Commercial Crime Insurance - Chapter 17

*(Commercial Crime Insurance - Chapter 17)* Thieves break into a locked vault in a jewelry store and steal a necklace worth $15,000. The thieves also caused $1,000 in damage to the vault. The owner of the jewelry store has a $25,000 limit for inside the Premises-Robbery or Safe Burglary of Other Property Coverage. How much would the insurer pay? Ignore any deductible that may apply.

$6,000

*(Commercial Crime Insurance - Chapter 17)* Who of the following would be considered custodians while having care and custody of company property inside the premises?

- A store clerk - A company vice president

*(Commercial Crime Insurance - Chapter 17)* Two conditions that apply only to the employee theft insuring agreement:

- Cancellation as to Any Employee Condition - Territory Condition

*(Commercial Crime Insurance - Chapter 17)* After a convenience store had closed for the night, a group of teenagers broke in by driving their car through the front door. While inside the store, they stole $100 worth of snack food and tried and failed to break into the safe. Which of the following would be covered under the store owners Inside the Premises-Theft or Money and Securities coverage?

- Damage to the front door - Damage to the safe

*(Commercial Crime Insurance - Chapter 17)* The commercial crime forms include the following coverages as insuring agreements:

- Employee theft - Forgery or alteration - Inside the premises—theft of money and securities - Inside the premises—robbery or safe burglary of other property - Outside the premises - Computer fraud - Money orders and counterfeit paper money - Funds transfer fraud

*(Commercial Crime Insurance - Chapter 17)* Which of these statements about Employee Theft Coverage are CORRECT?

- It covers theft or forgery of money, securities, and other property by an employee. - An employee benefit plan may be listed as an insured for this coverage.

*(Commercial Crime Insurance - Chapter 17)* Exclusion that apply only to the Computer Fraud insuring agreement:

- Loss resulting from the use of credit, debit, charge, stored value, and similar types of cards - Loss resulting from funds transfer fraud - Loss resulting from the insured, or someone acting on the insured's authority, being introduced by a dishonest act to voluntarily part with title to or possession of property

*(Commercial Crime Insurance - Chapter 17)* The insured's duties in the event of a loss include the following:

- Notifying the insurer as soon as possible - Notifying the police if a law may have been broken (does not apply to employee theft or forgery or alteration coverage) - Submitting to examination under oath at the insurer's request - Providing a sworn proof of loss within 120 days - Cooperating with the insurer in the investigation and settlement of the claim

*(Commercial Crime Insurance - Chapter 17)* Which of the following regarding a burglary must be TRUE?

- The Burglary must involve unlawful entry or exit from the premises. - There must be visible evidence of forcible entry or exit.

*(Commercial Crime Insurance - Chapter 17)* Two versions of Crime Forms:

- The Loss Sustained Form - The Discovery Form

*(Commercial Crime Insurance - Chapter 17)* Exclusions that apply to all of the coverage's in the crime forms:

- Theft or dishonest acts committed by the insured, partners, or members, whether acting alone or in collusion with others - Loss caused by an employee if the employee had previously committed theft or another dishonest act prior to the policy period and the insured knew about that action - Theft or dishonest acts committed by any of the insured's employees, managers, directors, trustees, or authorized representatives, except as covered under employee theft coverage; the exclusion applies whether the person is acting alone or in collusion with others and while actually working for the insured or otherwise - Unauthorized disclosure of insured's confidential information - Unauthorized use or disclosure of another party's confidential information that is held by the insured - Seizure or destruction of property by government authority - Indirect or consequential losses - Legal expenses, except as provided under forgery or alteration coverage - Nuclear hazard - Pollution - War and similar actions

*(Commercial Crime Insurance - Chapter 17)* Exclusions that exclude loss for Inside the Premises-Theft of Money and Securities, Inside the Premises-Robbery or Safe Burglary of Other Property, and Outside the Premises Coverage's include:

