ISO COMMERCIAL CRIME COVERAGE FORMS AND POLICIES ANALYSIS

(July 2019)

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This analysis is of the 11 15 edition of these Insurance Services Office (ISO) coverage forms and policies. Changes from the 08 13 edition are in bold print. It does not address editorial or format changes that do not affect coverage.

INTRODUCTION

Commercial crime coverage can be written on either a discovery basis or a loss sustained basis. It may be written as a monoline policy or as a coverage part in a commercial package policy. The following are the coverage forms and policies:

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 begins with CR 00 21–Commercial Crime Coverage Form (Loss Sustained Form). This is followed by comparing it to the other coverage form and policies.

CR 00 21 opens by stating that certain provisions in it restrict coverage and encourages reading the entire coverage form to determine what is covered and what is not covered, as well as rights and duties. It defines the terms "you or your" as the named insured and "we, us, and our" as the company that provides the insurance coverage. CR 00 21 has other words that have special meanings. They are defined in F. Definitions.

A. INSURING AGREEMENTS

CR 00 21 contains seven insuring agreements. Coverage for a specific insuring agreement applies only if there is a limit of insurance on the declarations beside that insuring agreement. Coverage applies to losses the named insured sustains under the following circumstances:

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

All of the above are subject to all of the following:

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
Definitions of the terms discovered and occurrence in Section F

1. Employee Theft

The employee theft insuring agreement covers losses to money, securities, and other property because of theft by an employee. Coverage applies even if the specific employee who caused the loss cannot be identified. The employee causing the theft may be operating alone or in collusion with others. This definition of theft is changed in this insuring agreement to include forgery.

Note: The statement about employees acting in collusion is an important point because the limit of insurance applies to each act, not to each employee.

Example: Easy Pickings, Inc.’s employee theft limit is $200,000.

Scenario 1: Ten employees at Easy Pickings participate in a scheme to siphon cash from the accounts receivable. The total loss is $500,000. Easy Pickings argues in vain that each employee should be covered for $200,000 with a total possible loss payout of $2,000,000. This coverage pays the $200,000 limit per occurrence, not per employee, because the employees are all part of the same scheme.

Scenario 2: An employee at Easy Pickings steals merchandise from the warehouse and sells it to friends. This employee’s actions are completely separate from the ten-person scheme. As a result, the $200,000 limit of insurance applies separately to this claim.

2. Forgery or Alteration

a. This insuring agreement pays losses that are the direct result of forged or altered drafts, checks, or promissory notes. It also pays if similar written directions, orders, or promises to pay a certain amount of money are forged or altered. The forged or altered instruments must be made, drawn on, or drawn upon the named insured or an agent acting on behalf of the named insured. Coverage applies for the actual drawing or for the allegation of such.

This insuring agreement treats substitute checks as defined in the Check Clearing for the 21st Century Act the same as the original check it replaces.

Example: Peter breaks into Plumber’s Palace and steals checks from the bottom of a stack he finds in the comptroller’s office. During the next few weeks, Peter writes checks against Plumber’s Palace’s account until the controller discovers the unauthorized check cashing.

b. The named insured may be sued when it refuses to pay money for an instrument it believes is forged. The insurance company reimburses the named insured for its cost to defend the suit but only if the insurance company had given the named insured its written consent to defend against the suit. The expenses must be reasonable. These amounts are in addition to this insuring agreement’s limit of insurance.

3. Inside the Premises–Theft of Money and Securities

The insurance company pays the following:

a. Loss of money and securities while it is inside the premises or inside a financial institution premises that result directly from either of the following:

· Theft that is committed by a person who is actually present within the premises or within a financial institution premises

· Destruction or disappearance

Note: This Coverage Form defines premises. The definition is much more restrictive than the term used in the ISO Commercial General Liability (CGL) or Commercial Property Coverage Forms.

Example: Sharon owns a small card shop.

Scenario 1: An armed robber enters her card shop and demands all her money. This loss is covered.

Scenario 2: Sharon receives a phone call. The caller tells her that he has a weapon pointed at her premises and demands that she place money in a bag and put it outside her door. This loss is not covered.

b. Loss due to the premises or its exterior being damaged because of an attempted or actual theft of money and securities. However, this coverage applies only if the named insured owns the premises or is liable to the owner of the premises for its damage.

c. Damage to or loss of a locked vault, safe, cash box, cash drawer, or cash register. Coverage applies only if they are located inside the premises and the loss is a direct result of an attempted or actual theft of those containers or attempted or actual unlawful entry into them.

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

The insurance company pays the following:

a. Loss or damage to other property inside the premises due to either of the following:

· That is a direct result of attempted or actual robbery of a custodian

· That is a direct result of an attempted or actual safe burglary. This applies to items within the safe or vault that is burglarized.

b. Loss due to the premises or its exterior being damaged as a direct result of attempted or actual robbery or safe burglary of other property. However, this coverage applies only if the named insured owns the premises or is liable to the owners of the premises for its damage.

c. Damage to or loss of a locked vault or safe that is located inside the premises. Coverage only applies if the loss is a direct result of an attempted or actual robbery or safe burglary.

Notes:

Other property means property other than money and securities that have intrinsic value and that is not otherwise excluded. The American Heritage College Dictionary defines intrinsic to mean “of or relating to the essential nature of a thing; inherent.” A chair has intrinsic value. An idea, in and of itself, does not have intrinsic value unless it is applied and made into something.

This insuring agreement’s coverage applies to only robbery of a custodian or to safe burglary. The act must take place within premises located in a described building. Robbery is a subset of theft that involves actual bodily harm or the threat of bodily harm, violence, or intimidation or the unlawful taking of property that another person witnesses. A custodian may be the named insured, members, partners, or employees but NOT watchpersons or janitors.


A Custodian	Not a Custodian

Losses from robberies either during normal business hours or after hours that do not involve watchpersons or janitors are covered. A person who works late and turns on the alarm before leaving is not a watchperson, unless hired specifically to have custody of the property and without any other duties. A watchperson is the security guard hired to watch the premises during normal business hours.

Example: Eric is working late at his desk so he is expected to lock up when he leaves. By definition, Eric is the custodian of the premises.

Scenario 1: Eric hears someone breaking into the store. He quickly calls 911 and hides in a closet until the police arrive. The thief is able to escape before the police arrive. While Eric cannot identify the perpetrator, he did witness the unlawful entering into the building so coverage would apply.

Scenario 2: Eric leaves the building for dinner. When he returns, he notices that the lock has been broken and calls 911. The thief took a number of items but the loss is not covered because no custodian was on the premises when the thief broke in.

Under this insuring agreement, damage to the premises from an attempted or actual act of robbery or safe burglary is covered as well as damage to a LOCKED safe or vault. Damage to an open safe or vault during a robbery is not covered. However, loss to property inside the safe or vault is covered.

5. Outside the Premises

The insurance company pays the following:

a. Loss of money and securities that occurs outside the premises. The money and securities must be in an armored car or with a messenger. The only loss covered is one that is a direct result of theft, disappearance, or destruction.

Example: A suitcase full of cash bounces out of the back of a messenger’s pickup truck, tumbles across a bridge, falls 120 feet into a river, and is never recovered. This loss is covered.

b. Loss of other property that occurs outside the premises. The other property must be in an armored car or with a messenger. The only loss covered is one that is a direct result of attempted or actual robbery.

Example: A crate of rare vases fall out of a messenger’s truck and into the river below, never to be seen again. This loss is not covered.

Example: A crate of rare vases is in a messenger’s truck. The truck is carjacked and shortly afterwards, the thief throws the crate into a river. This loss is eligible for coverage.

Note: The definition of messenger is found in the Definitions Section. As used in this form messengers must have a relationship to the named insured. A messenger can be a relative, a partner, a member or an employee. This means that a robbery of a hired messenger is not covered.

