March 2007, Volume 3
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251.4-2

COMMERCIAL CRIME COVERAGE ANALYSIS

(October 2006)

This 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 policy forms are:

  • CR 00 20–Commercial Crime Coverage Form (Discovery Form)
  • CR 00 21–Commercial Crime Coverage Form (Loss sustained Form)
  • CR 00 22–Commercial Crime Policy (Discovery Form)
  • CR 00 23–Commercial Crime Policy (Loss sustained Form)

This analysis evaluates Form CR 00 21, Commercial Crime Coverage Form (Loss sustained Form).

As with all ISO forms, defined words are offset by quotation marks in the policy or coverage form. The words “you” and “your” refer to the named insured listed on the declarations. The first named insured is the entity that receives notices of premiums, cancellations and other documents, as discussed in the common policy conditions. “We” and “us” are the insurance company.

A. INSURING AGREEMENTS

Eight separate insuring agreements are available in each of the commercial crime 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 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:

  • The loss must be the result of an occurrence.
  • The occurrence must take place DURING the policy period shown on the declarations.
  • The loss must be discovered by the named insured DURING the policy period or the extended discovery period.

All of the above are subject to:

  • Condition E.1.g Extended Period to Discover Loss;
  • Condition E.1.k Loss Sustained During Prior Insurance Issued by Us Or Any Affiliate;
  • Condition E.1.l Loss Sustained During Prior Insurance Not Issued By Us Or Any Affiliate; and
  • Definitions of the terms “discover” and “occurrence” in Section F of the policy.

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 impact what losses are covered in addition to including the new definition of "discover."

1. Employee Theft

This insuring agreement applies to employee “theft” 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, 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 of the business. The total loss is $500,000. The policy limit of insurance for employee theft is $200,000. The insured argues that each of the employees should be insured for $200,000 with a total possible loss payable 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 were 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, another different employee is stealing merchandise by forging documents and selling the merchandise 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 alterations to 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 anyone while acting as an insured’s agent. The definition of checks includes 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:

  • An insured’s account;
  • Another party’s account; or
  • An account that no longer exists.

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. Afterwards, the insurer pays 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:

  • It pays for theft of “money” and “securities” committed by a person actually present inside (May 2006 change) the “premises” or a “banking premises.” It also pays for loss due to disappearance or destruction of “money” or “securities” from inside the premise or banking premises. No merchandise or stock is covered in this insuring agreement. “Premises” is defined as 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.
  • It covers damage to the interior of the premises and to the exterior of the building during an attempted or actual theft. However, in order for coverage to apply to damage to the exterior of the building, the named insured must either own the building or be legally liable for damage to exterior portions of it.

Example: Burglars break down the outside door of the building. Damage to the door is covered only if the named insured is the owner of the building or is liable for damage to the door for reasons of negligence or because of a requirement or obligation in a lease. If the named insured as a tenant in the building is not liable for the damage, and if there is no requirement or obligation in the lease agreement, there is no coverage for the damage to the door under this coverage in the insuring agreement.

  • It covers damage incurred during an attempted or actual theft to locked safes, vaults, cash registers, cash boxes and cash drawers inside the premises.

4. Inside the Premises–Robbery or Safe Burglary of Other Property

Under the commercial crime coverage form, “Other property” means property other than “money” and “securities” having intrinsic value and not otherwise excluded. "Intrinsic" is generally defined 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 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 separate element 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 a “watchperson” or janitor. Losses from robberies during both normal business hours and after hours not involving a "watchperson" or a janitor 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 and having 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 janitorial cleaning staff opening desk drawers to dust inside. The next day, several people are missing valuable tools, software and other items. She suspects the janitorial staff took the items but 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

This insuring agreement covers “theft,” disappearance and destruction of “money” and “securities” when outside the premises and in the custody of a messenger or an 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. It covers only the “robbery” of a messenger of other property when outside the premises and in the custody of a messenger or an armored car company. 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 back of a pickup truck, falls to the river below and is never seen again is not covered. If the same vehicle was car-jacked and the robber threw the crate into the river, coverage applies.

In either of the cases above, a messenger may be an insured or the partners and "employees" of the insured. “Employees” do not include independent contractors, other than an armored car company, leased employees or any agent or broker.

Example: Pink Elephant Phine Liquors arranges with Perki Personnel, a professional employment organization (PEO) 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. Coverage for leased employees may be added by using form CR 25 05–Include Leased Workers as Employees.

6. Computer Fraud

In this insuring agreement, computer fraud covers "money," "securities" and "other property" fraudulently transferred 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, a person breaking into the office premises and using one of the insured's computers to transfer funds from the insured’s account to his or her Swiss bank account is also covered. 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 sales person for Cyberfroot Distributors, was staying in a hotel in Beijing, where 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 loss is covered under this insuring agreement.

