Commercial Crime Coverage

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1 11 Commercial Crime Coverage OVERVIEW Crime Insurance provides protection against the peril of dishonesty. Coverage is divided into two primary classes: Those designed to cover theft or dishonesty on the part of employees, and those designed to cover dishonest acts of persons who are not employees of the insured. Upon the completion of this chapter, you will be able to: Define burglary, robbery, theft and mysterious disappearance Know the general definitions in a Crime Policy Recognize the Crime Coverage Forms List 3 Examples of Insuring Agreements Compare and contrast Surety and Fidelity Bonds 11.1 Crime Definitions Burglary The taking of property from inside the premises by a person unlawfully entering or leaving the premises as evidenced by visible signs of forcible entry or exit. Example: A thief breaks down a door to enter a store and steals merchandise. Premises The interior of that portion of a building occupied by the insured. Robbery The taking of property from the care and custody of a person by one who has: Caused or threatened bodily harm to that person Committed an obviously unlawful act witnessed by that person Robbery includes the taking of property in the presence of an employee. Theft The broadest of the crime coverages, theft includes any act of stealing. For example, a shoplifter steals items while a store is open. This coverage includes losses by burglary or robbery. 140 A.D.Banker&Company

2 COMMERCIAL CRIME COVERAGE Retention Question 1 Which of the following is the broadest crime definition? a. Burglary b. Larceny c. Robbery d. Theft Retention Question 2 Breaking and entering is a form of: a. Burglary b. Larceny c. Robbery d. Theft General Definitions Employee A person in the insured s service, whom the insured compensates and has the right to direct. A person remains an employee for a period of 30 days after termination. Money Coins, currency, bank notes in current use, travelers checks, money orders, and registered checks held for sale to the public. The definition of money does not include evidences of debt. Securities Negotiable and non-negotiable instruments or contracts representing money or other property, including tokens, tickets, revenue stamps, and other stamps in current use, and evidences of debt in connection with charge or credit cards. Property Other than Money and Securities Any tangible property, other than money and securities, which has intrinsic value. Messenger The insured, or any of the insured s partners or employees, while having care and custody of the property while outside the premises. Custodian The insured or any of the insured s partners or employees, while having care and custody of the property while inside the premises. Mysterious Disappearance The disappearance of property without an identifiable cause of loss. Many policies exclude coverage for losses due to mysterious disappearance. A.D.Banker&Company 141

3 CHAPTER ELEVEN Retention Question 3 For the purposes of crime insurance, a person remains an employee for how many days after termination? a. 0 b. 10 c. 20 d. 30 Retention Question 4 An employee who has custody of an insured s property off the premises is called a(n): a. Custodian b. Messenger c. Watchperson d. Agent Retention Question 5 An employee who has custody of an insured s property on the premises is called a(n): a. Custodian b. Messenger c. Watchperson d. Agent Coverage Part Components The Commercial Crime Coverage Part to the Commercial Package Policy consists of the following components: Common Policy Declarations Common Policy Conditions Crime Declarations Form B (includes amount of coverage) Crime General Provisions Form and/or Safe Depository General Provisions Form Crime Coverage Forms (one or more, either Commercial or Government) Any applicable endorsements When coverage is written as a monoline policy, the Common Policy Declarations is not necessary. In this instance, the Common Policy Conditions are accompanied by a Crime Declarations Form A, which contains the information that would ordinarily appear on the Common Policy Declarations. Take Note A Cause of Loss Form is not needed in the Commercial Crime Coverage Part. 142 A.D.Banker&Company

4 COMMERCIAL CRIME COVERAGE 11.2 Crime Coverage Forms Crime insurance is written on two different types of coverage forms. Although crime insurance is property insurance, its coverage forms are similar to liability coverage forms. The Loss-Sustained Form is similar to the Occurrence Form and the Discovery Form is similar to the Claims-made Form. Loss Sustained Form The Loss Sustained Form provides coverage for losses that both took place and were discovered during the policy period OR that took place within the policy period and were discovered within 1 year of the termination of the policy period. Discovery Form The Discovery Form provides coverage for losses that are discovered during the policy period, but that did not necessarily occur during the policy period. Discovery Forms typically, though not always, require the use of a Retroactive Date. Retention Question 6 Which type of crime form provides coverage for losses that did not necessarily occur during the policy period? a. Discovery b. Loss Sustained c. Both discovery and loss sustained d. Neither discovery nor loss sustained 11.3 Insuring Agreements The following crime coverage forms, or insuring agreements, are available. The insured may choose any of the coverages, but none of the coverages are mandatory: Employee Theft This coverage provides coverage for losses resulting from employee theft. Coverage may be written on a blanket or scheduled basis. If written on a blanket basis, new employees are automatically covered. Inside The Premises Theft Of Money And Securities This coverage provides coverage for losses to money and securities resulting from theft, disappearance, and destruction inside the premises. It covers damage caused to the premises or its exterior, committed in the course of the crime. It also covers loss or damage to cash containers (locked safe, vault, cash register) located inside the premises. Outside The Premises This coverage pays for loss of money or securities outside the premises in the care and custody of a messenger (insured, partner or employee) or an armored motor vehicle company, resulting directly from theft, disappearance or destruction. It also covers other property in the care and custody of a messenger or an armored motor vehicle company, resulting directly from an actual or attempted robbery. A.D.Banker&Company 143

