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| November 2008, Volume 23 |
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251.4-2COMMERCIAL CRIME COVERAGE ANALYSIS(June 2007) INTRODUCTIONThis analysis is based on the Insurance Services Office
(ISO) May 2006 edition. Changes from the previous edition are in bold print.
Commercial crime coverage can be written on either a discovery form or a loss sustained form. It may be written as a monoline policy or as a coverage part in a commercial package policy. The forms are:
This analysis evaluates Form CR 00 21, Commercial Crime Coverage Form (Loss Sustained Form). Like all ISO forms, defined words are offset by quotation marks in the policy or coverage form but are not in this analysis. The words you and your mean the named insured listed on the declarations. As discussed in the Common Policy conditions, the first named insured is the entity that receives premium statements, cancellations and similar notices. The words we and us refer to the insurance company providing the coverage. A. INSURING AGREEMENTSEight separate insuring agreements are available in each of the commercial crime coverage forms. If any insuring agreement has NOT COVERED indicated next to it on the declarations, the policy does not cover or provide protection for that insuring agreement. This means that a policy or coverage form could be issued covering only one of the eight crime insuring agreements. Coverage applies to losses sustained by the named insured under the
following circumstances:
All of the above are subject to:
The May 2006 change eliminates the Loss Sustained Condition and moves
it into the insuring agreement. It also adds the reference to important
conditions that affect the losses covered in addition to including a new
definition for the term discover. 1. Employee Theft Employee theft covers
losses to money, securities and other property. It covers the unlawful taking
of covered insured property by employees. Coverage applies regardless of the
number of employees involved in the loss. This is an important point, since the
limit of insurance applies to each act and not to each employee. In this insuring agreement, theft includes
forgery (May 2006 addition). Example: A group of ten employees devises a scheme to siphon cash from the accounts receivable. The total loss is $500,000. The policy limit of insurance for employee theft is $200,000. The insured argues that each employee should be insured for $200,000 with a total possible loss payout of $2,000,000. This argument is incorrect, because the policy coverage pays the limit for each occurrence, not the limit for each employee. Because the employees are all part of the same scheme, the policy limit of $200,000 applies. Example: In addition to the accounts receivable scheme in the
example above, a different employee steals merchandise from the warehouse and
sells it to friends. This employee’s actions are completely separate from the
ten-person scheme and the $200,000 limit of insurance on the policy applies
separately to this claim. 2. Forgery and Alteration This insuring agreement applies to the actions of outsiders. Coverage does not apply to forgery or alteration of checks done by the named insured or any employee, manager, director, trustee or representative. Coverage applies only to checks drawn on an insured’s accounts or the accounts of any party while acting as an insured’s agent. Checks include drafts, promissory notes, and orders or directions to pay money. It also includes substitute checks as defined by the Check Clearing for the 21st Century Act (May 2006 addition). A check can allegedly have been drawn, meaning there may be some doubt whether the check was actually drawn, against:
Example: A crafty thief breaks into Plumber’s Palace and steals a number of checks from the bottom of a stack he finds in the comptroller’s office. During the next few weeks, the thief writes checks against the insured’s account until either the theft is discovered or the cashing of unauthorized checks is reported to the comptroller. One of the unusual features of this coverage is that it provides defense coverage for an insured sued for refusing to pay on a check or an instrument the insured believes to be forged or fraudulent. The insurance company must first give its written consent to an insured to defend against such a suit. It then pays the reasonable legal expenses relating to defense of the suit. The defense coverage is unlimited and is in addition to the policy limit for forgery and alteration coverage. 3. Inside the Premises–Theft of Money and Securities This insuring agreement contains three basic coverages:
This insuring agreement does not cover merchandise or stock. Premises is the interior of the building occupied by the insured and from which the insured conducts the business. Banking premises is also defined and requires the theft to occur inside the bank premises.
Example: Burglars break down the outside door. Damage to the door is covered only if the named insured is the owner of the building or is liable for the damage to the door due to its negligence or because of a lease obligation. If the named insured is not the building owner and is not legally liable for the damage, this coverage does not apply to the damage to the door.