Example: Pink Elephant Phine Liquors replaces its employee-operated truck fleet with independent truck drivers. One of these drivers is robbed at gunpoint while delivering a load of liquor to a Pink Elephant warehouse. There is no coverage for this claim because the independent driver is not a messenger.

6. Computer and Funds Transfer Fraud

a. The insurance company pays the following:

(1) Loss caused when money, securities, or other property is transferred, paid, or delivered because of a fraudulent computer entry or change or a fraudulent electronic data entry or change. The entry or change must be within a computer system that the named insured owns, operates, or leases. This also applies if the fraudulent entry or change resulted in the named insured’s account at a financial institution being either debited or deleted.

Example: Josie Proust, the top salesperson for Cyberfroot Distributors, was staying in a hotel in Beijing. She regularly conducted business from her room. While at a meeting 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 insuring agreement covers this computer fraud loss.

(2) Loss caused when money or securities are transferred, paid, or delivered from the named insured’s account at a financial institution based on fraudulent instructions.

b. Fraudulent entry or fraudulent change of electronic data or a computer program as described in 6. a. (1) above is broadened to include such entries when made in good faith by employees. However, coverage applies only if the entries are made based on fraudulent instructions received from a computer software contractor. This contractor must have a written agreement with the named insured to design, implement, or service computer programs for computer systems that this insuring agreement covers.

Example: Ken receives an electronic file from his network provider and is told that it is a required patch. Ken uploads the file as instructed. Charlene’s financial institution informs her that unusual charges are being made against the company account. Ken and Charlene review the timing and realize the patch is actually a program designed to redirect funds. Ken changes network providers and Charlene files a police report and a computer transfer claim.

7. Money Orders and Counterfeit Money

This insuring agreement pays losses that result from the named insured accepting in good faith either of the following:

a. Money orders issued by any financial institution, express company, or post office that are not paid when presented

b. Counterfeit money but this applies only to such money that was received as part of a business activity.

Coverage under this Insuring Agreement applies only if the instruments were accepted in exchange for merchandise, service, or money.

B. LIMIT OF INSURANCE

The limit on the declarations is the most paid for all loss that result from a single 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.

Example: Acme Company sustains a loss that involves both employees and non-employees. It is determined that it is one occurrence and that Insuring Agreements 1, 3, and 7 provide coverage. The available limits of insurance are:

Insuring Agreement 1 - $300,000
Insuring Agreement 3 - $100,000
Insuring Agreement 7 - $250,000.

The total loss is $500,000.

The maximum recovery is $300,000, the highest limit available.

Note: A situation like this could have claimants and their attorneys seeking ways to utilize the different definitions of occurrence within the insuring agreements so that what might appear to be a single occurrence could be separated into multiple occurrences.

C. DEDUCTIBLE

The insurance company does not pay anything until the amount of loss is more than the deductible amount on the declarations. After the deductible is satisfied, the insurance company pays the amount of loss that exceeds the deductible amount up to the limit of insurance for the coverage or insuring agreement that applies.

Note: There is no direction provided as to which deductible applies when multiple insuring agreements apply to the same occurrence. Due to this ambiguity, an insured could argue that the lowest (or even no) deductible should be used. In such disputes, any ambiguity could be construed in favor of an insured’s interpretation.

Example: Continuing the Acme example above, the deductibles are:

Insuring Agreement 1 - $10,000
Insuring Agreement 3 - $1,000
Insuring Agreement 7 - $0

The insured argues that no deductible applies. The insurance company argues that both the $10,000 and the $1,000 deductibles apply.

D. EXCLUSIONS

1. These exclusions apply to all insuring agreements unless stated otherwise.

a. Acts Committed by You, Your Partners or Members

There is no coverage for theft or any other dishonest act the named insured or its members or partners commit. This applies if the named insured, partner or member acts alone or involves others in the dishonest event.

Note: The named insured cannot claim coverage for an employee’s dishonest act if the named insured is involved in the same dishonest act. For the purposes of this exclusion, a member is an owner of a Limited Liability Corporation (LLC).

b. Acts Committed by Your Employees Learned of by You Prior to the Policy Period

This exclusion applies to losses caused by employees with a history of committing dishonest acts. Coverage does not apply to any loss that employee causes if the named insured, its partners, members, managers, officers, directors, or trustees knew about his or her previous dishonest acts that took place prior to the policy period. However, coverage does apply if the member, partner, manager, officer, director, or trustee who knew about the dishonest acts was working with that employee to commit the dishonest act.

Example: Trent has a troubled background and Rick, the vice president of operations, knows about it. Rick uses Trent and his shady contacts to help him fence items they steal from their company’s warehouse. When the loss is discovered, the insurance company cannot deny coverage because Rick is the only one at the company who was aware of Trent’s dishonest past.

c. Acts Committed by Your Employees, Managers, Directors, Trustees, or Representatives

This exclusion applies to all insuring agreements except Insuring Agreement A. 1. Employee Theft.

Coverage does apply to any dishonest act (including theft) any of the named insured’s employees, managers, trustees, directors, or authorized representatives commit. This exclusion applies whether they act alone or with any other persons. It applies whether the perpetrator is providing a service for the named insured at the time of the loss or not.

Example: Jeremy is an employee at Jones and Sons. He and three of his friends broke into the Jones and Sons warehouse and stole a substantial amount of electronics. Jeremy’s involvement was captured by the warehouse’s surveillance cameras. Coverage under all Insuring Agreements except for Insuring Agreement A. 1 is denied because Jeremy was an employee of Jones and Sons.

d. Confidential or Personal Information (11 15 changes)

The insurance company does not pay for loss that result from either of the following:

(1) Disclosing another person’s or organization’s confidential or personal information. It also does not pay for loss resulting from any use of such information.

Example: Marguerite works in Acme College’s Record’s Department. Her boyfriend, Phillip, asks for some information about his roommate, Paul, and uses it to steal Paul's identity. Paul discovers the identity theft when he attempts to secure a student loan. The police track the release of information to Phillip and Marguerite, both of whom have left town. Paul demands that Acme compensate him for the monetary loss due to Marguerite’s actions. One reason the crime coverage written on Acme College does not respond is because of this exclusion.

(2) Disclosing the named insured’s confidential or personal information. However, this exclusion does not apply to coverage that is available in certain insuring agreement when such information is used for dishonest acts.

Examples of such confidential or personal information mentioned in this exclusion are patents, trade secrets, customer lists, processing methods, credit card information, financial information, health information, or any other kind of information that is generally not available to the public. These are only examples and are not meant to restrict the term confidential or personal information.

Note: This exclusion was rewritten to clarify that only loss due to the disclosure of the named insured’s personal and confidential information is not covered. Coverage provided in an insuring agreement that is due to the use of the named insured’s personal or confidential information could still apply.

e. Data Security Breach

Coverage does not apply for any expenses or costs the named insured must incur or for any fines, fees or penalties it must pay because access was provided to another person or organization’s personal or confidential information or that information was somehow disclosed. The personal or confidential information examples are the same as described in Exclusion d. above.

Example: Acme College is reprimanded by its accreditation board and both the state and local governments for permitting Paul’s identity to be stolen. The college must perform an audit, review and update its procedures, and add levels of security to protect student information. The college must also pay fines. None of these costs are covered.

f. Government Action

Coverage does not apply to loss that results when property is taken or destroyed because of an order from a governmental authority.