- resulting from accounting or arithmetic errors or omissions; - resulting from giving or surrendering property in an exchange or purchase; - due to fire (does not apply to damage to safes, vaults, money, or securities); - of property contained in any money-operated device, unless it is equipped with a recording instrument; - to motor vehicles, trailers or semitrailers, including attached equipment and accessories; - of property when it is transferred or surrendered outside the premises or banking premises on the basis of unauthorized instructions or as a result of a threat (does not apply to loss of money, securities, or other property while outside the premises and in the custody of a messenger if the insured was not aware of a threat at the time the property left the premises); - to the interior or exterior of the premises or to a safe, vault, cash register, cash box, cash drawer, or other property by vandalism or malicious mischief; and - resulting from the insured or anyone acting with the insured's authority being induced by any dishonest act to voluntarily part with title to or possession of property.

*(Commercial Crime Insurance - Chapter 17)* Inside the Premises-Robbery or Safe Burglary or Other Property and Outside the Premises Coverage's (condition that applies only to certain coverage's)

A $5,000 per occurrence limit applies for loss to precious metals, precious or semiprecious stones, furs, pearls, or other articles that contain these materials.

*(Commercial Crime Insurance - Chapter 17)* Computer Fraud Coverage (condition that applies only to certain coverage's)

A $5,000 per occurrence limit applies to all loss to manuscripts, drawings, or records, including the costs of reproducing or reconstructing information in them.

*(Commercial Crime Insurance - Chapter 17)* EX of Theft

An unassuming, unarmed gentlemen walks into a furriers at noon and walks out with 3 mink stoles. When an astonished clerk runs after him, she finds the gentlemen has disappeared without a trace

*(Commercial Crime Insurance - Chapter 17)* Loss Sustained During Prior Insurance Condition

Appears only in the loss sustained forms, states that the policy will pay for a loss that occurred during the term of a previous policy but was discovered during the term of the present policy. For coverage to apply, three conditions must be met: - The discovery period under the previous policy has expired - The current policy became effective on the date the prior policy expired - The loss is covered under both the current and previous policies The most that will be paid for the loss is the lesser of the current or previous policy limit.

*(Commercial Crime Insurance - Chapter 17)* EX of Robbery

Armed bandits tie up a struggling store clerk and customer and lock them in a back room. Then they load up several appliances from the showroom into their waiting truck.

*(Commercial Crime Insurance - Chapter 17)* Name Schedule Bonds (Types of Fidelity Bonds)

Cover each employee named on the policy schedule for the amount listed in the schedule. The limit of liability may be different for different employees on the list.

*(Commercial Crime Insurance - Chapter 17)* Commercial Blanket Bonds (Types of Fidelity Bonds)

Cover losses arising from the dishonesty of one or more employees acting separately or together (in collusion). Neither the employees nor their positions are specifically named. The bonds limit of liability applies separately to each loss, regardless of the number of employees involved in a single loss.

*(Commercial Crime Insurance - Chapter 17)* Cancellation as to Any Employee Condition

Coverage for any employee is canceled immediately upon discovery by the named insured, partners, officers, directors, members, or managers of any theft or other dishonest act committed by the employee. This is true even when the dishonest act occurred before the employee was hired by the named insured. The insurance company also reserves the right to cancel coverage for any employee. The insured must be notified in writing atleast 30 DAYS before the effective date of cancellation.

*(Commercial Crime Insurance - Chapter 17)* Six months after a new employee is hired, the insured learns that the employee was fired from a previous job for stealing company property. How will this discover affect the insured's Employee theft coverage?