4. Inside the Premises–Robbery or Safe Burglary of Other Property Other property means property other than money and securities having intrinsic value and not otherwise excluded. Intrinsic is defined by the American Heritage College Dictionary as “of or relating to the essential nature of a thing; inherent.” A chair has intrinsic value. An idea, in and of itself, has no intrinsic value unless it is applied and made into something. Under this insuring agreement, coverage applies only to robbery of a custodian or to safe burglary. The act must take place inside the premises situated inside the building. Robbery is not theft. Robbery is a subset of theft that involves actual bodily harm or the threat of bodily harm, violence or intimidation or the unlawful taking of property witnessed by another person. Custodian includes the named insured, members, partners or employees but NOT watchpersons or janitors. Losses from robberies during both normal business hours and after hours that do not involve watchpersons or janitors are covered. A person working late and turning on the alarm before leaving is not a watchperson, unless hired specifically to have custody of the property with no other duties. A watchperson is the security guard hired to watch the premises during normal business hours. Example: Mary is working late. She is asked to lock up before leaving, meaning she has custody of the premises. However, she is not a watchperson. She observes the contracted cleaning staff opening desk drawers to dust inside. The next day, several people are missing valuable tools, software and other items. While she suspects the cleaning staff took the items, since she was not threatened and did not see an obvious act of stealing, there is no coverage under this insuring agreement. Much like Insuring Agreement 3–Inside the Premises–Theft of Money and Securities, damage to the premises from an attempted or actual act of robbery or safe burglary is covered as well as damage to the LOCKED safe or vault. If the safe or vault is open and is damaged during the robbery, it is not covered, but property inside the safe or vault is covered. 5. Outside the Premises Money and securities is covered for theft, disappearance and destruction while outside the premises and in the custody of a messenger or armored car company. Coverage includes theft, robbery or, for example, the loss of a suitcase full of cash that bounces out of the back of a pickup truck, tumbles across a bridge, falls 120 feet into a river and is never seen again. Other property is covered outside the premises when in the custody of a messenger or an armored car company but only for robbery. Robbery must include at least the threat of bodily harm, violence or intimidation or the messenger must actually observe the commission of an unlawful act. The crate of rare vases that bounces out of the truck and falls to the river below never to be seen again is not covered but coverage applies if that same vehicle is car-jacked and the robber throws the crate into the river. In either case, a messenger must be the named insured or a partner or employee of the named insured. Employees do not include independent contractors, other than an armored car company, leased employees or any agent or broker. Coverage for leased employees may be added by using Form CR 25 05–Include Leased Workers As Employees. Example: Pink Elephant Phine Liquors arranges with Perki Personnel, a professional employment organization or labor contractor, to supply it with leased truck drivers to operate its fleet of trucks. When delivering a load of liquor to a Pink Elephant warehouse, the driver is robbed at gunpoint. There is no coverage for this claim because the leased driver was not a messenger as defined in the policy. 6. Computer Fraud In this insuring agreement, computer fraud covers money, securities and other property fraudulently transferred by computer from the insured premises or banking premises to a location other than the insured premises or the banking premises. It does not include transfer to a messenger. Coverage is worldwide. As a result, fraudulent transfer of funds from the insured’s Swiss bank account to someone in the United States is covered in the same way as when a person breaks into the office premises and uses one of the insured's computers to transfer funds from the insured’s account to his or her Swiss bank account. Coverage applies if someone hacks into the insured’s computer from their home and bypasses the internal firewall in order to command the insured computer to send money to the thief’s personal bank account. Coverage applies to locations and premises outside the United States. Example: Josie Proust, the top salesperson for Cyberfroot Distributors, was staying in a hotel in Beijing. She regularly conducted business from her room. After she left the room to meet with a local group of lychee and pomegranate farmers, someone broke into her room, stole some of her valuables and hacked into her laptop to transfer funds from her account. This insuring agreement covers this computer fraud loss. 7. Funds Transfer Fraud This insuring agreement provides coverage for the loss of funds resulting directly from a fraudulent instruction directing a financial institution to transfer, pay or deliver funds from the insured’s transfer account. 8. Money Orders and Counterfeit Money (May 2006 change) This insuring agreement covers counterfeit money accepted in good faith in exchange for purchases. It also covers money orders accepted by the named insured in good faith but not accepted when presented by the named insured for payment. The coverage territory is limited to the United States, its territories and possessions and Canada. There is no coverage for fake euros when traveling in Europe. Note: Cashier’s checks and other negotiable instruments are NOT covered. Please refer to PF&M Section 251.6-20, Counterfeit Cashier's Checks, for additional information about this coverage. The May 2006 edition replaces the phrase counterfeit paper currency
with the defined term counterfeit money. This is a significant increase in
coverage because the defined term includes traveler’s checks, register checks
and money orders in addition to currency, bank notes and coins. B. LIMIT OF INSURANCEThe limit shown on the
declarations is the most paid for all
loss that results (May 2006 change) from an occurrence. If a loss is covered under more than one
insuring agreement, the company pays ONLY the largest limit of insurance
available and not the sum of each available limit (May 2006 change). In some
cases, this could be a significant reduction in coverage. Example: Acme Company sustains a loss that involves both employees and
non-employees. It is found to be a single occurrence and coverage applies and
is available under Insuring Agreements 1, 3 and 7. The coverage limit is
$300,000 under Insuring Agreement 1, $100,000 under Insuring Agreement 3 and
$250,000 under Insuring Agreement 7. The total loss is $500,000. Before this
change, Acme could have recovered under each of the insuring agreements and