Example: The owner of Shot Docks Bass Boat Rentals files a claim for the loss of a boat. The boat is valued at $37,000 and the owner states that “some official persons” took it from her premises. The claims adjuster investigates and learns that the boat was confiscated under a federal controlled substances law. The claim is denied.

g. Indirect Loss

There is no coverage for loss that is an indirect result of an occurrence that this insurance covers. The following are examples of such excluded indirect losses but the exclusion is not limited to just these:

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

Note: This means that coverage does not apply to loss of interest income on money that could have been invested. There is no coverage for loss of income on stock holdings that could have appreciated during an upturn in the market. Finally, loss of profit due to the loss of a chance to sell product stolen from an insured is excluded. Business income coverage available in commercial property forms pays for the loss of income on property other than money or securities.

· Damages for which the named insured is legally liable. The only exception is for any direct damages that this insurance covers.

· Costs, fees, or other expenses the named insured incurs in order to establish that a loss actually happened or to determine the amount of a loss.

Note: These costs, fees, or expenses can be substantial.

Examples:

The expenses to hire auditors to examine books that an employee “cooked”
The costs to hire independent investigators to ferret out the scope of a financial loss and who caused it
The costs to hire forensic or other specialists to determine the part of missing inventory that was stolen and the part that was simply part of an inventory shortage

Coverage for these costs and expenses is available by attaching CR 25 40–Include Expenses Incurred to Establish Amount of Covered Loss.

h. Legal Fees, Costs, and Expenses

There is no coverage for any legal fee, cost, or expense the named insured incurs. However, there is an exception explained under Insuring Agreement A. 2.

i. Nuclear Hazard

There is no coverage if nuclear reaction or radiation causes loss or damage. Radioactive contamination is also excluded. This exclusion applies regardless of how such losses occur.

j. Pollution

Loss or damage caused by or that results from pollution is excluded. Pollution means any release or escape of any solid, liquid, gaseous, or thermal contaminant or irritant. These include vapor, smoke, acids, fumes, chemicals, alkalis, and waste. Waste includes materials to be reclaimed, recycled, or reconditioned.

Note: This definition of pollutant is identical to the one used in ISO Commercial Property Coverage Forms.

k. Virtual Currency (11 15 addition)

Any loss that involves virtual currency is excluded. Virtual currency is any type of electronic currency such as digital or crypto currency. The name of the currency and whether it is actual or fictitious is irrelevant to this exclusion.

Note: Coverage is available for this type of currency through CR 25 45–Include Virtual Currency as Money.

Example: Justine sells products only online and accepts many forms of payment, including bitcoin. A recent audit reveals that Chris, one of her employees, has been siphoning the bitcoin payments to his personal bitcoin account. Justine submits an Employee Theft claim that is denied because the loss is entirely in virtual currency.

l. War and Military Action

There is no coverage for loss or damage that results from war, undeclared war, or civil war. This includes a military force’s warlike actions or actions to hinder or defend against an expected or actual attack by any governmental authority that uses military personnel or other agents.

Loss or damage due to rebellion, insurrection, usurped power, revolution, or action a governmental authority takes to defend against or hinder any of these is also not covered.

Note: This wording is identical to the wording in ISO Commercial Property Coverage Forms.

2. These exclusions apply to Insuring Agreement A. 1: Employee Theft Coverage.

a. Inventory Shortages

There is no coverage when the fact that a loss has occurred is based solely on an inventory shortage or a profit and loss statement. The inventory and profit and loss can be used to calculate or substantiate a loss but other evidence of the actual physical loss must be provided.

Example: Pellington Industries orders a complete audit that includes a physical inventory. The audit reveals a significant difference between the actual inventory and what was believed to have been in inventory. Pellington immediately notifies its insurance carrier who quickly denies the claim because there is no proof that an actual loss had occurred. Pellington then hires a private investigator. The investigator discovers that the warehouse supervisor has been working with an accounting clerk to move product to an outside fence. Pennington presents this information plus the information from the audit and the company accepts the claims and begins its own investigation.

b. Trading

Losses that result from trading are excluded. They are excluded if the trading is in the named insured’s name, if trading is genuine, or if it is a fictitious account.

Note: Trading activities include stock-trading losses, commodity-trading losses, and merchandise-trading losses (where batches of product are exchanged). CR 25 16–Add Trading Coverage may cover certain trading losses to a genuine, not a fictional, account.

c. Warehouse Receipts

Warehouse receipts track and detail document storage and the transfer of products from the entity storing them to the entity 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 having a seemingly legitimate claim to the property but does not. Coverage does not apply to these situations or to errors in issuing, signing, cancelling or failing to cancel any warehouse receipt.

Note: CR 25 17–Add Warehouse Receipts Coverage can be attached to insure fraudulent transfer of warehouse receipts.

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 mistakes are not covered losses. When errors or omissions in accounting or arithmetic result in a loss the named insured is responsible for that loss, not the insurance carrier.

Note: There is no standard endorsement available to "buy back" this exclusion or to purchase this coverage.

b. Exchanges or Purchases

There is no coverage for loss in any exchange or purchase of any property.

Note: There is no standard endorsement available to "buy back" this exclusion or to purchase this coverage.

Example: Sylvester pays the marked price of $2,000 for a piece of furniture. It is determined at a later date that the price should have been $20,000. Further investigation shows that the price tag was intentionally altered and Sylvester, who paid in cash, provided false contact information. Even though this appears to be criminal activity, coverage does not apply because this loss was the result of a purchase.

c. Fire

There is no coverage for loss or damage that fire causes. However, there are two exceptions:

· Coverage applies for fire damage to money and securities.

Note: This is very important because other commercial property coverage forms do not respond to fire damage to money and securities.

· Coverage applies when fire damages a safe or a vault.

Note: This is duplicate coverage with property coverage forms. It could be considered primary because it is specific.

d. Money Operated Devices

The loss of property from within vending machines or other money or coin-operated devices is excluded unless the machine itself continuously counts and records the money.

Note: There is no standard endorsement available to "buy back" this exclusion or to purchase broader coverage.

e. Motor Vehicles or Equipment and Accessories

Damage to or loss of any motor vehicle, its accessories, or trailer is excluded.

Note: Coverage for theft of motor vehicles is available under various commercial automobile coverage forms and policies. It is also available for vehicle manufacturers through commercial property coverage forms. CR 00 21 does not define the term “motor vehicle” as other ISO coverage forms do.

f. Transfer or Surrender of Property

(1) Coverage does not apply to loss or damage to property after it is given to someone outside the premises or financial institution premises because of unauthorized instructions or because of a threat. The threat could be to take any of the following or similar actions:

Bodily harm to a person
Damage any property
Place a denial of service attack into any computer system
Place any type of malicious instruction, such as a virus, into any computer system in order to destroy, damage, or corrupt computer programs or electronic data that is a part of the computer system.
Obtain and then use, reveal, or disseminate any of the following:

Confidential information belonging to anyone.
Weakness in the source code in any computer system

Note: Property given because of certain types of unauthorized instruction can be covered using CR 04 17–Fraudulent Impersonation.

Related Article: CR 04 17–Fraudulent Impersonation

Property given because of threats is considered to be a form of extortion. Coverage is available by purchasing Optional Insuring Agreement CR 04 03–Extortion–Commercial Entities or by purchasing Kidnap/Ransom and Extortion Coverage.

(2) This exclusion has a very specific exception. Under Insuring Agreement A.5, Outside the Premises, if the messenger having custody of the property was not aware of any threat, coverage applies or if the messenger knew of the threat but the loss was not related to the threat, coverage also applies.

Example: Martin is leaving Just Us Kids store with an attaché case filled with money and securities.

Scenario 1: Martin received a call from his boss telling him to take the case to a nearby apartment and to leave it there for him to collect. There is no coverage when the case is never found and Martin’s boss explains that he made no such call.

Scenario 2: Martin received a call telling him to take the case to a nearby apartment or else Martin’s mother would be harmed. There is no coverage when the case is never found.

