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 in a Crime Policy 3. Recognize the Crime Coverage Forms 4. List the 8 types of coverage Insuring Agreements OVERVIEW Commercial Crime insurance, also called Fidelity Insurance, provides coverage for the perils of theft, robbery, and burglary. Crime insurance protects businesses from employee and other types of dishonesty, specifically: loss of money, securities, or personal property resulting from crime. Typical crime insurance claims allege employee dishonesty, embezzlement, forgery, robbery, safe burglary, computer fraud, wire transfer fraud, counterfeiting, and other criminal acts. Crime insurance also indemnifies banks, bankers, brokers, or financial or moneyed corporations or associations. Commercial crime coverage forms may be added to the commercial package policy or coverage can be written on its own policy. 11.1 Definitions of Crimes Burglary 1. Burglary The taking of property from inside the premises or a locked safe or vault by a person who commits forcible entry into, or exit from, the property of another while trespassing. Example #1: A thief breaks down a door to enter a store and steals merchandise. Example #2: Robbery of a security guard or watchperson also falls under the definition of Burglary. In this situation, the perpetrator is forcing his way into a locked building, which falls under the definition of burglary. The thief is not robbing the security guard personally, he is forcing the guard to open a locked door, which is a form of forced entry and therefore burglary. 2. Premises The interior of that portion of a building occupied by the insured. a. The burglar does not have the owner s permission to be on the premises. b. Visible signs of forced entry or exit must also exist. Most burglaries occur when a premises is unoccupied. Robbery 1. Robbery The taking of property from the care and custody of a person by one who has: a. Caused or threatened bodily harm to that person. b. Committed an obviously unlawful act witnessed by that person. 2. Robbery includes the taking of property in the presence of an employee. Theft 1. The broadest of the crime coverages, theft includes any act of stealing. Example: A shoplifter steals items while a store is open. 2. Coverage includes losses by burglary, robbery, or stealth. 3. Stealth An act of theft with hopes of being undetected. Example: A shoplifter stealing items by slipping things into a pocket while no one is watching. 155 Property & Casualty
Mysterious Disappearance 1. The loss of property when the cause of loss is not known. 2. This is NOT theft, burglary, or robbery. Example: The loss of a diamond from the insured s ring, even if the insured does not recall how it was lost. Extortion The surrender of property away from the premises because of a threat communicated to the insured to do bodily harm to an insured or an employee, or to a relative or invitee of either, who is or allegedly is being held captive. General Definitions A person in the insured s service, whom the insured compensates and has Employee the right to direct. A person remains an employee for a period of 30 days after termination. Coins, currency, bank notes in current use, travelers checks, money Money orders, and registered checks held for sale to the public. The definition of money does not include evidences of debt. Negotiable and non-negotiable instruments or contracts representing money or other property, including tokens, tickets, revenue stamps, and Securities other stamps in current use, and evidences of debt in connection with charge or credit cards. Property Other than Money and Securities Messenger Custodian Watchperson Commercial Crime Part Chapter Eleven Any tangible property, other than money and securities, which has intrinsic value. The insured, or any of the insured s partners or employees, while having care and custody of covered property while outside the premises. The insured or any of the insured s partners or employees, while having care and custody of covered property while inside the premises, excluding any person while acting as a watchperson or janitor. Any person the insured retains specifically for the purpose of having care and custody of property inside the premises and who has no other duties. 1. Which of the following is not considered a theft loss? a. Burglary b. Attempted theft c. Robbery d. Mysterious disappearance 2. What is the taking of property from the care of a person by threatening bodily harm? a. Burglary b. Attempted theft c. Robbery d. Mysterious disappearance 3. For the purposes of crime policies, how long is a person an employee after employment is terminated, regardless of the reason for termination? a. 15 days b. 30 days c. 60 days d. 180 days Property & Casualty 156