have been fully compensated. With this change, the maximum recovery is $300,000,
the highest limit available. A situation like this could have claimants and claimant attorneys
searching for ways to utilize the differing definitions of occurrence within
the insuring agreements so that a single occurrence loss becomes a multiple occurrence
loss and results in freeing up all the limits. C. DEDUCTIBLEEach of the eight insuring agreements can have a different deductible. In most cases, smaller accounts do not require deductibles for most coverages. The insurance company does not pay any loss until the deductible amount stated on the declarations is satisfied. In previous editions,
the policy indicated that if different deductibles applied to the same loss,
only the highest deductible was applied. In the May 2006 edition, this provision
is removed. When the deductible provision is now read in conjunction with the
limit of insurance, it can be implied that the deductible that applies is the
one shown on the declarations and associated with the highest limit of
insurance. However, it is not stated this way. With the removal of the
deductible limitation language in the previous edition, there is no clear
direction as to which or how many deductibles apply to a given loss. Due to
this ambiguity, an insured could argue that the lowest deductible, or no
deductible, should be used since ambiguity in policy language is normally
construed in favor of the insured. Example: Continuing
the Acme example above, the deductible for Insuring Agreement 1 is $10,000, the
deductible for Insuring Agreement 3 is $1,000 and Insuring Agreement 7 has no
deductible. The insured argues that no deductible should apply but the
insurance company argues that the deductible that should apply is $10,000. D. EXCLUSIONS1. These exclusions apply to each of the eight insuring agreements,
unless otherwise stated. a. Acts Committed by You, Your Partners or Members Any theft or dishonest act of the named insured, whether committed alone or with another individual or an employee, is excluded. The named insured cannot claim coverage for the dishonest act of an employee if the named insured is involved in the same misdeed. For the purposes of this exclusion, a member is an owner of a Limited Liability Corporation (LLC). b. Acts of Employees Learned of by You Prior to the Policy Period This exclusion applies to losses committed by employees with a history
of dishonesty. If the named insured, partners, members, managers, officers,
directors or trustees hire an individual that one or more of them knows has
committed theft or engaged in dishonest acts prior to the policy period,
coverage does not apply to any loss caused by that employee. However, coverage does apply if the member, partner, manager, officer,
director or trustee aware of the dishonest acts is in collusion with the
employee to commit the theft or dishonest act. While this is a new exclusion, it is similar to the old Condition 1.a,
Cancellation As To Any Employee. The exclusion is added to make it clear that even
if an employee’s dishonest acts were committed before the current policy
period, any loss by that employee under the current policy is not covered. This
change is a direct result of Home Savings
Bank, SSB v Colonial American Casualty and Surety Company, 598 S.E.2d 265
(N.C.Ct. App., 2004) Example: Trent has a troubled background. Rick, the vice president of
operations, hires Trent to help him with inventory. Rick’s plan is for Trent to
use his contacts to help him fence items stolen from the warehouse. When the
loss is discovered, the insurance company cannot deny coverage on Trent. This
is because Rick is the only one at the company aware of Trent’s dishonest past.
c. Acts of Employees, Managers, Directors, Trustees or Representatives This exclusion applies to all insuring agreements EXCEPT Insuring Agreement A.1, Employee Theft. In addition to excluding acts committed by an insured, other dishonest acts, such as forgery, committed by employees and outside persons working together are also excluded. d. Confidential Information (May 2006 addition) This new exclusion explains that the crime policy is not designed to
cover losses due to identify theft. Any loss caused by or resulting from any disclosure or use of
confidential information of various kinds not authorized by the insured is not
covered. This includes, but is not limited to, patents, trade secrets,
processing methods or customer lists. In addition, any loss caused by or resulting from any disclosure of
confidential information of others, such as financial or personal information
not authorized by the insured, is not covered. This is considered to be a clarifying exclusion, since the policy was
never intended to cover these types of losses anyway. Example: Marguerite works in school records. Her boyfriend, Phillip,
asks for some information about his neighbor, Paul, and uses it to steal Paul's
identity. Paul discovers the identity theft when he attempts to refinance his
home. The police track the release of information to Phillip and Marguerite,
both of whom previously left town. Paul demands that the school system
compensate him for the money lost due to Marguerite’s actions but the insurance
company denies coverage under the crime insuring agreements. e. Government Action Loss resulting from government seizure, forfeiture or other government taking or destruction of property is not covered. Example: The owner of Shot Docks Bass Boat Rentals files a claim for the loss of a boat. The boat is valued at $37,000 and the owner claims it was "authoritatively" taken from her premises. The claims adjuster questions her in greater detail about the loss and then denies the claim after learning that federal officers confiscated the boat under a zero tolerance controlled substances law. f. Indirect Loss Indirect losses not covered include:
Examples: Coverage does not apply to loss of interest income on money that could have been invested. There is no coverage for loss of income on stock holdings that could have appreciated during an upturn in the market. Finally, loss of income from the profit that could have been made if the product stolen had been sold is not covered. Business income coverage available in commercial property forms pays for the loss of income on property other than money or securities. Please refer to PF&M Section 131.4-2, Time Element Coverage Forms Analysis, for more details and complete analyses of these coverage forms. · Legal liability claims. Coverage for property of others is available only by endorsement. However, some direct damage coverage is provided in specific insuring agreements.
g. Legal Fees, Costs and Expenses Costs, fees or legal expenses incurred by the insured for any reason, including those for a covered loss, are not covered EXCEPT under Insuring Agreement A.2, Forgery and Alteration. h. Nuclear Hazard Losses caused by or related to nuclear energy in any manner are not covered. i. Pollution (May 2006 addition) There is no coverage for any loss or damage resulting from pollution.