Scenario 3: Martin is taking the case to 1^st Bank of Louisa in order to make a deposit. His boss received a threatening call just after Martin left. Martin is intercepted and stripped of the case. This act is covered because Martin was not aware of the threat.

g. Vandalism

There is no coverage for any vandalism damage to the premises or to the exterior of the premises. Vandalism to other property, safes vaults or cash registers or drawers is also not covered. Malicious mischief damage is also not covered.

Note: Vandalism and malicious mischief is properly insured under commercial property coverage forms. In certain situations, vandalism and theft are concurrent causes of loss. These are different losses that occur at the same time. However, it is important to note that this exclusion does not apply to money or securities. This means that vandalism and malicious mischief damage to money and securities is covered which is important because such damage is NOT covered under the commercial property forms.

Example: Vandals break Oscar’s Office Outlet’s showroom windows and trash the premises. The vandals turn over the file cabinets and various securities contained in the cabinet are destroyed. The commercial property coverage form should cover the building and contents losses but not the damage to the securities. The damage to the securities is covered under the crime coverage but there is no coverage for damage to any of the other property.

h. Voluntary Parting of Title to or Possession of Property

There is no coverage when the named insured or someone working with the named insured is tricked into parting with title to or possession of any covered property.

Note: CR 04 17–Fraudulent Impersonation provides coverage for certain type of trickery.

Related Article: CR 04 17–Fraudulent Impersonation

4. The following exclusions apply to Insuring Agreement A. 6: Computer and Funds Transfer Fraud.

a. Authorized Access

Coverage does not apply when the loss results from actions of any party that is authorized to access that computer system. The only exception is described in Insuring Agreement A. 6. b. which explains that when an employee acting in good faith takes an action based on fraudulent information of a specific type of contractor there is coverage.

b. Credit Card Transactions

Coverage does not apply when a loss is due to any type of credit, debit, charge, or other similar card being used. There is also no coverage when the loss is the result of information that was contained on any of those cards.

c. Exchanges or Purchases

There is no coverage for loss that occurs because property was relinquished as a part of a purchase or an exchange.

Note: There is no standard endorsement available to "buy back" this exclusion or to purchase this coverage.

d. Fraudulent Instructions

There is no coverage when an employee or financial acting on false or fraudulent instructions transfer, pay or deliver money or securities or other property. This exclusion applies even if the named insured’s account is debited or deleted based on those instructions.

The only exceptions are described in Insuring Agreement A. 6.a.(2) and 6. b. These both describe very specific fraudulent instruction situations that are covered.

Note: This exclusion appears to be a way to clarify the exact circumstances when coverage is provided and then to eliminate all others.

e. Inventory Shortages

E. CONDITIONS

These conditions apply in addition to the Common Policy Conditions.

1. Conditions Applicable to All Insuring Agreements

a. Additional Premises or Employees

Coverage automatically applies when a named insured adds employees and/or premises during that policy term. The named insured is not required to notify the insurance company and tell it about the additional premises and/or employees and there is no additional premium.

The only exception to this condition is when the new premises or employees are the result of a consolidation, merger, or acquisition.

Note: Condition E. 1. c. Consolidation–Merger or Acquisition below provides additional information on the exception.

b. Concealment, Misrepresentation, or Fraud

Any fraudulent act the named insured commits voids coverage. If the named insured or any insured intentionally misrepresents or conceals material facts with respect to the insurance provided, property it covers, the named insured’s interest in that property, or any claim made the policy is also voided.

c. Consolidation–Merger or Acquisition

When the named insured merges or consolidates with or acquires another entity, the insurance company must be notified as soon as possible. This notice must be in writing. The insurance company then has the opportunity to decide if it wants to take on this additional exposure. If it decides to continue, the insurance company has the option to require additional premium.

Making a decision may take some time, so up to 90 days automatic coverage is provided for the premises, assets, or liabilities of the merged or acquired entity and its employees. All coverage ceases on these premises, assets, liability or employees after 90 days unless the insurance company has consented to covering it.

The coverage is not retroactive so the only losses covered are those that occur AFTER the date of consolidation, merger, or acquisition.

d. Cooperation

The named insured must be cooperative and work with the insurance company. The policy’s terms and conditions establish that required cooperation.

e. Duties in the Event of Loss

The named insured has certain duties it must perform after it discovers a loss or a situation that may result in loss of or damage to money, securities, or other property. They are the following:

· Notify the insurance company as soon as possible. In addition, notify local law enforcement agencies if a law has been violated. Law enforcement is not required to be notified if the loss involves only Insuring Agreements A. 1. or A. 2.

· Give the insurance company a detailed, sworn proof of loss within 120 days of discovering the loss.

Note: 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 type of fraud.

· Cooperate with the insurance company as it investigates and settles the claim.

· Provide any records considered pertinent to the loss to the insurance company so it can examine them as needed.

· Submit to an examination under oath and sign a statement of the answers provided. This is required only when the insurance company requests it.

· The named insured is required to secure all rights of recovery it has against any party that is responsible for a loss that is paid under this coverage. The named insured must not give away those rights. Remember though that this duty applies only to events that occur after the loss. Therefore, the named insured can waive any and all rights of recovery against any party it chooses to prior to a loss.

Example: Paul provides all security checks for Jerry’s employees. The contract between Jerry and Paul is that Jerry holds Paul harmless for any mistakes that Paul makes. Kenny, an employee who passed all of Paul’s security check, steals $15,000 from Jerry and cannot be located. The insurance company’s investigation reveals that Kenny had multiple felony convictions that were not uncovered by Paul. The insurance company has no rights of recovery against Paul because Jerry had waived his rights of recovery against Paul prior to the loss.

f. Employee Benefit Plans

Insuring Agreement A. 1. Employee Theft coverage applies to the Employee Benefit Plans listed on the declarations.

Note: 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 applies to fraudulent or dishonest acts, such as theft of retirement funds by an employee.

Example: The Jones Company Retirement Plan is listed on the declarations as covered:

Scenario 1: The plan administrator changes during the policy period but the plan name does not. Coverage continues.

Scenario 2: The named insured starts a separate retirement plan called The Jones 401k Retirement Plan. Coverage does not apply because this entity was not added to the declarations.

Coverage provided for the plan is subject to the following:

· The plan may be jointly insured with another entity on the policy. In that case, the named insured or the plan administrator must select a limit of insurance for Insuring Agreement 1. that is high enough to at least equal the amount that ERISA would require if each Employee Benefit Plan was insured separately.

Note: This language is included because ERISA has specific minimum requirements based on the plan’s value. This provision requires that the named insured or the plan administrator select the limit, not the insurance company.

· Insuring Agreement 1. A. is modified by replacing the term “theft” with the term “fraudulent or dishonest acts”. This applies only for losses the plan discovers or sustains.

· When the plan is not the first named insured, the insurance company agrees to pay the plan and not the first named insured for any loss the plan sustains.

· Special payments arrangements must be made for any loss when multiple plans’ money, securities or property are commingled. When a loss occurs to the commingled property the insurance company makes payments to each plan that sustained loss in the same proportion that the ERISA required limit of insurance for each plan bears to the sum of the ERISA required limit of insurance for all of the plans.

Example: Three plans that share coverage under the same policy sustain a $100,000 loss. Covered Plan A requires a limit of $500,000, Covered Plan B requires a limit of $200,000, and Covered Plan C requires a limit of $50,000. The sum of the required coverage is $750,000. The policy’s limit is $1,000,000. The insurance company reimburses Plan A 500/750 of the loss, Plan B 200/750 of the loss, and Plan C 50/750 of the loss.

· Deductibles do not apply to employee benefit plan coverage.

g. Extended Period to Discover Loss

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

· Within one year from the date that coverage is cancelled. However, this extended period to discover loss ends immediately on the date that the named insured obtains other coverage.