Commercial Crime Part Chapter Eleven 4. Which of the following has the care and custody of the insured s property outside the premises? a. Employee b. Watchperson c. Custodian d. Messenger 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 one 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. Exam Tip: Know that this is known as the Policy Trigger. 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 90 days and pays any additional premium. In the event of loss, the insured must notify the insurer as soon as possible, and provide proof of such loss within 120 days. The insured must maintain records to substantiate any type of loss. A crime report must be made to the proper authorities regarding any loss. Settlement is made based on the ACV of the stolen property. The insurance company retains the right to repair or replace with like kind and quality. Cash losses are settled on the basis of the face value of the claim. Securities are valued at their market value on the day the loss is discovered. Commercial Enterprises In addition to being written on two types of policy forms, crime coverage is written for 2 types of commercial enterprises. 1. The Commercial Crime Coverage Forms (both Loss-Sustained and Discovery) are designed for private businesses. The insuring agreements of these policies and forms contain one limit of insurance for all types of employee theft. 2. The Government Crime Coverage Forms (both Loss-Sustained and Discovery) are designed for government entities. They contain two different employee theft insuring agreements. One contains a separate loss limit that applies to each employee theft loss and the other contains its own loss limit for all losses occurring due to one employee. Exam Tip: Know the difference between how Government Crime and Commercial Crime may be written. Know that Government Crime may be written on a per loss or per employee basis. 157 Property & Casualty
General Exclusions Commercial Crime Part Chapter Eleven Crime Coverage exclusions include the following: 1. Intentional Loss by the Named Insured (Losses committed by the named insured or any partner) 2. Governmental Action (Losses resulting from property seizure or destruction by order of a governmental authority) 3. Nuclear Hazard 4. War 5. Legal Expenses relating to legal action 6. Indirect loss (unless endorsed otherwise) 7. Extortion (unless added back in by endorsement.) 8. Fire damage to premises or vandalism is always excluded because these are covered by property insurance. 5. Each of the following is true of a Discovery crime coverage form, except: a. Covers a loss that was discovered within one year of the termination of the policy period b. Covers a loss that was discovered during the policy period c. Might require the use of a Retroactive Date d. Covers a loss that did not necessarily occur during the policy period 6. Commercial Crime policies are written for which of the following commercial enterprises? a. Private b. Government c. Publicly held d. Volunteer 11.3 Insuring Agreements The Crime coverage forms offer 8 types of coverage, or Insuring agreements. The insured may choose one, several, or all of the coverages. None of them are mandatory. Employee Theft or Dishonesty 1. Employee Theft covers acts of theft by an employee that result in loss of, or damage to, money, securities, and other property. 2. Examples of employee theft include an employee stealing money from the cash register or several employees stealing office supplies. Forgery or Alteration 1. Forgery or Alteration insures against the forgery or alteration of checks, drafts, promissory notes, and similar items regarding the payment of a sum of money that are made or drawn by the insured or someone acting on behalf of the insured. 2. Forgery is the signing of the name of another person or organization with intent to deceive; it does not mean a signature that consists in whole or in part of one s own name signed with or without authority, in any capacity, for any purpose. Example: A business writes a check for materials to Larry s Lumber in the amount of $1,000. Larry s Lumber forges the check to the amount of $10,000. This coverage not only pays for the $9,000 difference but also all defense costs that the insured may incur due to other checks written that may now bounce due of insufficient funds causing additional legal issues. In this scenario, Larry s lumber is alleging that the business wrote the check for $10,000, even though Larry s Lumber is actually the one that forged the check. Property & Casualty 158