7. Funds Transfer Fraud

This insuring agreement provides coverage for 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 INSURANCE

The limit indicated on the declarations is the most to be 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, 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 under Insuring Agreement 1 is $300,000, under Insuring Agreement 3 it is $100,000 and under Insuring Agreement 7 it is $250,000. 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 the highest limit available, $300,000.

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 of the limits.

C. DEDUCTIBLE

Each 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, Insuring Agreement 1 had a $10,000 deductible, Insuring Agreement 3 had a $1,000 deductible and Insuring Agreement 7 had no deductible. The insured argues that no deductible should apply but the insurance company argues that the deductible that applies is $10,000.

D. EXCLUSIONS

1. 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 known by one or more of them to have 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 so 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 them fence items stolen from the warehouse. When the loss is discovered, the insurance company cannot not deny coverage on Trent. This is because Rick is the only one at the company aware of his 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 identify theft loss issues.

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, who previously left town. Paul demands the school system compensate him for the money lost due to Marguerite’s actions. However, 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 was 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 when he learns that federal officers confiscated the boat under a zero tolerance controlled substances law.

f. Indirect Loss

Indirect losses not covered include:

  • Loss of income as a result of not being able to use “money,” “securities” or “other property.”

Examples: Coverage does not apply to loss of interest income on “money” that could have been invested. There is also 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 on these coverages.

  • Legal liability claims. Coverage for property of others is available only by endorsement. Please refer to PF&M Section 251.6-2, Clients’ Property–Form CR 04 01, for details on coverage that applies to property of others.
  • The cost of establishing the amount of a loss. The costs and expenses involved can be substantial and can include a number of items. Among them is the cost of financial auditors to look through books “cooked” by an employee. Another is the cost of independent investigators hired to ferret out all of the loss and who caused it. The last is the cost of hiring forensic or other specialists to determine what missing inventory was stolen and what was simply shortage. Coverage for these costs and expenses is available by attaching Endorsement CR 25 40–Include Expenses Incurred to Establish Amount of Covered Loss. 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.

g. Legal Fees, Costs and Expenses

If the named insured incurs costs, fees or legal expenses for any reason, including those for a covered loss, they 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 that do not have the pollution exclusion.

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 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 a mistake 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. Activities within the term “trading” 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 Endorsement 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 who seems to have legitimate claims to the merchandise but does not. These situations are not covered, nor are errors in issuing, signing, cancelling or failing to cancel any warehouse receipt. Fraudulent transfer of warehouse receipts is covered by CR 25 17–Add Warehouse Receipts 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. 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 142.15, AAIS Warehouse Legal Liability Coverage Form, for more information on this additional 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 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 purchase this coverage.

Example: A customer pays the marked price of $2,000 for a piece of furniture. It is later revealed that the price should have been $20,000. Further investigation shows that the mistaken marking was an 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

Most fire losses are covered under a standard fire insurance policy or an equivalent coverage form. However, Insuring Agreement A.3, Inside the Premises–Theft of Money and Securities, provides coverage for fire loss or damage (May 2006 addition) to a safe or vault from attempted or actual theft or unlawful entry. Because of this coverage, overlapping coverage with ISO Form CP 00 10, Building and Personal Property Coverage Form, combined with ISO Form CP 10 30, Causes of Loss Special Form, is possible. These property forms would cover damage to the safe or vault from fire associated with any unauthorized entry. However, the property policy excludes property specifically covered elsewhere and the most either policy pays is the actual loss amount.

d. Money Operated Devices

Theft of "money" from vending machines or other money or coin-operated devices is not covered unless the “money” is continuously counted and recorded by the machine itself. There is no standard endorsement available to "buy back" this exclusion or purchase broader coverage.

e. Motor Vehicles or Equipment and Accessories

Damages to any motor vehicle, its accessories or trailers are excluded. Coverage for theft of motor vehicles is available under automobile comprehensive coverage, garage dealers' coverage or garagekeepers' liability coverage in the commercial automobile policy. It is also available for vehicle manufacturers through a commercial property coverage form. 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. There is no standard endorsement available to "buy back" this exclusion or purchase this coverage. There is also no coverage if the property was given up because of the threat of either bodily harm or property damage. There is also no coverage if there are various types of 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 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, Extortion–Commercial Entities–Form CR 04 03, for more information on this additional coverage form.
  • The item above does not apply to Insuring Agreement A.5, Outside the Premises, if the property is 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 is threatened. 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 losses are better covered under commercial property coverage forms. Situations may occur where vandalism and theft are concurrent causes of loss that occur at the same time.

Example: During a riot, vandals break a business’s showroom windows and steal merchandise. 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 handled 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 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 cards.

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 may be purchased using 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 may be purchased using Insuring Agreement A.6, Computer Fraud.