Example: Peggy did not know that her employees were skimming money from the cash registers. Her crime coverage expired on 01/01 2020 and was not renewed. She discovered the loss on 06/10/2020. The loss is covered if the employees began stealing the money from the cash registers before 01/01/2020.. Any money stolen after 1/1/2020 is not covered.

· Not more than one year from the date that cancellation is effective with respect to employee benefit plans. There is no exception.

h. Joint Insured

· There may be cases where there is more than one insured named on the declarations. In those cases, the first named insured acts for itself and all other insureds with respect to the coverage that CR 00 21 provides. If the first named insured ceases to be insured, the next insured named becomes the first named insured.

Example: The named insured reads John Wilson, Wilson, Inc., Wilson, LLC, and Wilson, Johnson, and Miles. As the first named insured, John Wilson is responsible for paying the premium. He does not pay and he receives the cancellation notice because he is the first named insured. He does not tell any of the other entities that coverage is cancelled. When a loss occurs at a later date, the other named insureds do not have any recourse against the insurance company because it had properly notified the first named insured.

· Knowledge by one insured of anything that affects the insurance coverage is considered to be knowledge held by all insureds. This is an important point because the named insured may not wholly own all insureds on the policy. They may be partnerships or corporations that involve significant outside ownership.

Example: Continuing the example above, prior to the cancellation, John Wilson lets Wilson, Johnson, and Miles hire Millie, one of his employees. John forgets to tell Wilson, Johnson, and Miles that Millie has a criminal record. Any employee theft loss that involves Millie is excluded because each named insured is considered to know what each other named insured knows.

· Employees of one insured are considered employees of all insureds.

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

Example: John Wilson did not purchase any replacement coverage. This means he has a one-year extended loss discovery period. The other named insureds purchased additional coverage when they learned of the cancellation. Their extended period to discover loss ends on the date that the new coverage is effective.

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

Example: All three named insureds shared a single bookkeeper. When she didn’t return from her vacation, it was discovered that all accounts had been emptied. John Wilson sustains a $100,000 loss, Wilson, Johnson, and Miles has a $75,000 loss, and Wilson LLC has a $50,000 loss from this single occurrence. The insurance company pays only the $100,000 limit on the declarations.

· 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 that must receive a separate settlement.

Example: The insurance company pays John Wilson the $100,000 loss. He takes the payment and leaves town. The other two named insureds do not receive anything. Their only recourse is against John Wilson’s assets.

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 cannot bring the action until 90 days after filing a proof of loss. However, the lawsuit must be filed within two years of the date the insured discovered the loss. It is very important to note that the two years does not start on the date the loss was filed but instead starts on the date the loss was discovered. If a state law or local statute requires different time periods, the policy is amended or conforms to comply with those requirements.

j. Liberalization

The insurance company may adopt a revision that broadens the coverage this insurance provides and not charge any additional premium for it. If it does so 45 days prior to this policy period or during this policy period, the broadened coverage applies to this policy.

k. Loss Sustained During Prior Insurance Issued by Us or Any Affiliate

A person or persons may engage in numerous dishonest acts over a period of years before being caught. However, all such acts are considered one occurrence. If the named insured maintains continuous coverage with the same insurance company or group of insurance companies, coverage applies back to the date that the continuous insurance began. However, the limits of insurance 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 when they occurred. This condition now has three parts and includes three examples 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.

Example: Alice stole $50,000 two years ago, $20,000 last year, and $30,000 this year, for a total of $100,000. Alice’s employer carried a $50,000 limit of insurance each of these three years. These limits cannot be added together even though the dishonest acts took place during each of these years because this provision treats the series of thefts as a single occurrence. $50,000 is the maximum limit available for this single occurrence.

(1) Loss Sustained Partly during this Insurance and Partly during Prior Insurance

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. The losses in the prior periods are then settled.

(2) Loss Sustained Entirely during Prior Insurance

If a loss is sustained entirely during a previous policy period and 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. It then settles the remaining amounts during previous insurance.

(3) When the insurance company settles losses under k. (1). And k. (2) above:

· 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.

Examples:

Low down Bob has been stealing from Below Ground Enterprises for three years. Below Ground discovers the loss this year and calculates that the amount of loss is $100,000.

Scenario 1: The limit of insurance on the current policy is $100,000. However, it was only $25,000 three years ago. The insurance company pays $100,000.

Scenario 2: The limit was reduced from $100,000 to $25,000 two years ago. The insurance company still pays Below Ground $100,000 because the limit of insurance was $100,000 at the time of the occurrence.

l. Loss Sustained During Prior Insurance Not Issued by Us or Any Affiliate

(1) 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 ABC Indemnity Company. It 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 its 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.

Note: The important distinction is that the highest limit is used to settle claims if coverage is continuously with one company or group. If coverage moves between companies, the lowest limit is used to settle claims. This creates a significant gap in coverage if coverage moves from one insurance company to another.

m. Other Insurance

Other insurance may be available to the named insured to cover a loss that is also covered under this insurance. If that coverage is both available and collectible, the following explain how the insurance company will respond in limiting its responsibilities:

(1) Primary Insurance

If other insurance is written under the same terms and conditions as this insurance, the policies share any loss proportionally. If the other insurance is not written under the same terms and conditions, this coverage is excess. That mean that this insurance will pay only after the loss exceeds the limit of insurance under the other policy or the deductible under this insurance, whichever is higher.

Example: Hershel changes insurance companies. Because of the cancellation and non-renewal terms and conditions, the two package policies overlap by two days. A holdup occurs at his business on one of those days.

Scenario 1: The two crime coverages are identical. In this case, each contributes equally.

Scenario 2: One of the package policies has an automatic property extension endorsement that provides holdup coverage with a $2,500 limit. The policy with the extension is primary and the crime coverages are excess.

The proportional statement applies even if the insured cannot collect from the other coverage carrier.

Note: This is an interesting statement because it appears to be in conflict with the lead language statement that says that coverage must be both available and collectible before the terms of this condition apply.

(2) 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. 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. 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.

The other coverage amount over which this coverage is excess is not the responsibility of this insurance even if that amount cannot be collected by the insured.

n. Ownership of Property; Interests Covered

This insurance covers only the following types of property:

· Property the named insured owns or leases

· Property the named insured holds, regardless of the capacity under which it is holding it

· Property the named insured is legally liable for but only if that liability was in place before the loss occurred

This condition also explains that the insurance coverage is for the benefit of only the named insured. This means that the owners of property that the named insured is holding or for which it is legally liable have no standing with the insurance company. The named insured must present any claim on their behalf.

o. Records

The insurance company must be able to verify the amount of loss being claimed. In order to assist in that process the named insured must maintain records of its property.

Note: This is a condition for payment. This means that if the named insured does not keep records to verify the claims then a loss may not be paid.

p. Recoveries

Recoveries can occur before or after a claim has been settled. The recovery is first reduced by recovery expenses and the remaining is returned in the following order:

· First, the named insured receives the amount of loss that exceeded the amount the insurance company paid.

· Next, the insurance company receives the amount of loss it paid.

· Next, the named insured receives the amount of deductible that was its responsibility.

· Last, the named insured then receives any remaining amount that this insurance did not cover.

Recoveries do not include reinsurance the insurance company recovered or the cost of original securities if duplicates were issued.

q. Territory

This insurance covers losses that the named insured sustains that result directly from an occurrence that takes place within the United States of America, its territories and possessions, Puerto Rico, and Canada.

Note: There are territory exceptions for Insuring Agreements A. 1., A. 2., and A. 6. They are described in the insuring agreement-specific conditions below.

r. Transfer of Your Rights of Recovery Against Others to Us

Under Condition e. Duties in the Event of Loss above, the named insured was required to secure all rights of recovery. Under this condition, the insured is required to transfer those rights to the insurance company but only after a loss has been sustained by the named insured and paid by the insurance company. The named insured continues to be required to secure those rights and not to impair them.

s. Valuation–Settlement

Valuation is very important and varies based on the type of property covered.