Rather than defining pollution in the definitions section of the policy, it is
defined within the exclusion. The definition is identical to that used in ISO
property coverage forms. While there are no court cases to justify this
addition, it is added as a precaution against attempts to obtain pollution
coverage through policies not having pollution exclusions. j. War and Military Action Losses caused by or
related to war or warlike action, including
rebellion, insurrection, revolution and government power used to defend against
such actions, are not covered (May
2006 change). This wording is similar to wording used in other ISO property coverage
forms in order to be consistent. 2. These exclusions apply to Insuring Agreement A.1: Employee Theft
Coverage. a. The Employee Cancelled Under Prior Insurance exclusion has been
rewritten, broadened and is now Exclusion 1.b: Acts of Employees Learned by You
Prior to the Policy Period (May 2006 change). a. Inventory Shortages There is no coverage for shortages of money, securities or other property if the only proof of loss is discovery of a shortage during the taking of inventory. This also includes profit or loss calculations, such as mistakes on the books or in ledgers. However, if it is determined that a loss resulted from one of the coverages included in the policy, the books, ledgers and inventory records are used to substantiate the loss. b. Trading Losses resulting from trading are excluded. Trading activities include stock-trading losses, commodity-trading losses and merchandise-trading losses, where one batch of product is traded for another batch of product. Certain trading losses to a genuine, not a fictional, account are covered by Form CR 25 16–Add Trading Coverage. Please refer to PF&M Section 251.4-3, Commercial Crime Coverages Available Endorsements and Their Uses, for more information on this additional coverage form. c. Warehouse Receipts Warehouse receipts track and detail document storage and the transfer of products from the person storing them to the person receiving them. The transferring party and the recipient party are usually two separate entities. A fraudulent transfer can occur when property is delivered to someone not authorized to receive it. A forged instrument is frequently used by an individual having a seemingly legitimate claim to the property but does not. Coverage does not apply to these situations or to errors in issuing, signing, cancelling or failing to cancel any warehouse receipt. Form CR 25 17–Add Warehouse Receipts Coverage insures fraudulent transfer of warehouse receipts. Please refer to PF&M Section 251.4-3, Commercial Crime Coverages Available Endorsements and Their Uses, for more information on this additional coverage form. Warehouse Operators Legal Liability Coverage, an inland marine coverage, can also be purchased to cover fraudulent or other improper or negligent transfer of goods, other than by employee theft. Please refer to PF&M Section 145.29, ISO Warehouse Operators Legal Liability Coverage Form, for more information and a detailed analysis of this coverage form. 3. The following exclusions apply to Insuring Agreements A.3: Inside
the Premises–Theft of Money and Securities, A.4: Inside the Premises–Robbery or
Safe Burglary of Other Property and A.5: Outside the Premises. a. Accounting or Arithmetical Errors or Omissions Mathematical errors are excluded. There is no standard endorsement available to "buy back" this exclusion or to purchase this coverage. b. Exchanges or Purchases There is no coverage for loss in any exchange or purchase of any property. There is no standard endorsement available to "buy back" this exclusion or to purchase this coverage. Example: A customer pays the marked price of $2,000 for a piece of furniture. It is determined later that the price should have been $20,000. Further investigation shows that the mistaken marking was an act of intentional fraud and the customer information was also fraudulent. Even though this appears to be criminal activity, coverage does not apply because this loss was the result of a purchase. c. Fire There is no coverage for damage (05/06 addition) or loss caused by fire except: (1) Coverage applies for loss or damage to money and securities. This is very important because none of the commercial property coverage forms cover fire damage to money and securities. (2) Damage to a safe or a vault. This is duplicate coverage with the property coverage forms and could be considered primary to the property form since it is specific in nature. d. Money Operated Devices Theft of money from vending machines or other money or coin-operated devices is not covered unless it is continuously counted and recorded by the machine itself. There is no standard endorsement available to "buy back" this exclusion or to purchase broader coverage. e. Motor Vehicles or Equipment and Accessories Damage to any motor vehicle, its accessories or trailer is excluded. Coverage for theft of motor vehicles is available under commercial automobile comprehensive coverage, garage dealer coverage and garagekeeper's liability coverage. It is also available for vehicle manufacturers through commercial property coverage forms. The term “motor vehicle” is not defined in this coverage form as it is in other ISO forms. f. Transfer or Surrender of Property Loss or damage to property given to someone outside the premises or banking premises because of unauthorized instructions is not covered. Coverage does not apply to property given up because of the threat of either bodily harm or property damage. There is also no coverage for property relinquished due to threats to the computer system, to harm the named insured’s products or to release confidential information (May 2006 addition). However, since this type of activity is considered to be along the lines of extortion, coverage is available by purchasing Optional Insuring Agreement CR 04 03–Extortion–Commercial Entities or by purchasing a Kidnap/Ransom and Extortion Policy. Please refer to PF&M Section 251.6-4, CR 04 03–Extortion–Commercial Entities, for more information on this additional coverage form. This exclusion does not apply to Insuring Agreement A.5, Outside the Premises, if the property was in the custody of a messenger having no knowledge of the threat at the time the trip began, or who knew about the threat but was the victim of an entirely different threat. This provision covers the robbery situation where the messenger is unexpectedly threatened with bodily harm or damage to the conveyance being used. For example, this provision would not provide coverage if the messenger knew of the threat and was delivering the extortion payment and was threatened at the point where the payment was handed off. g. Vandalism Vandalism losses to the
building or premises, safes or cash drawers are not covered. Vandalism is
properly insured under commercial property coverage forms. In certain
situations, vandalism and theft are concurrent causes of loss. These are
different losses that occur at the same time. Example: During a riot, vandals break a business’s showroom windows and steal merchandise. Some time later, other persons climb through the debris to steal fixtures and other building materials. Vandalism is the proximate cause of the theft loss and the building losses should be covered by the property policy. Theft of merchandise by the burglars who climb through the broken windows is covered under Crime Insuring Agreement A.4, Inside the Premises–Robbery or Safe Burglary of Other Property. h. Voluntary Parting with Title to or Possession of Property There is no coverage if an insured voluntarily parts with title to or possession of any covered property because of a trick or scheme concocted by another party. There is no standard endorsement available to "buy back" this exclusion or to purchase this coverage. 4. The following exclusions apply to Insuring Agreement A. 6: Computer
