Peeling Back the Layers of Produce Insurance Fraud Coverage

Fraud in the produce supply chain is increasingly sophisticated and frequent, with threats ranging from spoofed buyers and payment diversion schemes to double-brokering loads and cargo theft.

The fast-paced and volatile nature of the produce industry creates an ideal environment for such fraud, as participants often lack the time to independently verify information before making critical decisions. These risks can result in significant financial losses.

Recovery is often limited, even through law enforcement or litigation. Fraudsters now use AI-generated communications, deepfakes, and automated impersonation tools, elevating fraud risk for produce businesses.  Produce suppliers are often left with few options for recourse, but a well-structured insurance program can significantly reduce exposure and improve recovery prospects.

Many produce businesses mistakenly assume that their general liability insurance will cover fraud-related losses; however, general liability policies are designed to cover bodily injury and property damage claims brought by third parties and do not extend to financial losses arising from fraud, theft, or deceptive schemes.

A significant coverage issue in fraud-related losses is the “voluntary parting” exclusion. This is one of the most common and most misunderstood coverage gaps in fraud-related losses.  This exclusion may bar coverage when a business is induced by fraud to transfer title to or possession of goods in what appears to be a legitimate sales transaction. In those circumstances, a loss that looks like theft may be excluded from coverage. A typical voluntary parting exclusion reads: 

“Voluntary Parting. Except as provided under Coverage Extensions – Fraud and Deceit, we do not pay for loss caused by or resulting from voluntary parting with title to or possession of any property because of any fraudulent scheme, trick, or false pretense.”

To address evolving fraud risks, businesses should consider how these seven types of insurance can strengthen their overall risk management strategy. Policy exclusions vary widely, so each should be reviewed carefully.

1. Trade Credit Insurance (Accounts Receivable Protection)

Trade credit insurance protects against non-payment by buyers due to insolvency, protracted default, or, in some cases, fraudulent buyers. Coverage may be limited by exclusions such as voluntary parting.

This coverage is particularly relevant in the produce industry, where buyers may disappear after delivery, leaving sellers with uncollectible receivables. However, coverage often requires pre-approval or credit limits on buyers, and fraud protection may be limited or subject to specific conditions.

2. Crime Insurance (Fraud & Social Engineering Coverage)

Crime insurance addresses losses from fraud, including business email compromise, payment diversion schemes, and impersonation of buyers, vendors, or executives. In the produce sector, many fraud schemes involve altered wiring instructions or spoofed identities, making this coverage highly relevant.

However, standard policies often exclude social engineering fraud unless specifically endorsed, so it is critical to confirm the presence of “social engineering” or “impersonation fraud” endorsements.

Be aware of potentially low sublimits relative to transaction sizes and verify whether voluntary parting exclusions apply, as these can significantly impact the scope of protection.

In addition, as a condition of coverage, the insured may be required to maintain and comply with specific data security protocols (such as dual verification procedures). 

3. Cyber Liability Insurance

Cyber liability insurance addresses risks such as data breaches, network intrusion, and certain fraud-related losses, which sometimes overlap with crime policies.

In the produce industry, many fraud schemes originate from compromised email systems or vendor data, and cyber policies may also cover incident response costs. Similar to crime insurance, cyber liability policies may condition coverage on the insured’s adherence to specific data security standards and protocols.

It is important to understand where cyber and crime coverage overlap or leave gaps, and to confirm that the policy covers funds transfer fraud triggered by cyber events. Careful coordination of these policies can help ensure comprehensive protection against evolving cyber threats.

4. Cargo Insurance

Cargo insurance provides protection for physical loss or damage to goods in transit, including theft, a critical safeguard in the face of double-brokering schemes that often result in stolen loads after pickup.

To ensure effective coverage, policies should be structured to apply to theft by fraudulent carriers and should be reviewed for exclusions. When relying on third-party carriers, contingent cargo coverage may be necessary. Policy terms should be reviewed carefully to avoid coverage gaps.

5. Contingent Cargo & Logistics Liability Coverage

Contingent cargo and logistics liability coverage steps in when a contracted carrier’s insurance is unavailable, insufficient, or invalid, which is a frequent issue in double-brokering scenarios where the “carrier” hired is not the actual carrier and likely lacks proper insurance.

This coverage is especially critical for brokers and shippers who rely on third-party transportation. Insurers often require strict carrier vetting protocols to trigger coverage, so maintaining robust operational procedures is not only best practice but also a prerequisite for insurance recovery.

6. Errors & Omissions (E&O) / Professional Liability (for Brokers)

Errors & Omissions (E&O) or professional liability insurancecovers negligence in arranging transportation or vetting carriers, which is particularly relevant if a broker is accused of failing to properly vet a carrier involved in a theft scheme.

The effectiveness of this coverage depends heavily on the broker’s compliance with internal procedures, and intentional or reckless conduct is typically excluded. Brokers should ensure their operational protocols align with policy requirements to maximize the benefit of this protection.

7. Directors & Officers (D&O) Insurance

Directors & Officers (D&O) insurance provides coverage for claims against management alleging failure to manage risk or implement adequate controls.

In the event of significant fraud losses, stakeholders may assert that leadership did not take appropriate steps to safeguard the business. D&O insurance can help protect company leadership from such claims, reinforcing the importance of strong governance and risk management practices in the produce industry.

Practical Takeaways

No single insurance policy can address all fraud risks in the produce industry, making a layered and coordinated approach essential. Even policies specifically designed to cover fraud often contain numerous exclusions and exceptions that can significantly limit or eliminate coverage. 

A thorough review of all policy terms, with particular attention to exclusions such as voluntary parting, social engineering, and intentional acts, is essential to understanding the true scope of coverage and avoiding costly gaps. Without coordinated coverage and internal controls, many fraud losses will remain uninsured.

Given the pace and sophistication of fraud in the produce industry, businesses should regularly review their current insurance programs in light of these evolving risks. Insurance should be integrated as part of a broader risk management framework and is most effective when combined with rigorous internal protocols and contractual protections.

Fennemore’s team is available to discuss your specific coverage needs and help identify potential gaps, particularly around social engineering fraud and double-brokering exposures.

June Monroe is a Director at Fennemore’s Orange County Office, where she focuses on agribusiness and employment law. She represents growers, shippers, and distributors in complex commercial disputes, including PACA trust litigation, secured transactions, and bankruptcy matters. June also advises employers on compliance, risk management, and workforce issues, bringing a practical, industry-focused approach to her clients. She can be reached at jmonore@fennemorelaw.com.

Sharon A. Huerta is a Director at Fennemore’s San Diego Office where she focuses on comprehensive insurance coverage analysis and dispute resolution. Her practice includes insurance coverage litigation and evaluation, prosecution of bad faith claims, and policyholder representation. Sharon also has significant appellate experience, having contributed to successful published and unpublished opinions.  Her depth in insurance law and complex dispute resolution makes her a valuable advisor to clients across a wide range of industries. She can be reached at shuerta@fennemorelaw.com.