4/G - Commercial Crime Insurance Flashcards
Commercial Crime Insurance
Each year, employee theft and dishonesty costs U.S. businesses:
- $50 billion
- on average, 6% of annual revenue
Businesses need protection against theft by employees and outside parties.
Commercial (or Government) Crime and Employee Dishonesty Coverage
- Covers losses caused by outside sources or employees
- Includes theft, forgery, fraud, and other illegal activity
- Employer dishonesty coverage protects against fraudulent activity by an employee or group of employees
Two Forms of Commercial Crime Insurance
Loss Sustained Form: covers losses that occur during policy period
Discovery Form: covers losses that are discovered during policy period, no matter when they occurred
Loss Sustained Form
- Covers losses that actually happen during policy period
- Also covers up to one year after expiration
- Exception: if insured had a previous, expired policy in force at time of loss, and kept up continuous coverage since then, current policy will cover the loss
Discovery Form
- Covers losses that the insured discovers during policy period (up to 60 days after policy expires)
- No matter when the loss actually occurred
- Almost always limits how old a loss can be and still be covered
Coverage Options
Commercial Crime and Employee Dishonesty coverage:
- May be stand-alone or part of package policy
- Basic Commercial Crime Coverage Form: 8 possible insuring agreements
Eight primary insuring agreements:
- Each has its own limit and deductible
- Insured can exclude an insuring agreement by leaving its limit blank on the dec page
- Limits usually cannot be combined for a single event
Employee Theft
Coverage can be written for:
- all employees - blanket coverage
- scheduled (named) persons
- scheduled positions
Forgery or Alteration
Covers forgery or alteration of:
- checks
- drafts
- promissory notes
Coverage includes checks with:
- fake payees
- forged signatures
- changed amounts
Theft Inside the Premises
3) Inside the Premises - Theft of Money and Securities
This insuring agreement covers:
- losses of money and securities from theft, damage, or destruction, caused by non-employees
- property damage to premises that happens during actual or attempted theft of money and securities
- “securities” can include:
a. credit card receipts
b. checks
c. tickets or tokens
d. travelers checks
Robbery Inside the Premises
4) Inside the Premises - Robbery or Safe Burglary of Other Property
Covers:
- property other than money and securities
- losses arising from actual or attempted robbery
- damage to premises and/or safe from robbery
Robbery: taking with violence or the threat of violence
Custodian: insured, partner, or employee that has care or custody of insured property
Watchperson: someone hired by the insured to have no other duty but to maintain care and custody of insured property inside the premises
Theft or Robbery?
Theft: the act of stealing. This generally encompasses robbery, burglary, and larceny.
- Robbery: taking property with violence or the threat of violence
- Burglary: forced entry into the premises with the intention to steal
- Larceny: stealing someone else’s personal property
Outside the Premises
- Covers lost or stolen money or property off of the insured’s premises
- Losses caused by robbery of messengers, armored cars, etc.
- Includes disappearance and destruction
Messenger: named insured or insured’s relative, any business partner or member, or any employee who has custody of insured property outside the insured premises
Computer Fraud
6) Computer Fraud
- Covers theft via computer from the insured’s premises or bank accounts
- Includes losses of money, securities, or other property
Money Orders and Counterfeit Paper Currency
- Protects against loss from mistakenly accepting counterfeits
- Includes foreign currency
Funds Transfer Fraud
8) Funds Transfer Fraud
- Protects against loss due to fraudulent instruction about funds transfers
Commercial Crime Endorsements
- Extortion Endorsement: Covers loss due to threats of bodily harm, including kidnapping threats. Also includes property damage threats.
