Chapter 13 Exam - Commercial Crime Insurance and Bonds EXPLANATIONS

In a Fidelity Bond, the period of discovery:

is the time the employer has to realize they have suffered loss. Why? A discovery period is the length of time the employer has to realize that they have suffered a loss under a Fidelity Bond. Commercial Blank bonds have 1 year discovery periods whereas Blanket Position Bonds have a two year discovery period.

Which of the following bonds guarantees performance?

Surety Why? Surety Bonds guarantee performance of an obligor to perform to the obligee.

Under Robbery Inside the Premises - Robbery of Safe Burglary or Other Property, which of the following losses would be covered by the policy?

A business that had inventory stolen by an individual that threatened an employee's life upon entering the building. Why? Robbery coverage inside the premises - robbery or safe burglary of other property would cover robbery of an employee, while having care and custody of property inside the premises. The other listed answers are specifically excluded from coverage under the crime coverage forms.

Which of the following are types of Surety Bonds?

All of the answers listed (Permit, Contracts, and Court) Contracts, License and Permit, Public Official, Court and Miscellaneous are all types of surety bonds.

Which one of the following statements describes a major difference between surety bonds and insurance?

Bonds guarantee something will happen. Insurance protects if something happens

Big Dog's Bonds sells a bond that guarantees that a criminal action defendant will appear in court when not in jail awaiting trial. This bond is known as a:

Criminal Bail Bond Why? A Criminal Bail Bond guarantees a defendant in a criminal action will appear in court when not in jail awaiting trial. If the individual fails to show the bond amount is forfeited to the court.

A partner of a famous law firm receives an email that if he doesn't pay $500,000 by 11pm, personal secrets will be released that will destroy his business and reputation. The type of coverage that would protect the law firm from this potential loss would be?

Extortion - Commercial Entities Why? Under this endorsement the insurer will pay for loss when they have to surrender money, securities and other property away from the premises as a result of a threat to the insured, during the policy period to directors, trustees, partners or employees.

M has committed an act of dishonesty and has triggered a bond payment known as the limit of liability. The bond in question is a:

Fidelity Bond Why? Fidelity Bonds, which protects against dishonesty, has a limit called the limit of liability.

Which of the following provides protection against the dishonest acts of employees?

Fidelity protection Why? Fidelity bonds are designed to protect companies from wrongful acts committed by their employees.

T owns a small business and hires a messenger to take last nights earnings and deposit in the bank. On the way to the bank, the messenger is robbed and the deposit has been stolen. Which of the following crime coverage forms would cover such events?

Inside the Premises - Theft of Money and Securities Although this form covers theft inside the premises, it includes robbery of a messenger while outside the premises.

Which of the following statements BEST describes the difference between bonds and insurance?

Insurance is a two party contract; bonds have three. Once an insurance loss occurs, there is no repayment to the insurer by the insured. With bonds, the principal is expected to reimburse the surety.

Y hires an armored car service to transport his stock of semiprecious stones from one store to another. While in transit, $35,000 worth of stones were stolen from the truck. The following coverage forms and loss amounts will Y's crime policy pay?

Outside the premises $5,000 Why? Since the theft occurred while in transit of an armored car, the type of crime coverage that would apply here is Outside the Premises. Outside the Premises has a $5,000 per current limit on furs, precious and semi-precious stones, pearls, manuscripts, drawings and records.

Which of the following is a judicial bond?

Replevin bond Why? Judicial bonds are referred to as litigation bonds and are commonly used to guarantee the cost of civil court proceedings and will be paid with respect to the legal action involved. A form of litigation bond is called a REPLEVIN bond. Replevin bonds are used in situations where a specific item of personal property is being taken from one party by another. This bond assures that if the party taking the item loses, the item will be returned to the original party and that all court obligations in the matter will be paid.

J hires K as a third shift employee at his 24 hour jewelry store. At 3 AM one night, K is threatened by an intruder to empty the safe and give him all of the jewels that are stored away. Which of the following crime coverages forms covers this incident?

Robbery or Safe Burglary of Other Property Why? Inside the Premises - Robbery or Safe Burglary covers robbery or attempted robbery of a custodian which is defined as the insured or any of the insured's partners or members or any employee while having care and custody of property inside the premises. It includes the taking of covered property from locked safes or vaults or the actual taking of the vault or safe from the premises by someone who has caused or threatened to cause the custodian harm.

Which of the following statements are not true regarding Forgery and Alteration crime coverage form?

The insuring agreement states that the insurer will not cover expenses associated with legal actions that results against the insured to stop payment when it is believed that forgery was present, but actually no forgery occurred Why? The Forgery and Alteration crime coverage insures a loss due to forgery or alteration of checks, drafts, promissory notes or similar written promises. In addition, the policy will also cover expenses associated with legal actions that result when an insured stops payment on valid notes when they have good reason to believe forgery occurred, but does not.

The definition of crime that is broad enough to include forcible entry of insured's premises, threat of violence or any stolen property is:

Theft Why? Theft is any act of stealing and may sometimes encompass both burglary and robbery. Theft even includes stealing property without evidence of actual holdup, physical violence, or forcible entry or exit of the insured's premises.

The face amount of a Surety bond is called the:

bond penalty Why? In a Surety bond, the limit that would be paid under contract is known as the Bond Penalty

The primary difference of how employee theft is covered under commercial crime employee insurance versus government crime employee coverage is:

employee theft is covered as a per loss basis but government can be covered under both a per loss and per employee basis Why? In commercial crime employees theft loss is covered only on a "per loss basis but in government crime employees theft loss can be covered under both a "per loss" and "per employee" loss basis