Chapter 4

Question 1

1-2 Although financial institution bonds are insurance policies, why are they called “bonds?”

Answer 1

One of the key coverages they provide is employee dishonesty insurance, which was traditionally called a “fidelity bond.”

Question 2

2-1 Identify the types of property covered under the Employee Theft insuring agreement in the Commercial Crime Coverage Form.

Answer 2

Money, securities, and all other tangible property that has intrinsic value.

Question 3

2-2 Identify the types of losses that are paid under the Commercial Crime Coverage Form’s Forgery and Alteration insuring agreement.

Answer 3

Pays losses resulting from forgery or alteration of checks or similar instruments; it does not pay for losses resulting from the insured’s knowing acceptance of instruments that have been forged or altered by others.

Question 4

2-3 Describe the coverage provided by the Inside the Premises — Theft of Money and Securities insuring agreement.

Answer 4

Covers money and securities inside the premises or a banking premises against theft, disappearance , or destruction.

Question 5

2-4 Describe the coverage that is provided by the Outside the Premises insuring agreement.

Answer 5

Covers money, securities, and other property while outside the premises and in the care and custody of either a “messenger” or an armored vehicle company.

Question 6

2-5 Describe the coverage that is provided under the Computer and Funds Transfer Fraud insuring agreement.

Answer 6

Part 1: covers loss resulting directly from fraudulent entry of electronic data or computer program info, or change of electronic data or computer program within, a computer system owned, leased, or operated by the named insured. Part 2: covers loss resulting directly from a fraudulent instruction directing a financial institution to debit the named insured’s transfer account and transfer, pay, or deliver money or securities from that account.

Question 7

2-6a Morin Insurance has a Commercial Crime Coverage Form that includes the Employee Theft insuring agreement. Indicate whether FIA’s Employee Theft would cover a loss if the bookkeeper wrote several unauthorized register checks to herself for computer equipment she allegedly purchased for the office. She then tricked Morin’s treasurer into signing the checks. The equipment was delivered to her home and was never taken to the agency office.

Answer 7

Unauthorized register checks signed by the treasurer would qualify as “money.” Therefore, theft by an employee of those checks would be covered.

Question 8

2-6b Morin Insurance has a Commercial Crime Coverage Form that includes the Employee Theft insuring agreement. Indicate whether FIA’s Employee Theft would cover a loss where Morin’s VP discovered that Hal, of their IT department, sold one of the computer programs be developed while working for Morin to Avery, as well as the data associated with that program. The program was owned and copyrighted by Morin.

Answer 8

Would not be covered because the policy definition of “other property” excludes intangible items such as computer programs and electronic data.

Question 9

3-1 Identify the manner in which the Commercial Crime Coverage Form determines the most the insurer will pay for all loss resulting directly from an “occurrence”

Answer 9

The limit of insurance provision states that the most the insurer will pay for all loss resulting directly from an “occurrence” is the applicable limit shown on the declarations.

Question 10

3-2 Identify the portion of the definition of “occurrence” that applies to every commercial crime coverage.

Answer 10

Includes and individual act, the combined total of all separate acts (whether or not related), or a series of acts.. (Whether or not related)

Question 11

3-3 Describe how the insurer responds under a commercial crime policy if the amount of loss exceeds the deductible.

Answer 11

Pays the amount of loss, less the deductible, subject to the limit of insurance.

Question 12

3-4 Describe the definition of occurrence that applies to forgery and alteration.

Answer 12

Requires that the act or acts must be committed by a person acting alone or in collusion with others and must involve one or more instruments.

Question 13

4-1a Which exclusion applies to a company losing a $2M contract after an employee sold its secret process to a competitor

Answer 13

Confidential or personal information exclusion eliminates coverage.

Question 14

4-1b Which exclusion applies to a business partner embezzling funds from the partnerships’s bank account.

Answer 14

Acts committed by you, your partners, or your members exclusion eliminates coverage.

Question 15

4-1c Which exclusion applies to a business director colluding with friends to offer discounts on memberships, causing the organization to lose $10k in membership fees.

Answer 15

The acts committed by your employees, managers, directors, trustees, or representatives exclusion eliminates coverage.