E. CONDITIONS

1. Conditions Applying 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)

The policy provides coverage 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

  • Let the insurance company and local law enforcement authorities know what happened as soon as possible if an unlawful act is involved or suspected. Law enforcement authorities do not necessarily have to be notified if the loss involves employee theft, alteration or forgery.
  • Submit to an examination under oath and sign a statement. This is required when requested by the insurance company.
  • Provide any records considered pertinent to the loss to the insurance company so it can examine them as needed (May 2006 addition).
  • Provide a detailed, sworn proof of loss within 120 days after the date of loss. This is longer than in most policies, because of the extraordinarily long amount of time that may be needed to work through a complicated employee theft scheme or other fraud, and where trails of money or computer fraud are involved.
  • Cooperate with the insurance company in the investigation and claim settlement.

f. Employee Benefit Plans

Insuring Agreement A.1, Employee Theft coverage applies to “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 is for fraudulent or dishonest acts, such as theft of retirement funds by an employee.

  • Only those plans listed on the declarations are covered under Insuring Agreement A.1, Employee Theft. For example, this means if the plan is called the Jones Company Retirement Plan and the plan administrator changes, coverage still applies. However, a more complicated name could cause a problem with a similar change in funds handling.

Example: If a covered plan is listed as the Jones Company Retirement Plan through ABC Funding, and the insured transfers the plan’s assets to DEF Funding, coverage does not apply to the new plan unless the policy is amended by endorsement to recognize the change.

  • If the Jones Company Retirement Plan is jointly insured with any other insured plan, the insured is responsible for making sure the limit of insurance is adequate to cover both plans as though each is insured separately. This language is included because federal laws require some employee retirement and other benefit plans carry a specific limit of fidelity coverage. The intent of the provision is to put the burden of responsibility for selecting that limit on the insured and not on the insurance company.
  • This coverage pays only for loss of “funds” and “other property” of the plan and not for loss to the desks or “other property” associated with the administration of the plan.
  • If the first named insured is not the same name as the covered employee benefit plan, any loss payment must be held by the insured for the benefit of the plan. In other words, the insured is not permitted to commingle loss payment or claim funds with general business funds.
  • If the policy covers two or more employee benefit plans, losses arising out of one occurrence are shared by the funds in the same proportion as the funds in each plan bear to the total funds of all plans. Any payment due is made directly to the plan or plans sustaining the loss (May 2006 addition).

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.

  • No deductible apples to employee benefit plan(s) coverage.

g. Extended Period to Discover Loss

Losses must occur prior to the cancellation date of coverage but may be discovered:

  • Within one year from the date of cancellation. However, if another policy covering the same loss was purchased to replace the insurance under this policy, the extended period of discovery ends immediately.

Example: Peggy had no idea that employees were skimming money from the cash registers. Her crime policy expired on January 1, 2002 and she did not renew. She discovered the loss on June 10, 2002. The loss is covered if the employees began stealing the money from the cash registers before January 1, 2002 and during the previous policy period, January 1, 2001 through December 31, 2001.

Example: Under a previous policy, an insured’s coverage included protection against employee theft. The new policy also includes employee theft coverage but has a retroactive date and only losses that occur during the policy period are covered. The extended period to discover employee theft losses ends the moment the new policy is effective. In this case, the insured has a gap in coverage.

  • Within one year from the date of cancellation if the coverage applies to employee benefits plan. There is no exception.

h. Joint Insured

  • The first named insured acts for all other insureds, unless excluded, deleted or not covered in some way. In that case, the next named insured listed becomes the first named insured. The first named insured is responsible for premium payments and receives all notices issued by the insurance company, such as cancellation notices.
  • Knowledge by one insured of anything affecting the insurance coverage is considered to be knowledge by all insureds. This is an important point because not all insureds in one policy may be wholly owned by the first named insured. They may be partnerships or corporations involving significant outside ownership.

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.

  • An “employee” of one insured is an employee of all insureds.

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.

  • The extended period to discover loss condition applies separately to each insured.

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.

  • The limit of insurance applies to all insureds. A separate limit does not apply to each insured.

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.

  • When the insurance company pays the first named insured for a loss, the claim is satisfied for all named insureds. The one exception is employee benefit plans, which must receive a separate settlement (May 2006 addition).

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.

  • If a loss is sustained in part during the current insurance and in part during prior policies and there was no break in coverage, the loss in the current policy period is settled first and the losses in the prior periods are then settled.
  • If a loss is sustained entirely during a previous policy period, there was no break in coverage between the date of loss and the current policy, and the current policy covers the loss, the insurance company settles the loss under the most recent previous insurance first and then settles the remaining amounts during previous insurance.
  • Any settlement is made as follows:
    • The highest single limit of insurance available during any policy period when the loss occurred is available for the loss.
    • No settlement is paid until the deductible that applies under the current policy is satisfied. That deductible is the only one applied to the entire loss settlement, regardless of the number of policy periods involved.