Fraud. a. The Exchanges or Purchases exclusion is eliminated and replaced by
the Credit Card Transactions exclusion (May 2006 change). a. Credit Card Transactions Coverage does not apply if the loss is the result of use of any type of
credit, debit, charge or other similar card. b. Funds Transfer Fraud There is no coverage if the loss is a result of a fraudulent instruction directing a financial institution to transfer, pay or deliver funds from the transfer account to an unauthorized party. Coverage for this exposure is available under Insuring Agreement A.7, Funds Transfer Fraud. c. Inventory Shortages Losses where the only evidence of loss is an incorrect inventory count or a profit and loss statement computation error are not covered. d. The Voluntary Parting with Title to or Possession of Property
exclusion is eliminated. However, since credit cards are often used in such
transactions, coverage is still probably not available because of the Credit
Card Transactions exclusion (May 2006 change). 5. The following exclusion applies to Insuring Agreement A. 7: Funds
Transfer Fraud. Loss due to using a computer to fraudulently transfer money, securities or other property is not covered. Coverage for this exposure is available under Insuring Agreement A.6, Computer Fraud. E. CONDITIONS1. Conditions Applicable to All Insuring Agreements a. The Cancellation as to Any Employee exclusion is eliminated from
this section and moved to Conditions that apply to Insurance Agreement A.1 only
(May 2006 change). a. Additional Premises or Employees (May 2006 addition) When a named insured adds employees and/or premises, coverage
automatically applies without an additional premium charge during that policy
term. The only exception is when the new premises or employees are the result
of a consolidation, merger or acquisition. Refer to the consolidation, merger
or acquisition condition below for information on the exception. b. Concealment, Misrepresentation or Fraud Any fraudulent act committed by the insured voids coverage. Intentional concealment or misrepresentation of a material fact about the property covered, the insured's interest in the covered property or in any claim also voids coverage. Voiding coverage includes existing claims as well as future claims. c. Consolidation–Merger or Acquisition (May 2006 change) Coverage applies for 90 days for newly acquired entities, premises, assets or liabilities of another entity and its employees. The coverage is automatic but the insurance company must receive written notice of the acquisition. There is no coverage after 90 days unless the insurance company adds it to the policy. Additional premium may be required. The only losses covered are those that occur AFTER the date of consolidation, merger or acquisition. d. Cooperation (May 2006 addition) The named insured must be cooperative and work with the insurance
company with respect to all insurance policy terms and conditions. e. Duties in the Event of Loss · If illegal activity is involved or suspected, let the insurance company and the police know about the loss as soon as possible. The police do not need to be notified if the loss involves employee theft or alteration or forgery.
f. Employee Benefit Plans Insuring Agreement A.1, Employee Theft coverage applies to the employee benefit plans listed on the declarations. This is not employment practices legal liability coverage that covers such things as forgetting to enroll an employee during the open enrollment period. Employee benefit plans coverage applies to fraudulent or dishonest acts, such as theft of retirement funds by an employee.
Example: The Jones Company Retirement Plan is listed on the declarations as covered. If the plan administrator changes but the plan name does not, coverage continues. Example: The Jones Company Retirement Plan through ABC Funding is listed on the declarations as covered. If the insured transfers the plan's assets to DEF Funding, replacing ABC Funding, coverage does not apply to the new plan unless the policy is endorsed to recognize the change.
Example: The loss is $100,000 and the insurance coverage limit of insurance is $100,000. If covered plan A has $500,000 in funds and covered plan B has $200,000 in funds, the total funds amount is $700,000. The claim payment for plan A from the limit of insurance is 5/7 of the $100,000 and the claim payment for plan B is 2/7 of the $100,000 limit.
g. Extended Period to Discover Loss Losses must occur prior to the cancellation date of coverage but may be discovered:
Example: Peggy had no idea that employees were skimming money from the cash registers. Her crime policy expired on January 1, 2007 and was not renewed. She discovered the loss on June 10, 2007. The loss is covered if the employees began stealing the money from the cash registers before January 1, 2007 and during the previous policy period, January 1, 2006 through December 31, 2006.
h. Joint Insured
Example: The first named insured does not tell the other insureds the policy is cancelled. The other named insureds have no recourse against the insurance company for lack of notification of the cancellation.
Example: The first named insured lets another named insured hire one of its employees but forgets to tell the other named insured that the employee hired has a criminal record. Even though the new employer does not know about the employee’s past record, because all named insureds are considered to know what each of the others knows, any employee theft losses involving this employee with the new employer are not covered and were not covered before.
Example: The first named insured cancels the crime insurance for all named insureds. The first named insured does not purchase replacement coverage and has a one-year extended period to discover loss. The second named insured purchases coverage immediately from another insurer. The extended period to discover loss for the second named insured ends on the effective date of the new coverage.
Example: Insured A sustains a $100,000 covered loss and Insured B has a $100,000 covered loss from the same occurrence. The policy limit of insurance is $100,000. The insurance company pays $100,000 total in any one occurrence, regardless of the number of insureds.
i. Legal Action Against Us As with most policies, no insured can pursue legal action until that insured has complied with all the policy terms. An insured must wait up to 90 days after filing a proof of loss, and any lawsuit must be filed within two years of the date the insured discovered the loss, not the date the loss was filed. If a state law or local statute requires different time periods, the policy is amended or conformed to comply with those requirements. j. Liberalization If the insurance company broadens coverage without making an additional premium charge during the policy period or within 45 days before the start of the policy period, the broadened coverage applies. k. The Loss Covered Under This Insurance and Prior Insurance Issued by
Us or Any Affiliate condition is removed and replaced by wording in Section B,
Limit of Insurance (May 2006 change). k. Loss Sustained During Prior Insurance Issued by Us or Any Affiliate An occurrence is the starting point of a dishonest act. The person or persons involved may perform numerous dishonest acts over a period of years before being caught, but all such acts are considered one occurrence. If the insured maintains continuous coverage with the same insurer or group of insurance companies, coverage applies back to the initial inception date of the continuous coverage. However, the policy limits do not accumulate because of the multiple years. Instead, the highest limit available during the total period is available to settle the total loss over the years in which they occurred. Because of some confusion and court cases, such as Auto Lenders Acc Ace. Corp.v Gentilini Ford, Inc., 181 N.J. 245, 854 A.2d 378 2004, the condition now has three parts and includes three examples.