Question 16

4-2 An employee of a business made an accounting error that resulted in a loss of $122k by the time the error was discovered. Identify the exclusion in the ISO Commercial Crime Coverage Form that would eliminate coverage for this loss.

Answer 16

Accounting or arithmetical errors or omission exclusion.

Question 17

4-3 A man used his personal computer and his roommate’s company credit card to make an unauthorized electronic purchase of $15k. Identify the exclusion in the ISO Commercial Crime Coverage form that would eliminate coverage for this loss.

Answer 17

Credit card transactions exclusion.

Question 18

4-4 A bookstore is insured under an ISO Commercial Crime Coverage form that includes the insuring agreement for Inside the Premises – Theft of Money and Securities. During a burglary, thieves vandalized the bookstore office by smashing several desks and computer monitors. Indicate whether the insuring agreement would cover the damage to the desks and the monitors.

Answer 18

Inside the premises uses – theft of money and securities wouldn’t cover as vandalism isn’t part of the insuring agreement.

Question 19

5-1a Under a loss sustained crime form, describe the operation of Extended Period to Discover loss to determine when a loss must occur in order to be covered.

Answer 19

The insurer will pay for loss that the named insured sustains through acts Committed or events occurring during the policy period and discovered during the policy period or within one year after the policy is canceled. However, the discover period terminates immediately as of the effective date of any other insurance that the insured obtains that replaces coverage in whole or in part.

Question 20

5-1b Under a loss sustained crime form, describe the operation of Loss Sustained During Prior Insurance Issued by Us or Any Affiliate to determine when a loss must occur in order to be covered.

Answer 20

Loss is paid if the following criteria are met 1) discovered during the policy period shown in the declarations, 2) occurred while prior insurance, issued by the same insurer or an affiliated insurer, was in effect, 3) the current insurance became effective when the prior insurance was canceled, 4) the loss would have been covered by the present insurance if the insurance had been in force at the time of loss.

Question 21

5-1c Under a loss sustained crime form, describe the operation of Loss Sustained During Prior Insurance Not Issued by Us or Any Affiliate to determine when a loss must occur in order to be covered.

Answer 21

Loss is paid if the following criteria are met 1) discovered during the policy period shown in the declarations, 2) occurred while prior insurance, issued by another inaffiliated insurer, was in effect, 3) the current insurance became effective when the prior insurance was canceled, 4) the loss would have been covered by the present insurance if the insurance had been in force at the time of loss.

Question 22

5-2a Under the Valuation—Settlement condition of a crime policy how is the value of a covered loss determined for money?

Answer 22

Face value

Question 23

5-2b Under the Valuation—Settlement condition of a crime policy how is the value of a covered loss determined for Securities?

Answer 23

Valued as of the close of business on the day the loss is discovered.

Question 24

5-2c Under the Valuation—Settlement condition of a crime policy how is the value of a covered loss determined for property other than money and securities that is lost or damaged?

Answer 24

The insurer has the option of paying the replacement cost, repairing the property, or replacing it.

Question 25

5-3 Briefly describe the two parts of the Termination as to Any Employee condition in the commercial crime form.

Answer 25

1) automatically terminates employee theft coverage with respect to any employee who has committed a dishonest act as soon as the act is known to the insured or any partner, officer, or director not in collusion with the employee 2) gives the insurer the right to cancel coverage with respect to any employee by providing 30 days advance notice to the insured.

Question 26

5-4 For 9 consecutive years with the same insurer, Emily has insured her souvenir shop under the loss sustained version of the ISO Commercial Crime Form, which includes the Employee Theft insuring agreement. During the 9th year of coverage, she learned that her staff accountant, Jerome, had been embezzling funds in July (peak season) for each of the last 6 years. Identify which condition determines whether Emily’s crime form covers the loss, and explain which policy covers the loss, and why.

Answer 26

The loss sustained during prior insurance issued by is or any affiliate condition would apply to this loss. The insurer agrees to pay a loss (that would have been covered by present insurance) that is discovered during the policy period and occurred while prior insurance issued by the same insurer was in effect. Therefore, these losses can be covered (up to the policy limit) by the policy currently in effect.