Note: It does not cover an Employee who forges a paycheck from the insured. This would be covered by the Employee Theft Insuring Agreement #1 coverage. Does not cover: a. Incoming checks that have been forged. b. Losses caused by dishonest or criminal acts of any of the insured s employees, directors, or trustees. Inside the Premises: Theft of Money and Securities This coverage insures against three specific types of loss. 1. Covers theft, disappearance, or destruction of money and securities inside the insured s premises, or inside a banking premises, when committed by a person present on the premise. 2. Covers damage to the insured s premises or its exterior when caused by an attempted or actual theft. 3. Covers loss or damage to a locked safe, vault, cash register, cash box, or cash drawer that results from actual or attempted entry into such property. Vandalism, if not related to a theft, is not covered. Accounting errors are also excluded. This form does not cover: a. Vending Machines b. Arithmetic Errors c. Deception d. Voluntary relinquishment e. Fire Loss Commercial Crime Part Chapter Eleven Note: Resulting fire loss from vandalism, theft, burglary, or robbery isn t covered by the crime forms; such coverage is found under the standard property forms. Inside the Premises: Robbery or Safe Burglary of other Property 1. Covers Damage to Property Other than Money and Securities that occurs from robbery or attempted robbery inside the premises. 2. Covers Damage to Property Other than Money and Securities that occurs as a result from the burglary of a locked safe inside the premises. 3. Covers any other property taken by robbery even when the business is open. 4. Covers any other property taken from a safe when the business is closed. Examples: 1. Shoplifting is NOT covered if done without notice or force or destruction. 2. Shoplifting is covered if in the course of the crime the thieves caused damage to the store, stole many items including cash, electronics, clothes, and threatened the store manager harm if he didn t open the safe and in the process stole some cash. a. Damages in the course of the crime would be covered. b. Cash would NOT be covered under this form (Other than Money or Securities). c. Electronics and clothes would be covered because they were taken in the course of the robbery while the store was open. Outside the Premises 1. Insures money and securities in the hands of a messenger or armored car service for loss resulting directly from theft, disappearance, or destruction. Other types of property are only covered for direct loss or damage from actual or attempted robbery. 159 Property & Casualty
Commercial Crime Part Chapter Eleven 2. The following types of property are excluded: motor vehicles, vandalism or malicious mischief, deception or trickery, property transferred without authorization or under threat. It does not cover: a. Vending Machines b. Arithmetic Errors c. Deception d. Voluntary Relinquishment Computer Fraud 1. Computer Fraud covers losses when a computer is used to transfer money, securities, and other property from the insured premises, or banking premises, fraudulently OR to a person or place outside the insured premises. 2. This is not computer insurance; it provides fraud insurance for acts committed when using a computer. Fund Transfer Fraud 1. Covers loss of funds resulting from a fraudulent instruction that directs a financial institution to transfer, pay, or deliver funds from the insured s transfer account. 2. Funds are money and securities and a transfer account is an account maintained by the insured at a lending institution from which electronic, cable, or written instructions can be initiated by the insured to transfer, pay, or deliver funds. Money Orders and Counterfeit Money Covers the insured s acceptance in good faith of money orders and counterfeit money received in exchange for merchandise or services during the course of conducting regular business activities. 7. Which of the following is covered under the Outside the Premises crime insuring agreement? a. Armored car stolen during a robbery b. Transfer of property without authorization c. Money in the hands of a messenger d. Vandalism 8. The Commercial Crime Coverage form offers how many types of insuring agreements? a. 2 b. 4 c. 6 d. 8 9. The Inside the Premises: Theft of Money and Securities insuring agreement covers each of the following types of loss, except: a. Theft of money inside the insured s premises committed by a person present on the premises b. Theft of money and securities by an accountant c. Damage to the insured s premises or its exterior caused by a theft or attempted theft d. Damage to a locked safe, vault, cash register, box, or draw caused by a theft or attempted theft Property & Casualty 160
