Texas Licensing chapter 22

Two Employee Theft Coverage Options:

1) Same insuring agreement as in the standard commercial crime coverage (pays per occurrence) 2) Insuring agreement covers theft per employee

Equipment Breakdown Protection Coverage Form 5 Additional Coverages:

1. Ammonia Contamination 2. Consequential Loss 3. Data and Media 4. Hazardous Substance 5. Water Damage

Exclusions to Employee Theft Coverage:

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

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

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

Equipment Breakdown Protection Coverage Form 10 Available Coverages:

1. Property Damage 2. Expediting Expenses 3. Business Income and Extra Expense, or Extra Expense Only 4. Spoilage Damage 5. Utility Interruption 6. Newly Acquired Premises 7. Ordinance and Law 8. Errors and Omissions 9. Brands and Labels 10. Contingent Business Income and Extra Expense, or Contingent Extra Expense Only

Universal Commercial Crime Exclusions:

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

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

5. Loss or damage to motor vehicles and things attached to them 6. Loss of property moved outside premises in response to a threat (except if the property was in the care of a messenger, and there was no threat when it left the premises) 7. Loss caused by vandalism or malicious mischief to the premises, safe, vault, or other property. 8. Voluntary parting of title or possession of property

Extended Period to Discover Loss

A new policy replaces the extended period of an old policy

Inside the Premises - Theft of Money and Securities

A thief breaks into XYZ Metals and steals 100 traveler's checks the company had purchased for their employees as a bonus. Which commercial crime coverage would indemnify XYZ Metals for their loss?

Employee Theft - Scheduled Positions

ABC Credit Union has an employment opening for a "vault controller," who would be responsible for a large amount of cash in the vault. They want to acquire an insurance coverage protecting them from theft by the vault controller only. What insuring agreement in their Commercial Crime policy would provide this coverage?

an "object."

Acme Bottling Co. makes bottles for a large food manufacturer. Acme has dozens of machines, including conveyors, fillers, and cappers, to name a few. Acme Bottling Co. has a Boiler & Machinery insurance policy to protect its financial investment in these machines. On their policy, each of their machines would be referred to as:

At the time of the breakdown or 24 hours before Bill was notified of the breakdown, whichever is later

Bill has experienced a loss covered under the Business Income and Extra Expense coverage in his Equipment Breakdown Protection Coverage Form. When does the period of restoration begin?

Selected Endorsements

Business Income - Report of Values and Actual Cash Value:

Employee Theft

Coverage can be written for: ● all employees - blanket coverage ● scheduled (named) persons ● scheduled positions

Forgery or Alteration

Covers forgery or alteration of: ● checks ● drafts ● promissory notes Coverage includes checks with: ● fake payees ● forged signatures ● changed amounts

Extortion Endorsement

Covers loss due to threats of bodily harm, including kidnapping threats. Also includes property damage threats.

Inside the Premises - Robbery or Safe Burglary of Other Property

Covers: ● property other than money and securities ● losses arising from actual or attempted robbery ● damage to premises and/or safe from robbery

Breakdown

Direct physical damage to covered equipment which necessitates repair or replacement and results from accidental pressure failure of vacuum equipment, mechanical failure, or electrical failure.

damage that would not otherwise be covered because the insured made a mistake or unintentionally omitted information required by the insurer.

Errors and Omissions coverage in an Equipment Breakdown Protection policy provides coverage for:

Inside the Premises - Theft of Money and Securities

This insuring agreement covers: ● losses of money and securities from theft, damage, or destruction, caused by non-employees ● property damage to premises that happens during actual or attempted theft of money and securities ● "securities" can include: ○ credit card receipts ○ checks ○ tickets or tokens ○ travelers checks

Newly Acquired Premises

For a predetermined period of time, newly purchased or leased property gets same coverage already provided to existing property ● Insured must notify insurer and pay additional premiums before the end of this time period for coverage to continue

Discovery Form

Going over the numbers, Henry notices that his annual sales revenue seems to be lower than it should be. He suspects that this may be caused by employee dishonesty, and discreetly launches an investigation into his business. He finds that a theft occurred two years ago. Which type of commercial crime coverage would be best suited to cover Henry's loss?

Money Orders and Counterfeit Paper Currency

Grant works at ABC Convenience. One day, a man pulls up in an expensive car and pays cash for his gas with a hundred dollar bill. Grant accepts the bill without checking its validity. When Grant's manager checks the bill later, he discovers it is a fake. Which commercial crime coverage could protect ABC Convenience from financial loss associated with accepting the fake hundred dollar bill?