Question 27

6-1 TAF is a used appliance and furniture store. They purchased an annual commercial package policy that includes the ISO CCCF (loss sustained). They decided not to insure employee theft because they thought staff was honest. They had the following insuring agreements, each with a $1k deductible– Inside Premises - Theft of M & S with a $30k limit and Outside the Premises - Theft of M & S with a $30k limit. Policy effective date is 3/1/2010. **On 1/31/11, TAF discovered merchandise valued at $5000 was missing from inventory. Dennis, a manager, admitted that he had colluded with TAF’s delivery contractor to deliver the missing appliances and furniture to his own home. ** Given the facts presented in the case and assuming that no endorsements to TAF’s policy affect the coverage in the loss and all the policy conditions are met, use DICE to determine whether toe commercial crime form will cover the loss. The declarations confirm that coverage was in force. A. Which one of the insuring agreements would apply to the loss of $5,000 of merchandise? B. The conditions were met, but which exclusions eliminate coverage for this loss?

Answer 27

The employee theft insuring agreement would have applied but it wasn’t purchased. The acts of employees, managers, directors, trustees, or representatives exclusion applies to losses under all insuring agreements except for loss covered under the employee theft insuring agreement. Coverage is excluded for this loss

Question 28

6-2 how does coverage apply if an employee stole $1500 from a register? What if they didn’t fire her and she did it again? Would there be coverage?

Answer 28

The employee theft insuring agreement would cover the loss. The conditions were met and no exclusions applied. The $1500 is within the $100k limit for employee theft. The insurer would reduce the payment by the $1000 deductible so the loss would be $500.

Question 29

7-1 What gaps in the commercial property causes of loss forms are filled by equipment breakdown insurance?

Answer 29

Commercial property causes of loss for excludes electrical breakdown, mechanical breakdown, and steam boiler explosion. Equipment breakdown insurance fills these gaps by covering physical damage to covered equipment and other property of the insured that results from the accidental breakdown of covered equipment.

Question 30

7-2 What types of equipment malfunctions that cause direct physical damage to covers equipment are included in the form definition of “breakdown?”

Answer 30

Malfunctions such as failure of pressure or vacuum equipment; mechanical failure; including rupturing or bursting caused by centrifugal force; and electrical failure, including arcing.

Question 31

7-3 Identify and explain the condition in the equipment breakdown form that enables the insurer to act immediately when imminent danger of an accident exists?

Answer 31

The suspension condition in the equipment breakdown form allows the insurer to immediately suspend equipment breakdown insurance on an item of equipment that the insurer determine to be ins a dangerous condition. The insurer can suspend coverage by delivering or mailing a written notice of coverage suspension to the named insured.

Question 32

7-4 A power plant shut down for 12 days to make repairs following a bad electrical storm. Customers went without power. INDI manufacturing had to shut down until power was restored. After restoration, the equipment was unavailable for 3 days because it was damaged by the power failure. They couldn’t produce inventory to maintain normal revenue. Identify three insuring agreements available in equipment breakdown policy that would have benefited INDI and briefly explain what would be covered in them.

Answer 32

Would pay for repairs the manufacturing equipment caused by the electrical failure; the business income and extra expense insuring agreement would replace INDI’s lost income and any expenses it incurred as a result of the equipment breakdown; the utility interruption insuring agreement extends the business income and extra expense coverage to include loss sustained by the insured because of breakdown of equipment owned by a utility or other supplier that has contracted to provide the insured with any of these services: electricity, communications, air conditioning, heating, gas, sewer, water, or steam.

Question 33

What is the most widely used institution bond?

Answer 33

Standard Form No. 24

Question 34

Are entities eligible for financial institution bonds eligible for ISO Commercial Crime Forms?

Answer 34

No

Question 35

Which organization developed financial institution bonds?

Answer 35

Surety and Fidelity Association of America (SFAA)

Question 36

Which insuring agreement of the ISO Commercial Crime Form would the following loss be covered by - Unexplained disappearance of securities from the insured’s office?

Answer 36

Inside the Premises - Theft of Money and Securities

Question 37

What is the definition of safe burglary under the Inside the Premises - Robbery or Safe Burglary of Other Property?

Answer 37

The unlawful taking of a locked safe or vault from inside the premises.

Question 38

Would a robbery committed against a watchperson working inside the insured’s store be covered by Inside the Premises - Robbery or Safe Burglary of Other Property?

Answer 38

No.

