Forgery and Alteration Coverage

Forgery or alteration coverage may pay a business’s direct loss caused by a forged or improperly changed instrument specified in the crime policy. The instrument, signature, authority, insured’s financial loss, and selected limit all matter. A deceptive invoice, fake email, unauthorized wire, employee diversion, or counterfeit cash may require a different crime agreement; “fraud” alone does not establish forgery coverage.

Forgery or alteration coverage is a crime-policy agreement that may pay an insured’s direct loss when a covered negotiable instrument is forged or altered. The agreement is narrower than “fraud coverage.” It focuses on specified documents and acts, such as a forged signature on a check or an alteration of a payee or amount. A deceptive invoice, fake bank email, compromised password, or employee’s authorized but mistaken payment may require a different agreement.

Identify the instrument

Begin with the item that caused the loss. Identify whether it is a check, draft, promissory note, similar written promise to pay, or an instrument specifically listed in the form. Policies can define covered instruments and may add credit or debit card forms, money orders, counterfeit currency, or electronic document extensions. An ordinary purchase order, invoice, or wire instruction may not count as a covered negotiable instrument under the basic grant.

Forgery versus alteration

Forgery generally concerns a false signature or writing made without authority with intent to deceive. Alteration usually means changing a genuine instrument without authority in a way that affects the legal obligation, such as changing the amount or payee. The policy may define these terms differently or include examples. Legal validity questions can arise when an employee had apparent authority, when a signature was authorized but used for the wrong purpose, or when a payee endorsement was forged.

A company receives a check from a customer, deposits it, and later learns the check was forged. The loss may involve a forged instrument, but ask whose account was charged, whether the insured actually sustained a direct loss, whether the item meets the definition, and whether the insured has an interest in the money. If the bank reverses a deposit, the check and account records help identify the loss. A customer’s bounced check is not automatically forgery.

If a bookkeeper forges the owner’s signature on a company check payable to the bookkeeper, a forgery agreement and employee-theft agreement could both be examined. Which grant applies depends on the actor, instrument, covered property, causation, and form. A policy may coordinate agreements or impose one limit per occurrence. Do not stack two limits automatically for one act.

An alteration example is a legitimate check payable to a supplier for $1,250 that is changed to $7,250 before negotiation. The analysis asks whether the check was genuine before the change, whether the change was unauthorized, how much the insured lost, and whether the instrument and resulting direct loss fit the agreement. If an authorized employee changed the amount, an exclusion or definition may alter the result.

Forgery of endorsements raises a separate fact pattern. A customer endorses a check and an unknown person forges the customer’s endorsement before depositing it. The named insured may suffer loss if its account or receivable is charged, but it must show its own covered interest and satisfy the instrument wording. If the insured itself accepts a counterfeit check from a fraudster and releases merchandise, a crime form’s money-and-securities or counterfeit currency agreement may matter instead.

Forgery coverage can apply to a check drawn on the insured’s bank account, checks received by the insured, or instruments the insured is legally obligated to accept, depending on the agreement. The scope varies. Read who is protected, what account and instrument are involved, and how the policy defines loss. Never assume the same form covers all forged documents merely because a check is involved.

Electronic documents and payment instructions

Computer-generated or digitally signed payments require close attention to the wording. A criminal who changes bank-account information in an email may have committed fraud but not necessarily forged a covered instrument. A valid wire instruction that an employee authorized after receiving a deceptive message may fall under social engineering or funds-transfer provisions. If a criminal electronically alters account data or generates a fake electronic record, determine whether the policy defines electronic records or data as an instrument.

Direct loss and limits

Insuring agreements can require a “direct loss” resulting from forgery or alteration. Consequential losses like lost customers, late fees, tax penalties, legal expenses, or employee investigation time might not be part of the grant unless an endorsement says otherwise. Preserve the original paper check, front-and-back images, bank notices, deposit records, statements, account agreements, and any electronic message that accompanied the transaction.

Limit and deductible terms matter. Crime policies can assign separate limits to forgery, employee theft, premises, transit, computer fraud, or funds-transfer coverage. A deductible may apply per occurrence, per loss, or another defined unit. Multiple altered checks could be treated as one occurrence or several under the form. Read aggregation and series-of-acts provisions before calculating the claim total.

Notice, records, and proof

Policy conditions may require prompt notice, proof of loss, cooperation, law-enforcement reporting, examination under oath, or preserving documents. Bank customer agreements can also require timely review and notice of unauthorized transactions. A late notice to the bank may affect recovery rights and can become relevant to the insurance claim. The insured should tell the carrier promptly and coordinate bank action without waiting for every investigation to finish.