- Client’s Property Endorsement: covers property while it is on a client’s premises
- Lessees of Safe Deposit Boxes Endorsement: covers losses to items in safe deposit
Commercial Crime Endorsements, continued
- Securities Deposited with Others Endorsement: losses to securities deposited with a custodian
- Safe Depository Endorsement: covers legal liability for property that the insured holds in safe deposit for customers
- Guests’ Property Endorsement: covers legal liability for guests’ property while in a safe deposit box or on the insured premises
Notable Crime Policy Provisions
Other Insurance: only pays after other insurance is exhausted
Property Covered: only covers property owned or held by policyholder; or for which policyholder is legally liable; only for benefit of insured
Valuation:
- Money valued at face value
- Securities at value on day loss is discovered
Other items: at actual replacement cost, or repair cost if less
More Notable Crime Policy Provisions
Legal Action Against Insurer: must be within 2 years, and after insured has followed all terms of the contract
Cancellation as to Any Employee: theft by employee cancels his coverage, even if act occurs before hire
Extended Period to Discover Loss: A new policy replaces the extended period of an old policy
Universal Commercial Crime Exclusions
- Theft by insured
- Theft by employees or representatives, except as provided under Employee Theft agreement
- Seizure or destruction by government authority
- Legal expenses, except as provided under Alteration or Forgery agreement
- Nuclear hazard, war, and other similar actions
- Indirect loss, payment of damages, costs of assessing loss
Exclusions to Employee Theft Coverage
- Loss caused by an employee for whole similar insurance had been cancelled
- Inventory shortages unless proved to be caused by employees
Particular Exclusions 1-4
Exclusions to Primary Insuring Agreements 3, 4, and 5
- Losses due to accounting errors and omissions
- Loss from surrendering property in exchange or purchase
- Loss resulting from fire, however caused, except for lost money and securities or damage to a safe or vault
- Loss of property in a money-operated device, such as a vending machine
Particular Exclusions 5-8
Exclusions to Primary Insuring Agreements 3, 4, and 5:
- Loss or damage to motor vehicles and things attached to them
- Loss of property moved outside premises in response to a threat (except if the property was in the care of a messenger, and there was no threat when it left the premises)
- Loss caused by vandalism or malicious mischief to the premises, safe, vault, or other property.
- Voluntary parting of title or possession of property
Government Crime Coverage Insurance
- Covers government entities
- Operates much like commercial crime coverage
- Two available coverages: Discovery Form and Loss Sustained Form
Employee Theft
Two Employee Theft Coverage Options:
1) Same insuring agreement as in the standard commercial crime coverage (pays per occurrence)
2) Insuring agreement covers theft per employee
Endorsements
Extortion Endorsement covers losses due to threats of bodily harm/property damage
Commercial Crime covers threat of bodily harm to:
- Director
- Trustee
- Partner
- Member
- Employee
- Proprietor
Government Crime covers threat of bodily harm to:
- Officials
- Employees
- Representatives
Not available for Government Crime:
- Client’s Property
- Lessees of Safe Deposit Boxes
- Safe Depository
- Guests’ Property
Other Insurance
Government crime policy may provide primary or excess coverage.
When multiple policies can apply to a loss:
Pro-rata coverage if both policies:
- are primary
- have same terms and conditions
Excess coverage in all other cases involving multiple policies
Additional Premises/Employees
Government Crime policy:
- Covers new property/employees
- No extra premiums for current policy period
Commercial Crime policy has Consolidation - Merger:
- Covers new premises or employees acquired through merger, consolidation, or purchase from another company
- Insured must have written consent from insurer
- May affect premiums
- Automatic coverage for first 90 days
Common Exclusions
Additional exclusions under government crime policy:
- Employee-caused losses from before policy period, which the insured knew about but did not report before the policy period ends
- Losses that follow from insured giving out private information without authorization
Employee Theft Exclusions
- Loss from employees who are under legal obligation to be individually bonded
- Inventory losses, if proof of loss depends on calculation of inventory or profit and loss
- Loss due to a trade
- Loss brought about by treasurer, tax collector, etc.
Computer Fraud
Computer Fraud excludes losses:
- Due to credit card transactions
- Due to insured following fraudulent instructions to transfer funds out of a transfer account
- If proof of loss depends on calculation of inventory or profit and loss
Funds Transfer Fraud
Excludes losses from the fraudulent transfer of money, securities, etc, via computer
