4/G - Commercial Crime Insurance

Question 1

Commercial Crime Insurance

Answer 1

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.

Question 2

Commercial (or Government) Crime and Employee Dishonesty Coverage

Answer 2

• 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

Question 3

Two Forms of Commercial Crime Insurance

Answer 3

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

Question 4

Loss Sustained Form

Answer 4

• 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

Question 5

Discovery Form

Answer 5

• 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

Question 6

Coverage Options

Answer 6

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

Question 7

Employee Theft

Answer 7

Coverage can be written for:

• all employees - blanket coverage
• scheduled (named) persons
• scheduled positions

Question 8

Forgery or Alteration

Answer 8

Covers forgery or alteration of:

• checks
• drafts
• promissory notes

Coverage includes checks with:

• fake payees
• forged signatures
• changed amounts

Question 9

Theft Inside the Premises

Answer 9

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

Question 10

Robbery Inside the Premises

Answer 10

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

Question 11

Theft or Robbery?

Answer 11

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

Question 12

Outside the Premises

Answer 12

• 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

Question 13

Computer Fraud

Answer 13

6) Computer Fraud
- Covers theft via computer from the insured’s premises or bank accounts
- Includes losses of money, securities, or other property

Question 14

Money Orders and Counterfeit Paper Currency

Answer 14

• Protects against loss from mistakenly accepting counterfeits
• Includes foreign currency

Question 15

Funds Transfer Fraud

Answer 15

8) Funds Transfer Fraud

- Protects against loss due to fraudulent instruction about funds transfers

Question 16

Commercial Crime Endorsements

Answer 16

• 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

Question 17

Commercial Crime Endorsements, continued

Answer 17

• 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

Question 18

Notable Crime Policy Provisions

Answer 18

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

Question 19

More Notable Crime Policy Provisions

Answer 19

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

Question 20

Universal Commercial Crime Exclusions

Answer 20

1. Theft by insured
2. Theft by employees or representatives, except as provided under Employee Theft agreement
3. Seizure or destruction by government authority
4. Legal expenses, except as provided under Alteration or Forgery agreement
5. Nuclear hazard, war, and other similar actions
6. Indirect loss, payment of damages, costs of assessing loss

Question 21

Exclusions to Employee Theft Coverage

Answer 21

1. Loss caused by an employee for whole similar insurance had been cancelled
2. Inventory shortages unless proved to be caused by employees

Question 22

Particular Exclusions 1-4

Answer 22

Exclusions to Primary Insuring Agreements 3, 4, and 5

1. Losses due to accounting errors and omissions
2. Loss from surrendering property in exchange or purchase
3. Loss resulting from fire, however caused, except for lost money and securities or damage to a safe or vault
4. Loss of property in a money-operated device, such as a vending machine

Question 23

Particular Exclusions 5-8

Answer 23

Exclusions to Primary Insuring Agreements 3, 4, and 5:

5. Loss or damage to motor vehicles and things attached to them
6. 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)
7. Loss caused by vandalism or malicious mischief to the premises, safe, vault, or other property.
8. Voluntary parting of title or possession of property

Question 24

Government Crime Coverage Insurance

Answer 24

• Covers government entities
• Operates much like commercial crime coverage
• Two available coverages: Discovery Form and Loss Sustained Form

Question 25

Employee Theft

Answer 25

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

Question 26

Endorsements

Answer 26

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

Question 27

Other Insurance

Answer 27

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

Question 28

Additional Premises/Employees

Answer 28

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

Question 29

Common Exclusions

Answer 29

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

Question 30

Employee Theft Exclusions

Answer 30

• 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.

Question 31

Computer Fraud

Answer 31

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

Question 32

Funds Transfer Fraud

Answer 32

Excludes losses from the fraudulent transfer of money, securities, etc, via computer