Question 39

Which is not an element of the Commercial Crime Coverage Form’s definition of occurrence?: A series of acts, an act committed by only one person, an individual act, the combined total of all separate acts.

Answer 39

An act committed by only one person

Question 40

Are securities subject to a special limit of $5,000 per occurrence under the Inside The Premises – Robbery or Safe Burglary of Other Property coverage? Which items are subject to the limit?

Answer 40

Securities are not subject to the limit. Precious metals, furs, or semiprecious stones would be.

Question 41

An independent contractor working on the insured’s premises gained access to a company computer and sent a $50k shipment of platinum from the insured’s premises to another address unauthorized by the insured. The platinum importer is demanding payment for the shipment it delivered. The insured carries a $100k computer fraud limit of liability under the ISO Commercial Crime Coverage Form. How much should the insurer pay for the loss?

Answer 41

The insurer should pay $50k, since it is within the limit of liability.

Question 42

Would compensatory damages arising directly from a loss covered by the Commercial Crime Coverage policy be covered?

Answer 42

Yes

Question 43

Would a loss caused by a fraudulent entry made by an employee acting on a fraudulent instruction from a computer software contractor who has a written agreement with the insured be covered under the Commercial Crime Form?

Answer 43

Yes

Question 44

Are fraudulent instructions excluded under the Computer and Funds Transfer Fraud insuring agreement?

Answer 44

Yes

Question 45

What does an insured have to demonstrate in order for an inventory shortage to be covered under the Employee Theft insuring agreement?

Answer 45

The loss has to be established wholly apart from inventory computations.

Question 46

What happens if, during the policy period, the insured adds premises or employees, other than by consolidation, merger, or acquisition?

Answer 46

Policy coverage will be extended automatically.

Question 47

Under the ISO crime form, what does the condition regarding proof of loss require?

Answer 47

That the insured submit a detailed, sworn proof of loss within 120 days.

Question 48

The Delicious Restaurant suffered a covered money loss under its ISO Crime Coverage Form. The form had a $10k limit. The loss was valued at $14,500. The insurer paid the limit. After paying the limit, the insurer recovered $11,000 of the stolen money. Ignoring any deductibles that might apply, what dollar amount of covered property, if any, would go to Delicious Restaurant and to the insurer?

Answer 48

Delicious would receive $4,500 and the insurer $6,500.

Question 49

What does a company have to do with regard to a Commercial Crime policy if they acquire ownership of another company?

Answer 49

Coverage applies automatically for 90 days, but the insured must promptly notify the insurer and pay the appropriate additional premium for coverage to continue beyond that time.

Question 50

Which coverage pays for damage to a safe which was broken into?

Answer 50

Inside the Premises–Theft of Money and Securities

Question 51

What does the Spoilage Damage insuring agreement of the ISO Equipment Breakdown Protection coverage cover?

Answer 51

Spoilage of perishable goods resulting from breakdown of covered equipment.

Question 52

Does the ISO Equipment Breakdown Protection Coverage form cover the reasonable extra cost to make temporary repairs in order to speed up permanent repairs or replacement of covered property?

Answer 52

Yes. Covered by the “expediting expenses” insuring agreement.

Question 53

What is the definition of “covered property” under the Property Damage insuring agreement of the Equipment Breakdown Protection Coverage Form?

Answer 53

Property that the named insured owns or property that is in the named insured’s care, custody, or control and for which the named insured is legally liable.

Question 54

What does the “newly acquired premises” insuring agreement extend equipment breakdown coverage to?

Answer 54

Property situated at locations that the insured has purchased or leased after policy inception.

Question 55

Many states and municipalities require that boilers and other pressure vessels be inspected by a qualified inspector. Who completes these “jurisdictional inspections?”

Answer 55

Inspectors working for equipment breakdown insurers.

Question 56

What does the Joint or Disputed Loss Agreement condition of an Equipment Breakdown Protection form do?

Answer 56

Specifies that each insurer will pay half of certain losses to quickly indemnify an insured, with the insurers resolving their differences among themselves.

Question 57

What does the Utility Interruption insuring agreement of Equipment Breakdown coverage cover?

Answer 57

Extends business income and extra expense coverage to include loss sustained because of breakdown of equipment owned by a utility or other supplier of electricity, communications, air conditioning, heating, gas, sewer, water, or steam.