If an Employee Burns Down Your Building, Are You Covered?
- Adam Overmyer
- Apr 24
- 4 min read
What a $600 Million Warehouse Fire Teaches Business Owners in 2026
In April 2026, a warehouse fire in California caught the attention of the insurance industry for one reason—the scale.
According to Insurance Journal, a warehouse worker allegedly set fire to a 1.2 million square foot Kimberly-Clark distribution center, resulting in an estimated $600 million loss.
Twenty employees were inside at the time. Thankfully, no one was killed.
The building and everything inside was a total loss.
Situations like this are exactly why having the right commercial business insurance coverage in place is critical for protecting your operations.
Most Business Owners Assume This Is Covered
When something like this happens, the first reaction is usually:
“It’s a fire. That’s covered.”
And in many cases, that’s correct.
But what I see far more often is not a lack of coverage—it’s gaps in how that coverage is structured.
Does Commercial Property Insurance Cover This?
The Short Answer: Usually, Yes
Most commercial property policies cover fire damage—even if it’s caused by an employee.
This falls under a standard commercial property insurance policy, which is designed to protect buildings, equipment, and business personal property from covered losses like fire.
Fire is a standard covered peril, and the cause does not automatically eliminate coverage.
Where Things Can Break Down
This is where it matters.
1. Who Was Involved Matters
If the act involves:
Ownership
Senior leadership
Fraud or collusion
There is a real possibility of a denied claim.
2. Coverage Limits May Not Be Enough
Even if the policy responds, that doesn’t mean the business fully recovers.
Common issues:
Outdated building limits
Undervalued contents and inventory
Increased construction costs
Long rebuild timelines
A large commercial building can take years to fully recover.
3. Business Income Coverage Is Critical
This is where most businesses underestimate their exposure.
A loss like this can lead to:
Months (or years) of lost revenue
Ongoing payroll obligations
Loss of customers or contracts
Temporary relocation costs
This type of protection is often included within a businessowners policy (BOP), which combines property and liability coverage into one package for small businesses.
If business income coverage is not structured properly, the financial impact can be far worse than the physical damage.
4. Crime Coverage Does Not Replace Property Coverage
There is often confusion around employee-related losses.
Crime or employee dishonesty coverage is designed for:
Theft
Embezzlement
Fraud
It does not typically cover physical damage from a fire. That falls under property insurance.
The Real Risk in 2026
The issue is not usually whether a claim is covered.
The issue is whether the coverage is adequate and properly designed.
Right now, we are seeing:
Increased property inspections
Stricter underwriting guidelines
Higher rebuild costs
Larger and more complex claims
In many cases, business owners also look to add an extra layer of protection through an umbrella insurance policy to help protect against large or unexpected losses.
At the same time, many policies have not been updated to reflect current conditions.
What Business Owners Should Review Right Now
If you own a business, this is worth a quick check:
1. Property Limits
Make sure your building and contents reflect current replacement costs.
2. Business Income Coverage
Review:
The coverage period
Revenue assumptions
Extra expense provisions
3. Risk Scenarios
Think beyond basic claims:
Employee actions
Equipment breakdown
Supply chain disruptions
Cyber events
4. Supplemental Coverage
Depending on your operations, consider:
Crime / employee dishonesty
Equipment breakdown
Umbrella or excess coverage
Final Thought
A $600 million loss gets attention.
But most businesses don’t fail because they had no insurance.
They fail because they had gaps they didn’t know about.
Need a Second Opinion on Your Coverage?
If you’re not sure how your current policy would respond in a worst-case scenario, it’s worth reviewing.
At Overmyer Insurance Agency, we help business owners understand:
What’s actually covered
Where gaps may exist
How to structure coverage properly
Request a coverage review or reach out anytime to start the conversation.
Frequently Asked Questions
Does insurance cover fire caused by an employee?
In most cases, yes. Commercial property insurance typically covers fire damage, even if caused by an employee. However, coverage may be denied if the act involves ownership, fraud, or intentional misconduct at a senior level.
What happens if an employee intentionally sets a fire?
The property policy may still respond, depending on the circumstances. The key factor is whether the act can be tied to ownership or fraud. Each claim is evaluated individually by the insurance carrier.
Does employee dishonesty insurance cover arson?
No. Employee dishonesty or crime coverage is designed for theft, fraud, and embezzlement—not physical damage like fire. Fire damage is typically handled under a commercial property policy.
What is business income coverage and why is it important?
Business income coverage helps replace lost revenue and pay ongoing expenses if your business is forced to shut down after a covered loss. It is one of the most important—and often overlooked—parts of a commercial insurance policy.
How can I tell if my business has enough coverage?
The best way is to review your policy with an insurance advisor. Key areas to evaluate include property limits, business income coverage, and how your policy would respond in a worst-case scenario.
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