Note: While this condition is longer, the
intention is unchanged from previous editions. Example: An employee has been siphoning funds from Below Ground Enterprises for three years. The insured discovers the loss this year and calculates the amount at $100,000. The limit of insurance on the current policy is $100,000 but was only $25,000 three years ago. The loss payment is $100,000. Example: Referring to the previous example above, the limit was reduced two years ago from $100,000 to $25,000. The insured is still eligible for the $100,000 loss payment because the limit of insurance at the time of the occurrence was $100,000. Example: Alice stole $50,000 two years ago, $20,000 last year and $30,000 this year, for a total loss from this one occurrence of $100,000. Alice’s employer maintained a $50,000 coverage limit in each of these three years. These limits cannot be added together even though the dishonest acts were perpetrated during each of these years. The maximum limit available for this one occurrence is $50,000. l. Loss Sustained During Prior Insurance Not Issued by Us or Any
Affiliate This condition applies only if there was no lapse in coverage between the current coverage and the previous coverage. Even a one-day lapse in coverage nullifies this important benefit. If a loss sustained in a previous policy term is discovered after the end of that policy's discovery period, coverage applies under the current policy if both the old and new policy have the same coverage and one immediately replaces the other. The limit of insurance available is the lesser of the two policy limits. Example: Number One, Inc. moved its coverage from STU Accident and Casualty Insurance Company to the ABC Indemnity Company. It had been with STU for five years. Number One discovered a loss that occurred during the STU policy but after the discovery period expired. ABC Indemnity covers the loss for either the limit of insurance under the STU policy or the limit under their policy, whichever is less. The coverage available under this condition cannot be combined with the coverage available under Condition k. to increase the insurance limits. The limits under Condition k. are taken into consideration with the limits of the previous company and the lesser is the one chosen. The important distinction is that if coverage stays with one company or group, the highest limit is used to settle claims. If coverage moves between companies, the lowest limit is used to settle claims. This creates a significant coverage gap if an insured changes insurance companies. m. Other Insurance This condition is totally rewritten with the May 2006 edition but is
not really changed. It is much clearer than in the previous edition.
If other insurance is written under the
same terms and conditions as this insurance, the coverages will share any loss
proportionally. If the other insurance is not written under the same terms and
conditions, this coverage is excess. It pays only after the loss exceeds the
limit of insurance under the other policy or the deductible under this
insurance, whichever is higher. The ability of the insured to collect the other
coverage does not enter into consideration. Example: Hershel changes insurance
carriers. Because of the terms of the cancellation and non-renewal conditions,
the two package policies overlap by two days. A holdup occurs at his business
on one of those overlapping days. Since the two crime coverages are identical,
each contributes equally. However, one of the package policies has an automatic
property extension endorsement that provides holdup coverage with a $2,500
limit. Since the property coverage is not identical to the crime coverages, it
is primary and the crime coverages are excess.
If this insurance is excess over other
coverage, this coverage only pays after the limit and deductible of the other
coverage is exhausted, whether it is collectible or not. If a deductible
applies to this coverage, the deductible amount is reduced by the amount of the
underlying coverage and the underlying deductible. This means the insured does
not have to jump the hurdle of both the deductible and the underlying limits. Example: Continuing the example above, each
of the two crime coverages had a $2,500 deductible. Since the property
extension had a $2,500 limit, the deductible was satisfied and the crime
coverages paid the remaining loss, subject to the limit of insurance condition.
n. Ownership of
Property; Interests Covered Property covered includes owned and leased property along with property held for others. Note: This is an important
change! The exception that no coverage applies to property inside the premises
of a client is removed. In addition, the requirement that the insured be
legally liable for the property of others in order for coverage to apply is
removed (May 2006 change). o. Records The insured must have records available that substantiate any loss reported. p. Recoveries
q. Territory The United States, its territories and possessions, Puerto Rico and Canada constitute the covered territory. Exceptions apply for Insuring Agreements A.1, A.2 and A.6 as outlined below. r. Transfer of Your Rights of Recovery Against Others to Us The insured cannot waive subrogation rights for any reason. In most property insurance policies, the insured can waive rights of subrogation in writing before the loss, but this option is not available in the crime policy. s. Valuation–Settlement (1) The terms of the limit of insurance section apply first after which the following applies: (a) Money is valued at its face value. If the money is foreign currency, it can be replaced for the face value of that country’s currency or the equivalent in U.S. dollars at the exchange rate or value published in the Wall Street Journal on the day the loss was discovered. (b) Securities are valued at their price at the close of business on the day the loss was discovered. Securities are either replaced or cash is paid, at the insurance company's option. If replaced, the insured must sign over all rights to the lost securities to the insurance company. The insurance company then pays for the cost of a lost securities bond, if the cost of the bond is less than the value of the security or securities at the close of business on the date the loss was discovered, or the limit of insurance, whichever is less. (c) Replacement cost is paid for damage to the premises or other property, subject to the limit of insurance. The damage must be repaired or replaced promptly. If it is not, the insurance company pays only the actual cash value of the covered property. (2) Property other than money can be paid for in either the currency of the country where the loss occurred or the equivalent in United States dollars, at the exchange rate published in the Wall Street Journal on the date the loss occurred. (3) Any property the insurance company replaces or pays for becomes the property of the insurance company. 2. Conditions Applicable to Insuring Agreement A.1: Employee Theft a. Termination as to Any Employee (moved here from Conditions Applying
to All Insuring Agreements) (May 2006 addition). This insuring agreement can cease to apply to any employee. The time
and the manner in which this is done depend on the circumstances.