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 discovered the loss this year and calculated 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. They 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.

  • Primary Insurance

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.

  • Excess insurance

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: 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

  • Recoveries made by the insurance company, minus recovery expenses, are returned to the insured until the amount of their loss above the deductible amount is paid. Any remaining recovery amount is paid to the insurance company until it is completely reimbursed for the loss settlement it made. Any additional recovery amounts available go to the insured to reimburse their deductible. If any money remains after the first three items are paid, the insured is paid for losses sustained not covered by this insurance.
  • Recoveries do not include reinsurance recoveries by the insurance company or the cost of original “securities” if duplicates have been issued.

q. Territory

The covered policy territory consists of the United States, all its territories and possessions, Puerto Rico and Canada. Worldwide coverage for employees temporarily outside of the United States applies for up to 90 days under Insuring Agreements A.1, Employee Theft, A.2, Forgery and Alteration and A.6, Computer Fraud. In order for a loss to be covered, the named insured must sustain the loss as a direct result of an occurrence in the coverage territory.

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

The terms of the limit of insurance section apply first after which the following applies:

  • “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.
  • “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.
  • 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.
  • Property other than “money” can be paid for either in 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.
  • Any property the insurance company replaces or pays for becomes the property of the insurance company.

2. Conditions Applying 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 it is done, depends on the circumstances.

  • As soon as the named insured, partners, members, managers, officers, directors or trustees learn that an employee has committed a dishonest act, all coverage for that employee ends. It does not matter if the dishonest act happened before or after the employee joined the named insured’s business. The only exception is if one of the named group of company representatives was in collusion with the employee and concealed the dishonest act of the employee in order to further his or her own dishonest plans.
  • The insurance company can terminate coverage for an employee by mailing notice to the named insured at least 30 days before the date that cancellation takes effect.

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 Applying 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 Applying 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 written contract provides for recovery from the armored vehicle company insurance, this policy is excess insurance over the indemnity payments from that insurance.

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 Applying 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. DEFINITIONS

These 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 so a person hired to perform duties such as cleaning or light maintenance would be the common understanding of the term. A person acting as a janitor when a loss occurs may merit serious attention and scrutiny when investigating the loss.

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, this vagueness 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:

  • Natural persons employed by the insured and for up to 30 days after termination of employment. This time period does not apply to any employee terminated due to his or her dishonest acts (May 2006 addition). The person must be compensated directly by salary, wages or commissions and the insured must have the right to direct or control the activities of the person. The difference between employees and independent contractors can be vague and is somewhat fluid. Recent employment cases have scrutinized long-term independent contracts to determine whether individuals are truly independent or are de facto employees. Each situation is different and requires expert legal advice to determine whether these persons should be considered as employees or not.

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.

  • Temporary employees are “employees” if hired to meet seasonal or short-term workloads or to substitute for permanent employees on leave. Insurance coverage does not apply to temporary employees when they have custody of property OUTSIDE the insured “premises.” They would not be covered as a “messenger” or even when operating the outside cash register during a sidewalk sale.
  • Leased employees are “employees.” There must be a written agreement between the insured and a labor-leasing firm or PEO for the leased employee to perform duties related to the insured’s business. A leased employee is not a temporary employee as described above.
  • Trustees and officers are “employees.” Third-party administrators or other independent contractors hired to administer covered employee benefit plans are NOT “employees.” Directors or trustees of covered employee benefit plans are considered employees when handling “funds” and “other property” belonging to the plan. A pension plan director may have administrative duties relating only to the plan but have nothing else to do with the insured’s business. When carrying out those administrative duties, the administrator is not an “employee.” Once the administrator begins handling funds, he or she is an “employee” for the purposes of this insurance.
  • A former “employee,” "director," "partner," “member,” “manager,” representative or trustee used as a consultant is an "employee."
  • Guest students or interns pursuing studies or performing duties are “employees,” unless they have care and custody of the insured’s property outside the covered “premises.”
  • "Employees" of merged or consolidated entities are "employees," provided the merger or consolidation occurred before the effective date of the current policy (May 2006 addition).
  • "Managers," directors or trustees are "employees" when performing duties usual to those of an "employee" or when serving on a committee at the request of the board of directors or board of trustees. A director is not an "employee" when sitting in board meetings or doing director tasks (May 2006 change). This change merely moves this from the negative "employees are not" to the positive "employees are, except."

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; or

·         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 considered to be 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 considered to be 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 they have been at work in the insured’s plant for five months and have 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" must show evidence of forcible entry into or the removal of the entire safe or vault from the premises.

19. "Securities" includes negotiable and nonnegotiable instruments that represent “money” or property. Some "securities" may represent commodities, such as grain or coal. “Securities” also includes 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. 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.