5 CHAPTER ELEVEN 11.4 General Conditions Property covered is limited to property that the insured owns or holds, or for which the insured is legally liable. Coverage acts as excess over any other collectible insurance. Losses to property, other than money and securities, will be paid on an actual cash value basis, or at the cost of repairing/replacing the property. Loss of money will be paid at face value. Loss of securities will be paid at their value at the close of business on the day the loss was discovered. Coverage will automatically apply both to new employees and to any additional premises acquired by the insured as a result of a merger or consolidation if the insured notifies the insurer within 30 days and pays any additional premium General Exclusions Crime Coverage does not cover: Losses committed by the named insured or any partner Losses resulting from property seizure or destruction by order of a governmental authority Losses resulting from nuclear hazard or war risk Legal expenses relating to any legal action Losses that are an indirect result of an occurrence that is covered 11.6 Bonds Like insurance, bonds provide financial protection against risk of loss, but they do so on behalf of a third party. Unlike insurance, which is a contract between two parties, there are three parties to a bond: Principal (Obligor) The party who has agreed to fulfill the obligation. Obligee The party for whose benefit the bond is written. Surety (Guarantor) The party who provides the bond and guarantees fulfillment of the obligation by paying damages if the principal defaults. Take Note When comparing an insurance contract to a bond, the insurer/insured relationship in insurance is similar to the surety/obligee relationship in a bond. Retention Question 7 Which of the following relationships most closely resembles the insurer/insured relationship? a. Principal/Surety b. Obligee/Principal c. Surety/Obligee d. Obligor/Principal 144 A.D.Banker&Company

6 COMMERCIAL CRIME COVERAGE Surety Bonds (Performance Bonds) Surety bonds guarantee that specific obligations will be fulfilled. If the principal defaults, the surety must perform the contract, duty, or obligation of the principal or indemnify the obligee for actual loss. Consequently, before accepting a risk, the surety considers the principal s ability to perform, financial capability, and previous contracts completed. Surety bonds are divided into three categories: Contract Bonds, Court Bonds, and License Bonds. Contract Bonds Two types of bond may be required in connection with a contract: Bid Bond A bond filed by contractors, guaranteeing that in the event a bid is accepted, the successful contractor will sign the contract and furnish a performance bond. Performance Bond A bond guaranteeing that the contractor will faithfully perform contractual obligations to the Obligee. Judicial (Court) Bonds Judicial bonds may be required by the court to enforce certain behavior. The two basic forms are: Fiduciary Bond A bond required when an individual, such as an executor, administrator, or a guardian, is entrusted by the court to handle the property of others. Litigation Bond A bond required when an individual bringing suit wishes to freeze the assets of another party, or restrain the other party from doing something. License and Permit Bonds These bonds are required by municipalities or other public bodies as a condition for granting a license or permit to engage in a specified activity. The bond guarantees that the party seeking the license or permit will comply with applicable laws or regulations. Fidelity Bonds (Honesty Bonds) Fidelity Bonds are designed to cover an employer from direct loss due to fraudulent and dishonest acts (namely theft) by their employees, and are therefore commonly referred to as dishonesty insurance. An Individual Bond is used when an employer wishes to bond a single employee A Name Schedule Bond is used when an employer wishes to bond several employees that are all named in the bond A Position Schedule Bond is available to employers that desire to bond a specific position, regardless of who fills the position, or how often the person filling the position is changed A Blanket Bond is for an employer that desires to cover all existing employees of a firm without exception, as well as any new employees Retention Question 8 Judicial bonds are which type of bond? a. Fidelity b. Contract c. Surety d. Honesty A.D.Banker&Company 145

7 CHAPTER ELEVEN Retention Question 9 Bonds that protect an employer from Employee Theft are called: a. Fidelity b. Contract c. Litigation d. Fiduciary 11.7 Insurance vs. Bonds With insurance, the risk is transferred to the insurance company. With bonds, the risk remains with the principal. For example, if Good Construction buys an insurance policy for general liability, the risk of financial loss is transferred to the insurer. It protects Good Construction, not the party with whom it is contracted. But, if Good Construction buys a bond, it retains the risk of financial loss. The bond is to protect the obligee, or the party who is requiring the bond. While an insurer will generally not be able to be compensated for a claim it pays out (except in cases of subrogation), a principal to a bond, being legally liable for the loss, will be expected to pay back the surety for the amount paid to the obligee. Because bonds require the principal s ability to re-pay the surety for loss or damages, they can be harder to obtain than insurance. 146 A.D.Banker&Company

Chapter Eleven LEARNING OBJECTIVES OVERVIEW Definitions of Crimes Burglary. Robbery. Theft

Chapter Eleven LEARNING OBJECTIVES OVERVIEW Definitions of Crimes Burglary. Robbery. Theft Chapter Eleven Commercial Crime Part LEARNING OBJECTIVES Upon the completion of this chapter, you will be able to: 1. Define burglary, robbery, theft and mysterious disappearance 2. Know the general definitions