Does my policy cover a resident trust fund shortfall?

Facilities routinely hold personal funds on behalf of residents, in a pooled or individual trust account, so residents can access spending money without managing a bank relationship themselves. For facilities participating in Medicare and Medicaid, the management, accounting, and assurance of those funds is governed by federal requirements at 42 CFR Part 483.

That makes a shortfall in the account two problems at once: a financial loss, and a regulatory violation of an obligation the facility accepted as a condition of participation.

A commercial crime policy insures loss of money, securities and other property belonging to the insured, or property held by the insured for which it is legally liable. Resident personal funds sit in a different category: they are not the facility money, they are held in a fiduciary capacity.

Some forms reach them and some do not, and the difference is usually a specific extension for property held in a fiduciary capacity or an explicit resident personal funds endorsement. Where neither is present, an employee theft from the trust account can produce a loss the crime policy declines while the regulatory obligation to make residents whole remains.

First, that the extension is actually endorsed on the policy rather than described in a proposal. A proposal is a sales document; the endorsement schedule is the contract.

Second, that the limit is sized against the actual aggregate balance the trust account carries, not against a nominal figure chosen years ago. Trust balances grow, and an operator who has added facilities has added balances.

Third, how the discovery and reporting provisions work. Trust fund shortfalls are typically found through reconciliation rather than through an obvious event, sometimes long after the loss began, and a policy with a short discovery window can decline a loss that occurred while an earlier policy was in force.

Insurance is the backstop here, not the answer. The control is regular, independent reconciliation of the trust account, performed by someone who does not have custody of the funds, with the reconciliation retained.

That record is what a surveyor asks for, and it is also what makes an insurance claim provable. A facility that cannot demonstrate what the balance should have been has difficulty establishing the amount of its loss even where coverage clearly applies.

Resident trust funds are one of two crime exposures specific to this industry. The other is resident personal property and the financial information of a population that is a preferred target for identity fraud, across a large staff with unsupervised access.

Alongside both sits the general business exposure to funds transfer fraud and social engineering, where an employee is deceived into sending money to a fraudulent account. That sublimit is usually far smaller than the main crime limit, and it is increasingly where the actual dollar losses occur. Check it specifically, because the headline crime limit tells you nothing about it.