b. Territory Losses caused by employees located temporarily outside the United States, its territories and possessions or Canada are covered for up to 90 consecutive days. This coverage does not apply to employees permanently relocating to another country. 3. Conditions Applicable to Insuring Agreement A.2: Forgery and Alteration a. Deductible Amount No deductible applies to legal expenses. b. Electronic and Mechanical Signatures Electronic, mechanical or other similar means of duplicating signatures are acceptable and considered the same as handwritten signatures. However, coverage does not apply for electronic signatures that do not produce a visible handwritten signature but that are used in electronic commerce to verify the sender and the sender’s intent. c. Proof of Loss The instrument involved with the loss, such as the check, must be attached to the proof of loss. If the instrument cannot be provided, an affidavit describing the cause and amount of loss must be provided in its place. d. Territory The territory condition does not apply to this insuring agreement since coverage applies anywhere in the world. 4. Conditions Applicable to Insuring Agreement A.4: Inside the Premises–Robbery or Safe Burglary of Other Property and Insuring Agreement A.5: Outside the Premises a. Armored Motor
Vehicle Companies If a contract is in place that allows for recovery from the armored vehicle company directly or from its insurance company, this policy is excess over the recovery amount. b. Special Limit of
Insurance for Specified Property The maximum amount available in any one occurrence for loss of precious metals, precious or semiprecious stones, pearls, furs or fur articles is $5,000. Fur includes expensive minks or inexpensive rabbit. This includes articles, whether complete or not, whose principal value is derived from the fur, precious metals or precious stones. This limit also applies to manuscripts, drawings or any kind of records, the cost of reconstructing them or reproducing any information in them. Example: The Coat Company manufactures two nearly identical ladies’ jackets. The one trimmed with fur wholesales for $500. The one without fur trim wholesales for $350. Since the fur trim amounts to only $150 of the value of the $500 coat, it would not be subject to the limitation because the value of the fur is less than half of the total value of the coat. 5. Conditions Applicable to Insuring Agreement A.6: Computer Fraud a. Special Limit of
Insurance for Specified Property Property consisting of manuscripts, drawings or records, including the cost of reconstruction or reproduction, is subject to a $5,000 limitation. There is no further limitation on electronic records. b. Territory The policy territory is worldwide. F. DEFINITIONSThese definitions apply to all crime insuring agreements. 1. Banking premises refers to the interior of a bank or a similar safe depository. Does it include the vestibule or entrance hall at the bank where the ATM machine is located? At a main branch, does it extend to the entire premises, including the securities division and the insurance agency? Banking premises do not include a stock brokerage or other financial institution, except a banking institution or similar safe depository. In the current era of financial services reform, more combination financial institutions may develop. The premises may house a bank branch in one area and other functions, such as insurance, stocks and bonds sales and administration, in other areas of the building. In that situation, would the entire financial institution be classified as a bank? The policy language is not clear. The interior of a bank may be best defined by the federal or state laws that apply to the banking institution where the covered loss occurs. The definition of Client is removed in the May 2006 edition. 2. Counterfeit money is a money
imitation designed to deceive and be accepted as real money (May 2006 change). 3. Custodian means the insured, including partners, members or
employees having custody of property INSIDE the premises. It does not mean
anyone acting as a watchperson or as a janitor. Watchperson is defined as
someone hired to watch. An employee working late and responsible for locking up
when leaving is not a watchperson. Janitor
is not defined; therefore, a person hired to perform duties such as cleaning or
light maintenance would be the common understanding of the term. Example: An employee stays after work hours or comes in on Sunday night to clean up the company conference room in advance of an important meeting the next morning. Depending on the circumstances of a loss, the status of that employee may affect coverage, since janitor is not a defined term. 4. Discover or discovered is when the named insured has enough
information so that a reasonable person would think that a covered loss has
occurred or will happen soon. There is no requirement as to the time or place
and it is not necessary to have specific details of the loss. It also means the time when the named insured receives notice of a
claim, actual or potential, where the named insured is supposedly liable to
another party in such a manner that this insurance policy is expected to
respond. The first paragraph is vague and is based on the reasonable man theory. When is there enough information to get the
insurance company involved? Since the discovery date affects coverage, the
vagueness of this paragraph will probably lead to legal actions and court
decisions. The second paragraph appears more precise than the first but even it is
vague because of use of the word notice.