Exclusions and authority

Common exclusions and limitations can concern authorized signatures, employee dishonesty, voluntary transfers, counterfeits, electronic data, prior knowledge, or loss discovered outside the policy period. These provisions differ across forms. If the employee had permission to sign checks but exceeded an internal limit, the question may be authority and policy wording rather than a simple forgery definition.

A robust claim file identifies the instrument, signature or writing challenged, who had authority, how the bank processed it, the amount charged, any recovery or reversal, and the date the insured discovered the issue. Compare each check to the authorized signature card. For alterations, retain original documents and bank image files. For electronic transfers, preserve system logs and authentication records, not just a printed email.

Changed payee on a company check

Example: an accounts-payable employee changes the payee name on a genuine check after the owner signs it. If the bank pays the instrument, the company may have a direct loss from alteration. The insured should identify who made the change and whether the employee also stole money. The alteration and employee-theft agreements may both appear relevant, but the policy’s coordination and occurrence limits govern.

Fake vendor wire request

Example: a vendor’s email account is hacked, and a criminal asks the company to wire a valid invoice to a new account. The invoice was not necessarily forged, and the transfer was made under a valid instruction from the company. Analyze funds-transfer fraud or social-engineering coverage instead. This distinction prevents treating every impersonation scam as a forged-check claim.

Counterfeit cash at the register

Example: a cashier accepts counterfeit currency and gives the customer change and merchandise. The relevant agreement may be money orders and counterfeit currency, if purchased. Forgery or alteration may not respond because no negotiable instrument was forged or changed. The facts must fit the policy’s counterfeit-money definition and location or transaction conditions.

Exam distinctions

To prevent losses, use dual approvals for check issuance, separate vendor setup from payment release, reconcile bank statements promptly, protect signature devices and check stock, verify changes using a known phone number, and train staff to flag altered payee details. These controls improve evidence and reduce risk but do not broaden a policy’s coverage grant.

On the Texas P&C exam, identify the covered instrument and the dishonest act before choosing the agreement. Forgery is a false signature or writing; alteration is an unauthorized change to a genuine instrument. A fake invoice or deceptive wire request may be fraud but not covered forgery. Then check direct loss, authority, limit, deductible, exclusions, and reporting conditions.

Classify the document before choosing the coverage part

The first question is who issued the instrument and whose signature or terms were falsified. Under representative commercial crime wording, forgery or alteration coverage is built around a covered instrument—such as a check, draft, promissory note, or similar written promise to pay money—that the insured or an authorized representative issued or purported to issue. The wording may also extend to instruments drawn on the insured’s account by someone posing as an authorized signer. The form’s definition, covered-person status, and endorsements determine the final result; an invoice, purchase order, or emailed bank instruction is not automatically a covered instrument.

Suppose a thief changes a $1,200 check payable to a repair shop so it appears payable to the thief, then deposits it. That fact pattern raises alteration: the original instrument was changed without authority. If the thief instead writes a completely fictitious check purporting to bear the treasurer’s signature, the issue is forgery. If a dishonest employee writes a valid company check to themselves using authority they actually possess, the problem may be employee dishonesty rather than forgery, because the signature may be genuine even though the purpose is dishonest.

Claims also require proof of the financial mechanism. Obtain front-and-back check images, bank statements, account signature cards, reconciliation records, authorization policies, and the bank’s response. Identify whether the insured was legally obligated to pay, whether a bank recredited the account, and whether the insured suffered a direct loss under the contract. A counterfeit document that never caused payment may present no covered loss, while a bank’s refusal to honor a forged check may shift the question to the policy’s definition of loss and applicable conditions.

Frequently asked questions

Does a forged invoice count as forgery coverage?

Not automatically. The form may limit coverage to specified negotiable instruments. A fake invoice could instead be part of an employee-theft, funds-transfer, or social-engineering claim.

Is an altered check different from a forged check?

Often yes. Forgery involves a false signature or writing; alteration generally changes a genuine instrument without authority. Policy definitions control.

Does forgery insurance cover every loss from a fake signature?

No. The instrument, insured’s interest, direct loss, selected agreement, exclusions, and limits all must fit.

Should the insured contact its bank?

Promptly review the bank agreement and notify the bank and insurer as required. Preserve the instrument and account records.

Prepare for the Texas P&C exam

The Texas Property and Casualty exam course helps you separate forgery and alteration from other crime-policy agreements.