dependency, 18 percent of supply, as a subject separate from the loss: it is real, and it must not decide the insurance file.
- 01Collusion is neither internal nor external: each half, taken alone, fails the definition that would fit it.
- 02Three possible wordings: named and included, passed over in silence, excluded. Silence is not inclusion.
- 03The proof lies outside the insured's accounts: money goes from the company to the third party, which is regular, then to the employee, which does not show.
- 04What the employee received establishes the act; what the company lost founds the claim, and the two figures are not the same.
- 05The third party is the only solvent actor: a settlement signed with it extinguishes the recourse the insurer will be subrogated to, and it will be raised against you.