(1) Money

Money is valued at its face value. Money that is foreign currency can be replaced for the face value of that country’s currency or the equivalent in U. S. dollars, whichever the named insured requests. The equivalent value is based on the exchange rate or value published in The Wall Street Journal on the day the loss was discovered.

Example: Mary is preparing for a trip to a foreign country. She arranges for a significant amount of that country’s currency because she plans on being there for a lengthy stay as she negotiates a contract. The currency and other items are stolen the day before the trip is to begin and Mary immediately notifies her insurance company. The next day all flights to the country are cancelled because of a coup. The value of the currency drops immediately. Mary’s claim amount is unaffected by the currency drop because its valuation is based on the Wall Street equivalency on the day the loss was discovered.

(2) Securities

Securities are valued at their price at the close of business on the day the loss was discovered. The insurance company gets to choose how it will settle the loss. It can replace securities in kind or with cash and then require the named insured sign over all of its rights to the lost securities to the insurance company. The second option is for the insurance company to pay for the cost of a lost securities bond so that duplicates of the securities can be issued. The cost is limited to the premium for a bond penalty amount that is equal to either the market value of the securities as of the close of the business day when the loss was discovered or the limit of insurance, whichever is less.

(3) Property Other than Money and Securities

Other property and damaged premises are valued at replacement cost. Payment is limited to the least of the following:

· The limit of insurance on the declarations

· The amount to replace such property with similar property used for the same purpose

· The amount the named insured spent to repair or replace such property

Payment for the replacement cost valuation occurs only after the property is actually repaired and replaced and only if the items were repaired or replaced in a reasonable amount of time. When property is not repaired or replaced, payment is made on an actual cash value basis.

At the named insured’s option, the insurance company pays for loss or damage to such property in the money of the country where the loss or damage was sustained or the equivalent in U. S. dollars. The equivalent value is based on the exchange rate or value published in The Wall Street Journal on the day the loss was discovered.

Whenever the insurance company pays for or replaces property, the insurance company becomes the owner of that property.

2. Conditions Applicable to Insuring Agreement A. 1: Employee Theft

a. Termination as to Any Employee

This insuring agreement ends with respect to any employee based on the earlier of the following:

· As soon as the named insured, its partners, members, managers, officers, directors, or trustees learn that an employee has committed a dishonest act (including theft). The act may have been committed prior to or after that employee became an employee.

Example: Sherry is watching a rerun of a reality crime show and is shocked to see the on-screen arrest of Jackie, whom she had hired six months earlier and whom she considers trustworthy. Sherry decides not to share this information with her business partners. Jackie disappears two months later along with half of the company’s inventory. Coverage is denied because examination under oath reveals that Sherry knew about Jackie’s past.

· On the date specified in a notice the insurance company mails to the first named insured. That date must be at least 30 days after the date the notice is mailed. The notice is mailed to the last known mailing address of the first named insured. Proof of mailing is sufficient proof that the notice was sent.

b. Territory

This territory condition is in addition to the territory condition above.

When an employee is located temporarily outside the United States of America, its territories and possessions, Puerto Rico, and Canada, coverage continues to apply for his or her dishonest acts. This territorial extension applies only when the employee is outside the standard territory for no more than 90 consecutive days.

Note: This coverage does not apply to employees who permanently relocate to other countries. However, if an employee makes frequent trips outside the territory he or she remains covered because the territory number of days is 90 consecutive days. Therefore, an employee who is out of territory for multiple 30-day events remains covered as long as there are regular returns to the standard territory.

3. Conditions Applicable to Insuring Agreement A. 2: Forgery or Alteration

a. Deductible Amount

Legal expenses incurred because of coverage provided by this insuring agreement are not subject to a deductible.

b. Electronic and Mechanical Signatures

The insurance company considers mechanically or electronically produced or reproduced signatures to be the same as handwritten signatures.

c. Proof of Loss

The named insured must include the instrument involved with the loss with the proof of loss. An example is a check. If it cannot, it must include an affidavit that states the cause of loss and the amount of loss.

d. Territory

The territory condition does not apply to this insuring agreement. Coverage applies anywhere in the world.

4. Conditions Applicable 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 there is a contract that allows for recovery from the armored vehicle company directly or from its insurance company, this policy is excess over that recovery amount.

b. Special Limit of Insurance for Specified Property

$5,000 is the maximum amount available in any one occurrence for loss of precious metals, precious or semiprecious stones, pearls, furs, or fur articles. This limit also applies to articles whose principal value is derived from the fur, precious metals, or precious stones, whether they are complete or not. This limit also applies to any kind of manuscripts, drawings, or records or the cost to reconstruct them or reproduce any information in them.

5. Conditions Applicable to Insuring Agreement A. 6: Computer and Funds Transfer Fraud

a. Special Limit of Insurance for Specified Property

$5,000 is the maximum amount available in a single occurrence for loss or damage to manuscripts, drawings, or records. This amount includes the cost to reconstruct them or reproduce any information in them.

b. Territory

The territory condition does not apply to this insuring agreement. Coverage applies anywhere in the world.

F. DEFINITIONS

These definitions apply to all insuring agreements. There are 25 definitions.

1. Computer program

A set of related electronic instructions. The role of the program is to direct how a computer operates and functions. Such a program also operates the devices attached to the computer. It is because of the computer program that computer and attached devices are able to receive, process, store, or send electronic data.

2. Computer system

The following items are part of a computer system but only if they collect, transmit, process, store, or retrieve electronic data:

· Computers. This includes the many type of devices that are mobile such as Personal Digital Assistants (PDAs) plus any electronic storage devices, and related peripheral components

· Applications and systems software

· Communications networks if they are related to the above described items.

3. Counterfeit money

There are two parts to this definition. The first is that it must be an imitation of money. The second is that the reason the imitation is created is so that it will be accepted as genuine money.

Example: Lacie manufactures hundreds of $100 bills.

Scenario 1: Lacie is selling a board game that includes play money. This is not counterfeit money.

Scenario 2: Lacie is working with a group of criminals to obtain retail items in exchange for the counterfeit money. This is counterfeit money.

Scenario 3: Peter buys Lacie’s board game. He thinks the money looks very real so passes the money to another as though it is real number. Even though the original manufacturer’s intent was for the money to be play money, Peter’s use of the money causes it to become counterfeit.

4. Custodian

The named insured and any of its partners, members, or employees who have care and custody of property inside the premises. Custodian does not include any one who, at the time of the loss, was acting as a watchperson or janitor.

Note: Watchperson is defined as someone hired to watch. An employee who works late and is responsible for locking up when he or she leaves is not a watchperson. Janitor is not defined which is problematic because the definition of custodian does state that a person “acting” as a watchperson or janitor is not a custodian.

Example: Becky is a very conscientious administrative assistant. She came in one Sunday night to clean up the company conference room so that it was ready for a Monday morning partners meeting. So there’s a possibility that she’s not a custodian during the Sunday night cleaning but, at work on Monday, she regains custodial status.

5. Discover or discovered

The point at which the named insured has enough information to reasonably believe that a covered loss will happen soon or has already occurred. The named insured is not required to know about the specific details, such as the time or location of a loss.

It also means the time when the named insured receives notice of an actual or potential claim that involves an insured being held liable to another party for a loss that this policy may cover.

Note: This definition’s paragraphs may cause confusion. Under the first paragraph, how does one determine when there is enough information to prompt a reasonable person to get the insurance company involved? The second paragraph refers to “notice” but does not define the word. The result is that interpretation could lead to litigation.

6. Electronic Data

Sounds, images, facts and other information that meet all of the following criteria:

On any type of device that stores data such as:

o Floppy disks

o Tapes

o Divers

o Data processing devices

o Media.