The Loss Sustained form covers losses that both occur and are discovered within one year of its expiration, so Jackson County's insurer will cover the theft. Jackson County has an employee theft coverage limit of $30,000 per employee, and because both of the employees took more than $30,000, the policy will pay $60,000.

Jackson County has a government crime loss sustained form with employee theft coverage of $30,000 per employee. Three months after the policy expires, a Jackson County finance analyst realizes that two other county employees collaborated to steal $40,000 each from the county while the policy was still in effect. How much will Jackson County's insurer pay for this theft?

Extra Expense Coverage

Jane's Bakery has Equipment Breakdown Protection coverage on a large industrial oven used in producing several hundred loaves of bread a day. One day, the oven malfunctions and catches fire, rendering her business inoperable for four days. In order to fill bread orders, Jane must ship her dough to a warehouse where she found another oven to rent while her oven is repaired. Under which coverage would Jane be indemnified for the shipping and oven rental costs?

Contingent Business Income and Extra Expense

Jay's Chip Factory makes potato chips, and it gets chip bags from Bags, Inc. One day, the bag-making machine at Bags, Inc. broke down, and thus, Jay's Chip Factory couldn't get the bags it needed to bag its potato chips. Jay's Chip Factory had to shut down production temporarily while waiting on Bags, Inc. to fix their machine. Jay's lost business income may be covered under what coverage in its Equipment Breakdown Protection Coverage Form?

Funds Transfer Fraud

Protects against loss due to fraudulent instruction about funds transfers

Errors and Omissions

Provides coverage for losses that would otherwise not be covered because of: ● Error or unintentional omission in the way the insured property was described ● Unintentional failure to include any premises owned or occupied by the insured at the policy's inception date ● Error or unintentional omission that leads to the insurer cancelling coverage of the insured premises

Percentage of Loss Deductible

Set percentage of the total loss

Exclusions

Some losses are excluded because they're: ● Standard exclusions in all property insurance policies ● Already covered in the commercial property policy Some exclusions only apply if the policyholder does not purchase coverage for those types of losses

Object

Specified piece of equipment covered by the Equipment Breakdown Protection Coverage Form

Employee Theft: All Employees

Susan owns a convenience store and wants to protect her business from employee dishonesty or theft. She trusts all of her employees equally, and doesn't want to single any one of them out. She also would rather not insure them by job description. Which type of insuring agreement in her Commercial Crime policy would best suit Susan's business needs?

One Covered Peril:

The "breakdown" of "covered equipment"

The policies will pay on a pro-rata basis.

The City of Seagoville has two primary government crime discovery forms in place which have the same terms and conditions, but Policy A's coverage is set at a $500,000 limit, and Policy B's limit is $100,000. If a large loss occurs, how will the policies go about paying for damages?

Discovery Form:

covers losses that are discovered during policy period, no matter when they occurred (up to 60 days after policy expires) ● No matter when the loss actually occurred ● Almost always limits how old a loss can be and still be covered

Loss Sustained Form

covers losses that occur during policy period ● Also covers up to one year after expiration ● Exception: if insured had a previous, expired policy in force at time of loss, and kept up continuous coverage since then, current policy will cover the loss

Lessees of Safe Deposit Boxes Endorsement

covers losses to items in safe deposit

Client's Property Endorsement

covers property while it is on a client's premises

Funds Transfer Fraud

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

Custodian

insured, partner, or employee that has care or custody of insured property

Extortion Endorsement covers

losses due to threats of bodily harm/property damage

Securities Deposited with Others Endorsement

losses to securities deposited with a custodian

Government crime policy

may provide primary or excess coverage.

Legal Action Against Insurer

must be within 2 years, and after insured has followed all terms of the contract

Messenger

named insured or insured's relative, any business partner or member, or any employee who has custody of insured property outside the insured premises

Property Covered

only covers property owned or held by policyholder; or for which policyholder is legally liable; only for benefit of insured

Other Insurance:

only pays after other insurance is exhausted

In a typical Equipment Breakdown Protection Coverage Form, losses are paid at

replacement cost, but an insured may change this with an Actual Cash Value endorsement. With the ACV endorsement, the policy will pay the lesser of 1) the amount needed to repair or replace damaged property with like kind and quality, or 2) the actual cash value of the damaged property

Watchperson

someone hired by the insured to have no other duty but to maintain care and custody of insured property inside the premisessomeone retained specifically by the insured whose sole duty is to have care and custody of property inside the premises.