11.4 Other Crime Coverages Extortion (CR 04 03) Commercial Crime Part Chapter Eleven Another type of commercial crime coverage is Extortion, and coverage can be added by endorsement to the Commercial Crime coverage form or policy. 1. If a loss of money, securities, or property occurs because a threat was made to the insured to do either of the following: a. Cause bodily harm to any of the following persons who were kidnapped, or allegedly kidnapped: 1) Director, trustee, partner, member, manager. 2) Employee or a relative or guest of any of these. b. Cause damage to the insured premises or property inside the insured premises. 2. An exclusion applies if the loss occurs after the insured failed to report the extortionist s demands to an associate, local law endorsement, or the Federal Bureau of Investigation. Guests Property Covers property of guests while it is in a safe deposit box on the premises of the insured, such as a hotel, motel, or lodging facility. This coverage is added by endorsement. 10. What is required if the insured adds the Extortion endorsement to the Commercial Crime form and wants coverage for a kidnapping? a. Agree to a personal background check when requested by the underwriter b. Immediately contact a newspaper or TV for help in identifying the kidnapper c. Contact a law enforcement agency d. Name the persons to be covered by the endorsement Chapter Eleven Lightning Facts 1. Burglary is the taking of property from inside the premises or from a locked safe or vault by a person who commits forcible entry into, or exit from, the property of another while trespassing. 11.1 2. Robbery is 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, and includes the taking of property in the presence of an employee. 11.1 3. Theft is any act of stealing and includes losses by burglary or robbery. 11.1 4. Mysterious disappearance is not considered theft, burglary, or robbery; it is the loss of property when the cause of loss is not known. 11.1 5. A messenger is the insured, or any of the insured s partners or employees, while having care and custody of covered property while outside the premises. 11.1 6. A custodian is the insured or any of the insured s partners or employees, while having care and custody of covered property while inside the premises, excluding any person while acting as a watchperson or janitor. 11.1 7. A watchperson is any person the insured retains specifically for the purpose of having care and custody of property inside the premises and who has no other duties. 11.1 8. The Loss-Sustained Form, like the Occurrence 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 one year of the termination of the policy period. 11.2 9. The Discovery Form, like the Claims-made Form, requires the use of a retroactive date, and provides coverage for losses that are discovered during the policy period but did not necessarily occur during the policy period. 11.2 161 Property & Casualty
Commercial Crime Part Chapter Eleven 10. The Commercial Crime Coverage Form, written on either a Loss-Sustained or Discovery Form, is designed for private businesses and the insuring agreement contains one limit of insurance for all types of employee theft. 11.2 11. The Government Crime Coverage Form, written on either a Loss-Sustained or Discovery Form, is for government entities and contains a separate theft loss limit that applies to each employee or contains its own loss limit for all theft losses occurring due to one employee. 11.2 12. The Crime coverage forms offer eight optional insuring agreements and the insured may choose one, several, or all of the coverages. 11.3 13. Employee Theft or Dishonesty covers loss of, or damage to, money, securities, and other property committed by an employee, whether acting alone or in collusion with others, that results directly from theft. 11.3 14. Forgery or Alteration insures against the forgery or alteration of checks, drafts, promissory notes, and similar items regarding the payment of a sum of money that are made or drawn by the insured or someone acting on behalf of the insured. 11.3 15. Inside the Premises: Theft of Money and Securities covers theft, disappearance, or destruction of money and securities inside the insured s premises, including damage to the insured s premises or its exterior and loss or damage to a locked safe, vault, cash register, cash box, or cash drawer that results from actual or attempted entry into such property. 11.3 16. Inside the Premises: Robbery or Safe Burglary of other Property covers most types of tangible property from loss or damage resulting from an actual or attempted robbery of a custodian, and includes coverage for the actual or attempted robbery of a safe inside the insured s premises and damage to the premises or its exterior. 11.3 17. Outside the Premises insures money and securities in the hands of a messenger or armored car service for loss resulting directly from theft, disappearance, or destruction. 11.3 18. Extortion may be added by endorsement to the Commercial Crime coverage form to insure loss of money, securities, or property due to a threat made to the insured to cause bodily harm to employees, relatives, or guests who were kidnapped, or allegedly kidnapped or cause damage to the insured premises or property inside the insured premises. 11.4 Property & Casualty 162