· Used with electronically controlled equipment such as a computer.

· Stored on, created on, transmitted to or from, or used with computer software. This includes software used with computer peripherals

7. Employee

Employees ARE natural persons:

(1) Who meet all of the following criteria:

· Are in the named insured’s service. This applies for up to 30 days after such a person is terminated unless the termination is due to theft or any dishonest act the employee committed

· The named insured compensates directly by wages, commissions, or salary

· The named insured has the right to control or direct while he or she performs services for the named insured

Note: 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 if individuals are truly independent or are de facto employees. Each situation is different and requires expert legal advice to determine if these persons should be considered employees or not.

Example: Kent fires employee Bob. On Bob’s last day at work, Kent collects keys and other items as Bob removes his personal items. However, Bob made and kept a duplicate key. Two weeks after being fired, 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 covers his actions.

(2) Furnished to the named insured to temporarily substitute for a permanent employee. This applies only if that permanent employee is on leave. Such employees may also be furnished to meet short-term work load demands. To be considered employees, they must be subject to the named insured’s control or direction while they perform services for the named insured.

(3) Leased to the named insured under a written agreement with a leasing firm. They must perform duties that relate to conduct of the named insured’s business. This does not include temporary employees.

(4) That are trustees and officers of the employee benefit plan, as well as the plan employees. Third-party administrators or other independent contractors hired to administer covered employee benefit plan(s) are not employees. Directors or trustees of the named insured plans are considered employees while handling money and securities and other property that belong to the plan. A plan director may have administrative duties that relate to only the plan but have nothing else to do with the insured’s business.

(5) Who are former employees, directors, partners, members, managers, representatives or trustees the named insured uses as consultants.

(6) Who are interns or guest students pursuing studies or duties.

(7) Who are employees of merged or consolidated entities, provided the merger or consolidation occurred before the effective date of the current policy.

(8) Who are managers, directors, or trustees but only when they perform 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 while sitting in board meetings or doing tasks of a director.

Employee ARE NOT brokers, agents, commission merchants, factors, consignees, independent contractors, or similar parties and any others not specifically listed above as employees.

8. Employee benefit plan

A welfare or pension plan that is subject to the Employee Retirement Income Security Act of 1974 (ERISA) and amendments to it that is sponsored by the named insured and shown on the Declarations.

Notes:

Examples of these 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 employee benefit plans.

This definition is different from the one provided in liability coverage forms.

9. Financial institution (11 15 change)

When used in Insuring Agreement A. 3., a financial institution is a bank, savings bank, savings and loan association, credit union, or similar depository institution. It is also an insurance company.

When used in Insuring Agreement A. 6., financial institution is a bank, savings bank, savings and loan association, credit union, or similar depository institution. It is also an insurance company, an investment company, or a stock brokerage firm.

When used in any other Insuring Agreement financial institution is any financial institution.

10. Financial institution premises (11 15 change)

The definition of premises differ from the common usage of premises and therefore must be carefully reviewed.

· It is only the interior. This means that sidewalks and parking lots are not the premises of a financial institution even if the financial institution owns or is responsible for the sidewalk or parking lot.

· If the financial institution occupies only a part of a building, the premises is only the part of the premises the financial institution occupies. This means that the hallways, elevators, other businesses and lobby of that building are NOT financial institution premises even if the financial institution owns the building but leases space to other occupants. Only the part of the building actually occupied by the financial institution is considered premises.

This definition applies only to Insuring Agreement A.3.


Financial Institution Premises is only that space on the other side of the door.	Not a Financial Institution Premises

11. Forgery

There are two parts to the forgery definition.

The signing of someone else’s name
The intent to deceive

When someone signs another’s name but there is no intent to deceive, forgery has not occurred. In addition, if a person signs with his or her own signature even though he or she does not have authority to do, there is no forgery.

12. Fraudulent instruction

a. When fraudulent instruction is used in Insuring Agreement A. 6. a. (2), it has either of the following meanings:

(1) A fraudulent telephone or electronic instruction that directs a financial institution to debit the named insured’s transfer account. That same instruction must then direct the financial institution to pay, transfer, or deliver money or securities from that transfer account. It includes any type of fraudulent electronic instruction. The instructions are considered fraudulent when they appear to have been issued by the named insured but that were actually written without the named insured’s knowledge.

(2) A fraudulent written instruction that directs a financial institution to debit the named insured’s transfer account. That same instruction must then direct the financial institution to use an electronic funds transfer system to pay, transfer, or deliver money or securities from that transfer account. The instructions are considered fraudulent when they appear to have been issued by the named insured but that were actually written without the named insured’s knowledge.

This definition does not apply to written instructions that would be covered under Insuring Agreement A. 2.

Note: Item (3) was removed with the 11 15 revision. This results in transfer instructions to employees no longer being a part of this definition.

b. When fraudulent instruction is used in Insuring Agreement A. 6. b., it has the following meaning:

Any type of fraudulent instruction from the named insured’s computer software contractor that directs an employee to make changes in programs or data within the computer system. This applies only if this Insuring Agreement covers the computer system.

13. Manager

A natural person who is a director of a limited liability company.

Note: Manager is not the typical employee with supervisory responsibilities. That person is considered an employee.

14. Member

An owner of a limited liability company who may also serve as a manager. A member can be either a natural or artificial person but in order to serve as manager must be a natural person.

15. Messenger

Messengers are those who are caring for and controlling property while outside the premises. A messenger individual may be the named insured, the named insured’s relative, partner, member, or any employee.

Note: Most entities are not persons and therefore do not have relatives. The broadening of the term messenger to apply to relatives applies only when the named insured is an individual.

16. Money (08 13 changes)

Currency, coin, or bank notes that have a face value and that are in current use. It also means traveler’s checks and money orders that are being held for sale.

It is also any of the named insured’s deposits that are in a financial institution. This broadening applies to only coverage that Insuring Agreements A. 1. and A. 2 provide.

When Insuring Agreement A. 6. provides coverage, deposits of the named insured that are in the types of financial institutions described in the F. 9. b, definition of Financial institutions are also considered money.

Note: Cashier’s checks are not considered money.

17. Occurrence

This term has different meanings under different Insuring Agreements.

a. When used in Insuring Agreement A. 1., occurrence is one act, the total of multiple acts, or a series of acts an employee commits during the policy period. The acts are not required to be related but they may be. The employee may commit them alone or in collusion with others.

Examples:

Five employees work together to skim money from their company’s accounts at different times and in different ways. This is treated as a single occurrence.

Five employees who do not know of each other’s plans or what they are doing skim money from their company’s accounts at different times and in different ways. This is treated as five different occurrences.

The policy period is the period on the declarations but modified in Conditions E. 1. k. and E. 1. l. that explain how losses sustained during prior insurance are handled.

b. When used in Insuring Agreement A. 2., occurrence is one act, the total of multiple acts or a series of acts an employee commits during the policy period that involve one or more instruments. The acts are not required to be related but they may be. The employee may commit them alone or in collusion with others. The policy period is the period on the declarations but modified in Conditions E. 1. k. and E. 1. l. that explain how losses sustained during prior insurance are handled.

c. When used in any other Insuring Agreement, occurrence is one act, the total of multiple acts, or a series of acts committed during the policy period. The acts are not required to be related but they may be. The act(s) may be committed by a person who acts alone or in collusion with others. The act(s) are not required to have been committed by a person.

Example: The individual(s) who were a part of a theft ring have never been identified but there is evidence that an organized ring had stolen hundreds of different products from the insured’s warehouse during the past five month. This is a single occurrence.

The policy period is the period on the declarations but modified in Conditions E. 1. k. and E. 1. l. that explain how losses sustained during prior insurance are handled.