There is no indication as to what constitutes a notice. 5. Employee: a. Employees ARE:
Example: Kent fires employee Bob. On Bob’s last day at work, Kent collects his keys and other items as Bob removes his personal items. However, Bob made a duplicate key between the time he was fired and his last day at work. He uses this key to steal merchandise from Kent’s warehouse. Bob is an employee under the definition and Insuring Agreement A.1 Employee Theft provides coverage for his actions.
b. Employees ARE NOT agents, brokers, factors, commission merchants, consignees, independent contractors or other similar parties and others not specifically mentioned as employees (May 2006 change). 6. Employee benefit plan means any welfare or pension plan subject to the Employee Retirement Income Security Act of 1974 (ERISA). Insurable plans include defined benefit pension, target benefit, profit sharing, 401(k), Keogh, Simplified Employee Pension (SEP) Plans, group health, life, disability, unemployment and cafeteria (Section 125) plans and prepaid legal services. Government plans such as Social Security are not included. 7. Forgery is the signing of someone else’s name with the intent to deceive. However, forgery does not apply when the insured or an employee signs something for which he or she has no signature authority. 8. Fraudulent instruction means any of three different things: · An electronic, telegraphic, cable, teletype, telefacsimile or telephone instruction supposedly transmitted by the insured but actually transmitted by someone else without the insured’s knowledge. · A written instruction issued by the insured forged or altered by someone without the insured’s knowledge or consent. · An electronic, telegraphic, cable, teletype, fax, telephone or written instruction initially received by the insured, supposedly transmitted by an employee, but sent by someone else without the insured’s or the employee’s knowledge or consent. 9. Funds are money and securities and are usually associated with an employee benefit plan. 10. Manager is a person who is a director of a limited liability company. Manager is not the typical employee with supervisory responsibilities. That person would be considered an employee. 11. Member is an owner of a limited liability company. A member may also be a manager. 12. Messenger includes the insured, the insured’s relatives, partners, members or any employee having care and custody of the property outside the premises. If the named insured is either an individual or a partnership, a relative is considered a messenger when having custody of property outside the premises. If the business is a corporation, it does not have relatives. However, the president’s spouse as well as the spouse of a rank-and-file employee could be considered a messenger. 13. Money is currency, coin or bank notes in current use with a face value. Money also means traveler’s checks, register checks and money orders held for sale. Register checks are no longer used in the banking industry but the term remains. Cashier’s checks are NOT considered money. 14. Occurrence This definition is significantly expanded in the May 2006 edition. The
coverage intent is the same but wording has been added to clarify the intent
due to ambiguities cited in Auto Lenders Acceptance Corporation v. Gentilini
Ford, Inc. 181 N.J. 245, 854 A 2.d 378 2004. The major change is that the
emphasis is on the individual committing the act instead of the act itself. The
defined occurrence must take place during the policy period or in the period
defined in Condition E.1.k or Condition E.1.l. Under Insuring Agreement
A.1, Employee Theft, an act or acts
committed by an employee acting alone or with other persons is an occurrence.
The act or acts can be by an individual, the combined total of several related
or unrelated acts or a series of related or unrelated acts. Examples: Five employees work together to skim money at different times and by different means from their company’s accounts. This is treated as a single occurrence. Five employees who do not know of each other’s plans or what they are doing skim money at different times and by different means from their company’s accounts. This is treated as five different occurrences. Under Insuring Agreement
A.2, Forgery or Alteration, forgery of
one or more instruments committed by
a person acting alone or with other persons is an occurrence. The act or acts
can be by an individual, the combined total of several related or unrelated
acts or a series of related or unrelated acts. Under all other insuring agreements, an act or acts committed by a person acting alone or with other persons is an occurrence. The act or acts can be by an individual, the combined total of several related or unrelated acts or a series of related or unrelated acts. This also includes an act or acts not committed by ANY person. Example: A theft ring is never identified but evidence shows it has been at work in the insured’s plant for five months and has stolen hundreds of different products. This constitutes one occurrence. 15. Other property must have intrinsic or inherent value, cannot be
money or securities and must not be property otherwise excluded. It does not include computer programs,
electronic data or specifically excluded property (May 2006 addition). 16. Premises is the interior PORTION of the building occupied by the insured and used to conduct its business. What portion of the building is occupied when the insured is a tenant in a mall with an interior corridor or the insured operates with a pushcart or kiosk in the mall? What about the storage locker located in a separate part of the mall? The lease would be the starting point to determine the meaning of premises in these situations. 17. Robbery is the unlawful taking of covered property from someone having custody of it and where actual bodily harm or threat of bodily harm is involved. It can also be an obviously unlawful act witnessed by the person having custody of the covered property. Example: A customer in a store is observed shoplifting at the end of the aisle and security is called. Until and unless that customer threatens or harms an employee, a robbery has not taken place. Example: An employee is taking a package of product from one store to another. When the employee is stopped at a stop sign, a pedestrian reaches into the vehicle and steals the package. This is a robbery because the employee witnessed it being removed. 18. Safe burglary requires evidence of forcible entry into or the removal of the entire safe or vault from the premises. 19. Securities include negotiable and nonnegotiable instruments that represent money or property. Some securities may represent commodities, such as grain or coal. Securities also include tokens, tickets, revenue and other stamps, including stamps in a postage meter. Securities can also be evidence of debt related to credit or charge cards but only if the evidence of debt is against a card not issued to the insured. 20. Theft is the unlawful taking of any covered property. The theft must be to the deprivation or loss of the insured. If the item stolen has no value, there is no theft according to this definition. 21. Transfer account is an account maintained by the insured at a financial institution from which funds may be transferred, paid or delivered by means of electronic, telegraphic, cable, teletype, telephone or fax instructions. This is done through an electronic funds transfer system or by written instructions that permit certain types of electronic transfers to be completed. 22. Watchperson is a person retained specifically to have care and custody of property INSIDE the premises and having no other duties. If the insured hires a watchperson who also patrols the grounds, this person does not meet the definitions of watchperson for the purposes of this insurance. |