Robbery

taking with violence or the threat of violence

The Valuation provision states

that money is valued at its face value; securities are set at their value on the day the loss is discovered; and other property is valued at the lesser of the cost to repair or replace.

Cancellation as to Any Employee:

theft by employee cancels his coverage, even if act occurs before hire

Overview of Deductibles

● $500 base deductible ● Applicable to each occurrence ● May be applied to each line of coverage, or one combined deductible for all coverages ● If multiple deductibles are involved in a single covered breakdown, only the highest will apply per line of coverage

Additional Coverages:

● Ammonia contamination ○ Pays for ammonia contamination to covered property ● Consequential loss ○ Reduction in value when damaged part of a product makes the rest unusable ● Data and media ○ Pays for actual losses during time needed to research, restore, or replace lost data ● Hazardous substances ○ Pays expenses for cleanup, repair, replacement, or disposal of contaminated property ● Water damage ○ Pay for water damage, but not that caused by leaking sprinklers or domestic water pipes

Multiple of Daily Value Deductible

● Applies to Business Income coverage ● Daily Value is calculated by dividing the amount of income loss by the number of days in the restoration period ● Daily Value is multiplied by a predetermined number of days on the Declarations page ● The result is the deductible

Period of Restoration

● Begins at time of breakdown or 24 hrs before insured is notified of breakdown, whichever is later ● Usually ends 5 days after repair or replacement (insured may choose different time frame) ● If delayed, coverage still only applies for the length of time in which the insured should have reasonably been able to repair or replace damaged equipment

Business Income / Extra Expense Two Options:

● Business Income and Extra Expense ● Extra Expense Only

Actual Cash Value:

● Changes loss settlement from RC to the lesser of: ○ actual cash value ○ amount needed to repair or replace with like kind and quality

Not available for Government Crime:

● Client's Property ● Lessees of Safe Deposit Boxes ● Safe Depository ● Guests' Property

Boiler & Machinery Insurance

● Coverage is written on the Equipment Breakdown Protection Coverage Form ● No liability coverage

Coverage provided for:

● Covered equipment owned by, or under control of, insured business ● Equipment owned by a utility service that exclusively provides the insured with power, heat, light, or communication services

Government Crime Insurance:

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

Commercial (or Government) Crime and Employee Dishonesty Coverage:

● Covers losses caused by outside sources or employees ● Includes theft, forgery, fraud, and other illegal activity ● Employee dishonesty coverage protects against fraudulent activity by an employee or group of employees ● May be stand-alone or part of package policy ● Basic Commercial Crime Coverage Form: 8 possible insuring agreements

Outside the Premises

● Covers lost or stolen money or property off of the insured's premises ● Losses caused by robbery of messengers, armored cars, etc. ● Includes disappearance and destruction

Commercial Crime policy has Consolidation - Merger:

● Covers new premises or employees acquired through merger, consolidation, or purchase from another company ● Insured must have written consent from insurer ● May affect premiums ● Automatic coverage for first 90 days

Government Crime policy:

● Covers new property/employees ● No extra premiums for current policy period

Computer Fraud

● Covers theft via computer from the insured's premises or bank accounts ● Includes losses of money, securities, or other property

Commercial Crime covers threat of bodily harm to:

● Director ● Trustee ● Partner ● Member ● Employee ● Proprietor

Equipment Breakdown Protection Coverage Form Deductibles

● Dollar ● Time ● Multiple of Daily Value ● Percentage of Loss ● Minimum and Maximum

Computer Fraud excludes losses:

● Due to credit card transactions ● Due to insured following fraudulent instructions to transfer funds out of a transfer account ● If proof of loss depends on calculation of inventory or profit and loss

Commercial Crime and Employee Dishonesty coverage Eight primary insuring agreements:

● Each has its own limit and deductible ● Insured can exclude an insuring agreement by leaving its limit blank on the dec page ● Limits usually cannot be combined for a single event 1. employee theft 2. forgery or alteration 3. Inside the Premises - Theft of Money and Securities 4. Inside the Premises - Robbery or Safe Burglary of Other Property 5. Outside the Premises 6. Computer Fraud 7.Money Orders and Counterfeit Paper Currency 8. Funds Transfer Fraud

