CR 04 17–FRAUDULENT IMPERSONATION

(July 2019)

INTRODUCTION

When covered items are stolen or given away because of a threat, coverage is available under many insuring agreements in the Crime Coverage forms. However, if those same items are given away without a threat there is no coverage, even if they were given away following instructions that were accepted as legitimate but turned out to be fraudulent. This newly introduced endorsement is designed to fill that coverage gap.

This analysis is of the 011 15 edition which is the first edition of the form.

Example: Janey received a message that Gary, her boss, wanted her to expedite the shipment of four cartons of equipment to a new customer, Felix and Friends. She followed the orders. When Gary returned the next day, Janey asked about the order so that she could properly invoice it and Gary explained that he had not made such a request. The four cartons were never located. Gary placed a claim with his insurance who declined payment because of the fraudulent instruction exclusion.

ELIGIBILITY

This endorsement can be added to the Insurance Services Office (ISO) Commercial Crime Coverage Form or Policy.

SCHEDULE

The endorsement schedule has spaces to enter information for the two parts of the insuring agreement.

The first is Fraudulent Impersonation of Employees Included. A yes or no must be selected. If yes is selected a check must be entered in one of the verification boxes.

The second is Fraudulent Impersonation of Customers and Vendors Included. A yes or no must be selected. If yes is selected, a check must be entered in one of the verification boxes.

There are three verification options and they are identical for both of the insuring agreement. Whichever option is selected becomes a precondition of coverage. If the selected verification procedure is not in place at the time of loss, that loss is not covered. The three options are:

A. All transfers must be verified

B. All transfers over the entered limit must be verified

C. No verification is required.

ANALYSIS

This is an endorsement to the ISO Commercial Crime Coverage Form or Policy and the ISO Government Crime Coverage Form and Policy and is subject to their conditions, definitions, and exclusions. The only changes are those within this endorsement.

A. Insuring Agreement

The insuring agreement has two parts but both start with Fraudulent Impersonation:

1. Employees

This applies only if the Yes is entered on the schedule for this part.

This coverage pays when a loss occurs because the named insured transfers money, securities or other property. The transfer must have been made in good faith because transfer instructions were provided by:

• A partner, employee, manager, member, office, director, trustee or the sole proprietor named insured. This applies when the coverage is written on a commercial crime coverage part or policy.
• An official or employee. This applies when the coverage is written on a government crime coverage part of policy.

The loss must occur because the transfer instructions were issued by an imposter and are fraudulent. The coverage requires that none of the persons listed above had knowledge of the imposter or provided consent to the imposter.

Example: Jake is the top salesmen for Pamela’s company, WaitNotWantNot. He is known for putting together deals quite quickly. One day, Pamela receives a call who says that Jake was in the midst of a great deal but needed $5,000 cash to close it. The caller, whom Pam believes must be Jake’s wife, says she has arranged for a courier to collect the funds so that Jake would not need to leave the meeting. Pamela quickly obtained the necessary cash and had it ready when the courier arrived.

Pamela was very excited to hear all about the deal a couple of days later when Jake returns. Jake told her that he and Carol, his wife, had been on a mini-vacation and he had no idea what Pamela was talking about. If CR 04 17 is on the policy, this loss would be covered.

2. Customers and Vendors

This applies only if the Yes is entered on the schedule for this part.

This coverage pays when a loss occurs because the named insured transfers money, securities or other property. The transfer must have been made in good faith because transfer instructions were provided by a customer or vendor.

The loss must occur because the transfer instructions were issued by an imposter and are fraudulent. The coverage requires that the customer or vendor had no knowledge of the imposter or provided consent to the imposter.

Example: Jasper sells high end electronic equipment. A new representative from one of his vendors paid a visit to explain that their current equipment was being discontinued and a new line was being introduced. A few top retailers had been selected to be the first to stock the new equipment but only if they agreed to return all of their current equipment. Jasper was eager to comply so allowed the representative to remove all of the stock. Jasper then waited to receive the new equipment that never came.

Jasper would be covered for this loss only if CR 04 17 is on the policy.

3. Verification

Coverage applies based on the selections made on the Schedule.

(1) If A. is selected the named insured is required to verify all transfer instructions. If the instructions are not verified, no coverage is provided.

Note: The wording of this requirement does not limit its application to a specific loss but instead it applies to the named insured’s procedures. This could mean that if all transfers are not verified any loss, verified or not, could be declined.

Example: In the second example, Pamela didn’t check with anyone before providing the requested money. This is not unusual in many operations because of urgency placed on the request. If the company had simple and easy to understand verification processes, this loss might not have happened. If Pamela’s company had such a verification process stated on the CR 04 17, but Pamela failed to use it, the loss would not be covered.

(2) If B. is selected the named insured is required to verify all transfer instruction over the dollar amount entered on the Declarations. Any loss under that amount is covered whether or not verification was made. Any loss in excess of that amount is not covered without the verification.

Note: This wording is the same as A. and could result in the same declinations.

Example: In the third example, Jasper didn’t call the equipment supplier to verify their representative’s statements even though he had never met the representative. The total amount of the loss was $50,000. If Jasper’s company had a process in place that all transactions over a $10,000 amount had to be verified, this loss may not have happened. If Jasper’s company had the verification process and had stated so on the CR 04 17, but Jasper went around it, the loss would not be paid.

(3) If C. is selected there is no requirement that instructions be verified.

Note: The method of verification is not outlined. There is no requirement that it be in writing or who must be contacted for verification.

E. Conditions

1. The Territory Condition is changed to be worldwide.

F. Definitions

Three definitions are added to the F. Definitions in the Coverage Form or Policy.

1. Customer is any entity or person that enters into a written contract under which the named insured provides a service or sells a product.

2. Transfer instruction is the instruction that is provided to the named insured that states money, securities or other property is to be transferred.

Note: There is no requirement as to how a transfer instruction is received. This means it could be verbal, written, by phone or through electronic devices.

3. Vendor is any entity or person that enters into a written contract under which the named insured receives a service or buys a product.