18. Other property

Tangible property that has value but is not money, securities, electronic data or computer programs. Other property also does not include any property that is excluded elsewhere in this insurance.

19. Premises

Premises means only the interior. It does not mean the sidewalk, parking lot or any area that this considered exterior.

Furthermore, it is only the interior of the part of the building the named insured occupies in conducting its business.

Note: What portion of the building does the named insured actually occupy when it is a tenant in a mall with an interior corridor or if it operates a pushcart or kiosk in the mall? What about the storage locker located in a separate part of the mall? The lease of premises is the starting point to determine what premises means in these situations.

20. Robbery

There are three conditions that must be satisfied in order for a robbery to occur:

Property must be taken from for a person having custody of that the property.
The taking must be considered unlawful.
The person taking the property must take one of the following actions:

o Cause harm to the one having custody of the property

o Threaten to cause harm to the one having custody of the property

o Commit an unlawful action that the person having custody of the property witnesses

Example: A customer at the end of an aisle in a store is observed shoplifting and security is called. A robbery has not taken place because no person had control of the property at the time.

Example: An employee takes a package of product from one store to another. A pedestrian reaches into the vehicle and steals the package when the employee stops his vehicle at a stop sign. This is a robbery because the employee had the package and witnessed it being removed.

21. Safe burglary

There are two types of safe burglary. Both require that the activity be an unlawful taking. The first type is when the entire vault or safe is removed from the premises.

The second is when property if removed from inside a locked safe or vault. There must be proof that the safe or vault was entered through forcible entry. If the safe is left open and items removed, there is no safe burglary.

22. Securities

Securities represent money or property but they are not money or property. They are instruments and contracts and can be negotiable or nonnegotiable. Examples of such instruments or contracts are tokens, tickets, revenue, and other stamps, including stamps in a postage meter. Evidences of debt related to credit or charge cards are securities but only if the named insured did not issue the cards.

Note: Some securities may represent commodities, such as grain or coal.

23. Theft

Theft includes safe burglary and robbery but is not as limiting. The only conditions are that property be taken and that the taking of that property deprives the insured.

The theft requirement of deprivation to the insured means that if the property that is taken has no value to the insured, then no theft has occurred.

Example: Manny’s Book Publishing set aside 3,000 books. The plan was to take the books to a recycling center. Phyllis, an inventory clerk, took the books, placed them in her van, and sold them on EBay. This definition does not consider Phyllis’ action to be theft because Manny was not actually deprived of anything.

24. Transfer account (11 15 change)

An account the named insured maintains at a financial institution from which money and securities may be transferred, paid, or delivered by means of computer telefacsimile, telephone, or other electronic instructions. The funds can also be transferred based on by written instructions that permit certain types of electronic transfers to be completed. However, the written instructions are not those which are covered under Insuring Agreement A.2.

Note: Telegraphic, cable and teletype were removed because they are archaic.

25. Watchperson

A person with a very limited duty. He or she must have the care and custody of property inside the premises and been retained for only that duty.

Note: A watchperson the named insured hires who also patrols the grounds is not a watchperson with respect to this definition.

CR 00 20–COMMERCIAL CRIME COVERAGE FORM (DISCOVERY FORM)

This analysis addresses only the parts of CR 00 20 that are different than CR 00 21. This includes the following sections:

A. Insuring Agreements
E. Conditions

o g. Extended Period to Discover Loss

o k. Loss sustained During Prior Insurance Issued by Us or Any Affiliate

o l. Loss Sustained During Prior Insurance Not Issued by Us or Any Affiliate

o m. Policy Bridge–Discovery Replacing Loss Sustained

Note: The HOW, WHAT, WHO, and WHERE of coverage are unchanged. All differences are based on the “simple” question of WHEN.

A. Insuring Agreement

This is the major change in CR 00 20. The occurrence can take place at any time instead of it taking place only during the policy period.

Example: Martin discovers that his trusted employee, John, stole equipment from him. He discovered the theft on 12/05/2018. John stole the equipment on 08/03/2016. The current policy period is 10/01/2018 to 10/01/2019.

Scenario 1: Martin is covered under CR 00 20. The loss is covered in the current policy period.

Scenario 2: Martin is covered under CR 00 21. The loss is not covered in the current policy period but may be covered under the extended reporting period.

E. Conditions

g. Extended Period to Discover Loss

CR 00 20 provides a 60-day period to discover loss compared to the one-year period CR 00 21 provides. All other parts of this condition are identical.

Example: Paula’s commercial crime policy period is 10/01/2018 to10/01/2019. She does not renew coverage when the policy expires on 10/01/2019. Gerald and Nancy had been stealing from her for three years. She discovers this on 06/01/2019.

Scenario 1: Paula is covered under CR 00 20. The loss is covered because it was discovered within one year of the date coverage ended.

Scenario 2: Paula is covered under CR 00 21. The loss is not covered because it was discovered more than 60 days after the date coverage ended.

E. Conditions

k. Loss Sustained During Prior Insurance Issued by Us or Any Affiliate

l. Loss Sustained During Prior Insurance not Issued by Us or Any Affiliate

CR 00 21 does not have either of these conditions because it does not contain a limitation that the occurrence must take place during the policy period. CR 00 20 has these conditions because of that limitation.

E. Conditions

m. Policy Bridge–Discovery Replacing Loss Sustained

This condition is in only CR 00 20. It applies only if coverage written on a discovery basis replaces coverage written on a loss sustained basis. In addition, this condition applies only if the policy being replaced has an extended period of time to discover a loss. This restriction applies only if the extended period of time did not terminate when this policy was issued.

If a loss is discovered within the prior coverage’s extended reporting period, this coverage pays only in excess of that coverage’s limit of insurance plus its deductible. However, it does not exceed the difference between that coverage’s limit plus its deductible and this coverage’s limit of insurance.

Example: Marjorie’s coverage written on a discovery basis has a term from 01/01/2019 to 01/01/2020. Her prior coverage was written on a loss sustained basis from 01/01/2018 to 01/01/2019. It had a one-year extended reporting period. Marjorie discovers a $100,000 loss on 03/02/2019.

Scenario 1: The current limit of insurance is $100,000. The prior limit of insurance was $100,000. The prior policy limit pays the loss.

Scenario 2: The current limit of insurance is $100,000. The prior limit of insurance was $50,000. Marjorie collects $50,000 from the prior policy and 50,000 from the current policy.

Scenario 3: The current limit of insurance is $50,000. The prior limit of insurance was $100,000. In this case, the prior policy pays the entire loss.

CR 00 23–COMMERCIAL CRIME POLICY (LOSS SUSTAINED FORM)

This is a monoline policy. Its wording is identical to the wording in CR 00 21 except that it incorporates six conditions from IL 00 17–Common Conditions that are not in CR 00 21. This means there are more conditions and different letters assigned to the conditions but the actual content is unchanged. The six conditions from IL 00 17 incorporated into CR 00 23 are:

b. Cancellation of Policy

c. Changes

i. Examination of Your Books and Records

k. Inspections and Surveys

s. Premiums

w. Transfer of Your Rights and Duties Under This Policy

Neither IL 00 03–Common Policy declarations nor IL 00 17–Common Policy Conditions are attached when CR 00 23 is issued. Only CR DS 02–Crime Policy Declarations and CR 00 23 are needed for a complete policy.

CR 00 22–COMMERCIAL CRIME POLICY (DISCOVERY FORM)

b. Cancellation of Policy

c. Changes

i. Examination of Your Books and Records

k. Inspections and Surveys

s. Premiums

w. Transfer of Your Rights and Duties Under This Policy

Neither IL 00 03–Common Policy declarations nor IL 00 17–Common Policy Conditions are attached when CR 00 22 is issued. Only CR DS 02–Crime Policy Declarations and CR 00 22 are needed for a complete policy.