Additional exclusions under government crime policy:

● Employee-caused losses from before policy period, which the insured knew about but did not report before the policy period ends ● Losses that follow from insured giving out private information without authorization

"Covered equipment" includes:

● Equipment built to operate under internal pressure or vacuum, other than the weight of its contents ● Mechanical or electrical equipment that generates, transmits, or utilizes energy ● Communication and computer equipment (but not data or storage media)

"Breakdown" does not include:

● Equipment malfunction resulting from adjustment alignment, calibration, cleaning, or modification ● Computer defects, erasures, errors, limitations, or viruses ● Leaks from valves, connections, joints, seals, or fittings ● Damage from any source to vacuum tubes, gas tubes, or brushes ● Damage to structures or foundations that support the covered equipment ● Damage to safety or protective devices that are not components of the covered equipment ● Cracks in combustion gas turbine parts that are caused by exposure to products of combustion

Commercial Crime Endorsements

● Extortion Endorsement ● Client's Property Endorsement ● Lessees of Safe Deposit Boxes Endorsement ● Securities Deposited with Others Endorsement ● Safe Depository Endorsement ● Guests' Property Endorsement

Employee Theft Exclusions:

● Loss from employees who are under legal obligation to be individually bonded ● Inventory losses, if proof of loss depends on calculation of inventory or profit and loss ● Loss due to a trade ● Loss brought about by treasurer, tax collector, etc.

Limits of Insurance

● Minimum limit on most Equipment Breakdown policies = $500,000 ● Unless otherwise stated, the following additional coverages have a sublimit of $25,000

Valuation:

● Money valued at face value ● Securities at value on day loss is discovered ● Other items: at actual replacement cost, or repair cost if less

Commercial Crime policy covers property:

● Named insured holds, owns, or is legally liable for

Government Crime covers threat of bodily harm to:

● Officials ● Employees ● Representatives

21 Unless Coverage is Selected

● Ordinance and law ● Business interruption ● Indirect breakdown ● Power, light, heat, steam, or refrigeration

Government Crime policy covers property:

● Owned or leased by government entity ● Government is holding for others

"Covered equipment" does not include:

● Parts of pressure or vacuum equipment not under internal pressure of its contents or vacuum ● Insulating material ● Non-metallic pressure or vacuum equipment ● Catalysts ● Buried vessels, piping, and other equipment ● Structures, foundations, or cabinets used to support or contain covered equipment ● Vehicles, aircraft, self-propelled equipment, or floating vessels ● Dragline, excavation, or construction equipment ● Maintenance property ● Equipment used solely for diagnosis, research, medication, surgical, therapeutic, dental, or pathological purposes

Money Orders and Counterfeit Paper Currency

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

Spoilage Coverage Covers spoilage of:

● Raw materials ● Property in process ● Stored finished products

Business Income - Report of Values:

● Requires insured to report business income to insurer every year ● Failure to report or inaccurate reporting could lead to coinsurance penalty on covered loss

Minimum or Maximum Deductible

● Sets a predetermined range for the deductible ● Used with either a Percentage of Loss Deductible or a Multiple of Daily Value Deductible ● If calculated deductible falls below the minimum, insured must pay the Minimum Deductible amount ● If calculated deductible is more than the maximum, insured only pays the Maximum Deductible amount

Conditions of Spoilage Coverage

● Spoilage must result from lack or excess of power, light, heat, steam, or refrigeration ● Insured must own the spoiled property, or be legally liable for it under written contract

Available Coverages

● Up to 10 coverages ● Each coverage may have its own limit, or may be included in overall limit for Property Damage ● Any selected coverage only applies to damage that results from a covered loss

First, apply the 3% percentage of loss deductible to the $85,000 loss ($85,000 x .03 = $2,550). Now, apply the minimum and maximum deductible limits to that amount. The $2,550 is more than the minimum and less than the maximum, so Jeremy will have to pay $2,550 and his insurer will cover the rest.

Jeremy owns a business with several machines covered under an Equipment Breakdown Protection Coverage Form with a $500,000 limit. He has three deductibles on his policy: 1) a percentage deductible of 3% per loss, 2) a minimum deductible of $500, and 3) a maximum deductible of $10,000. After experiencing a covered loss of $85,000, how much will Jeremy have to pay out of his own pocket for the loss?

The stolen money, the destroyed money, and the damage to the vault; Inside the Premises: Theft of Money & Securities coverage can cover any stolen money, or money damaged in the process. It can also cover any damage to the property as a result of the theft

Jill arrives to open the bank one morning to find the door hanging open. Upon entering the bank she sees the vault door has been blown open, most of the money has been stolen, and a large amount of money was burned when the explosive charge went off. Luckily, the bank has a Commercial Crime policy. Which of the following best describes what would be covered under Inside the Premises: Theft of Money and Securities?

Two Forms of Commercial Crime Insurance

Loss Sustained Form Discovery Form

M City has a government crime discovery form with Employee Theft Coverage of $50,000 per occurrence, not per employee. So, M City's insurer will only pay up to the $50,000 limit for the theft

M City has a government crime discovery form with Employee Theft Coverage of $50,000 per occurrence. One day, two of M's employees, Jarred and Damian, steal $45,000 and $50,000 respectively from M and skip town. M will receive __________ from its insurer.

Utility Interruption

Only available if policy also includes at least one of: ● Business Income and Extra Expense ● Extra Expense Only ● Spoilage Damage

Property Damage

Pays for direct damage to covered property at described premises

Expediting Expenses

Pays for extra costs incurred by the insured that are necessary to make temporary repairs and expedite permanent repairs or replacement

Ordinance and Law

Pays for increased demolition and construction costs, and loss to undamaged portion of building, as a result of enforcement of ordinances or laws ● These losses are typically excluded, but this optional coverage overrides the exclusion

Brands and Labels

Pays to remove brands and labeling from damaged products, as long as doing so does not harm the salvage value

Employee Theft: Scheduled Positions

Tina owns Peachtree Savings and Loan, which has many different jobs with varying levels of security and risk. For the tellers and customer service representatives she uses blanket employee theft coverage, but there are certain high-security jobs that need significantly more coverage, such as Vault Controller and Branch Manager. Tina wants to buy extra theft coverage for these employees, but not have to worry about updating her policy every time she hires a new person to fill one of these roles. Which coverage would be best choice for Tina's needs?

Contingent Business

Two Options: ● Contingent Business Income and Extra Expense ● Contingent Extra Expense Only Covers insured's losses that result from a covered loss at a key supplier's location that prevents the supplier from delivering services or materials to the insured

The Expediting Expenses coverage provides indemnification for temporary repairs and costs associated with expediting, or speeding up, permanent repairs or replacement. Frank can use this coverage to speed up the repairs to his oven and get his business back to full strength quickly

When one of Frank's ovens breaks down at her wholesale bakery, it causes a dip in production that drastically affects the bottom line of the business. Luckily for Frank, he has an Equipment Breakdown Protection Coverage Form that can help cover the cost of repairing the expensive oven. Which policy coverage can help pay for costs associated with making temporary repairs and speeding up the permanent repairs?

Commercial crime insurance can protect a business from losses due to theft from employees and outsiders.

Which of the following statements best applies to commercial crime insurance?

X County has no obligation to notify its insurer of the new employees, and its premiums will not increase during the current policy period.

X County has a government crime policy in place. During the policy period, X County hires twelve new deputies for the sheriff's office and five new employees for the county's public libraries. X County

Dollar Deductible

a set dollar amount that applies to each loss

Time Deductible

also known as a waiting period - a set amount of time after a loss before the insurer will pay for covered damage

A government crime policy

can provide primary or excess coverage

Guests' Property Endorsement

covers legal liability for guests' property while in a safe deposit box or on the insured premises

Safe Depository Endorsement

covers legal liability for property that the insured holds in safe deposit for customers

Conditions of Utility Interruption

● Utility interruption must result from breakdown of covered equipment owned, operated, or controlled by public or private utility service provider ● Covered equipment must provide electric power, communication services, air conditioning, heating, gas, sewer, water, or steam to the insured's premises ● Interruption must last longer than the waiting period - a predetermined number of hours listed on the Declarations page

Standard Exclusions

● War or military action ● Nuclear hazards ● Earth movement ● Depletion, deterioration, corrosion, erosion, or wear and tear ● Water ● Post-loss neglect ● Utility interruption ● Pressure or electrical testing ● Other Insurance

Covered by Other Insurance

● Windstorm or hail ● Explosion ● Fire or combustion explosion ● Internal furnace explosion ● Fire extinguishing methods

Pro-rata coverage if both policies:

● are primary ● have same terms and conditions