Coverage for this employee will be canceled immediately

*(Commercial Crime Insurance - Chapter 17)* Computer Fraud Coverage (insuring agreement)

Covers Loss of or damage to money, securities, and other property due to the use of a computer to fraudulently transfer that property from inside the premises or banking premises to a place or person (other than a messenger) outside the premises. Coverage is provided worldwide. Proof of loss may not be based on an inventory shortage or profit and loss computation

*(Commercial Crime Insurance - Chapter 17)* Funds Transfer Fraud (insuring agreement)

Covers losses resulting from fraudulent instructions to a financial institution to pay money from an insured's transfer account. Loss resulting from the use of a computer to fraudulently transfer money, securities, or other property is not covered. Fraudulent instructions are defined as instructions by someone who is impersonating an insured or an employee to transfer money without the insureds knowledge or consent. A transfer account is an account maintained at a financial institution that allows money to be transferred electronically, either by phone or in writing.

*(Commercial Crime Insurance - Chapter 17)* Loss Sustained Form

Covers losses that are sustained during the policy period and discovered either during the policy period or up to one year after the policy expires. This one-year discovery period terminates immediately when the insured obtains other commercial crime insurance. Note that the policy does not extend coverage beyond the policy expiration date. Losses that occur after policy expiration will not be covered, but losses that occur during policy period and are discovered within one year after the policy expiration are covered. EX: Suppose a pet supply store is insured under the loss sustained version of the crime policy. The policy period is January 1, 2003, to January 1, 2004. A loss occurs on April 6, 2003, but is not discovered until September 7, 2004. The crime policy will cover this loss because the loss occurred during the policy period and was discovered within one year after the policy expiration date.

*(Commercial Crime Insurance - Chapter 17)* Money Orders and Counterfeit Paper Money (insuring agreement)

Covers losses that result when the insured accepts invalid money orders or counterfeit money in good faith. Suppose a customer at the insureds clothing store uses cash to purchase $1,000 worth of merchandise. When the insured attempts to deposit the money, she learns it is counterfeit. The money orders and counterfeit paper money coverage would pay for her loss.

*(Commercial Crime Insurance - Chapter 17)* Guests' Property Endorsement

Covers money, securities, and other property owned by hotel guests while: - on the insured's premises; - in the insured's possession; or - in a safe deposit box on the insured's premises

*(Commercial Crime Insurance - Chapter 17)* Kidnap/Ransom and Extortion Coverage Form

Covers property surrendered as ransom for a kidnapping or alleged kidnapping of an insured person. It also pays for property surrendered as an extortion payment to prevent bodily harm, damage to property, a computer virus, contaminates or pollution to insured products, or the dissemination of proprietary or confidential information.

*(Commercial Crime Insurance - Chapter 17)* EX of Safe Burglary

During a break-in at a business, the safe is removed from the premises.

*(Commercial Crime Insurance - Chapter 17)* When an insured purchases a Commercial Crime Coverage Form, all of the coverage's listed in the form automatically apply to the policy.

False

*(Commercial Crime Insurance - Chapter 17)* Valuation

For loss or damage to property to property other than money and securities, the insurer will pay the lesser of the property's replacement cost, which is the amount needed to repair or replace the property, or the limit of insurance Losses to money are paid at face value, but loss of a foreign currency may be paid at its face value in that other currency or in the American dollar equivalent determined by the exchange rate on the day the loss was discovered. Losses to securities are paid at their market value at the close of business on the day the loss was discovered, but the insurer also has the option of replacing them in kind.

*(Commercial Crime Insurance - Chapter 17)* Fidelity bonds

Guarantee an employees honest discharge of duty and are written to protect an insured against dishonest acts by employees. The employee dishonesty coverage we discussed earlier provides coverage comparable to that provided by fidelity bonds. There is another type of bond, called a surety bond, that we will discuss later in the course. Are continuous and do not have an expiration date, although they may be terminated by the parties to the bond. Like commercial crime forms, fidelity bonds provide a discovery or cut-off period for losses that occurred during the term of the bond but were not discovered until after its termination.

*(Commercial Crime Insurance - Chapter 17)* Bond

Guarantee that a specific duty will be discharged, a certain performance maintained, or a specific obligation fulfilled.

*(Commercial Crime Insurance - Chapter 17)* Inside the Premises- Robbery or Safe Burglary of other Property

Has Two Primary Coverage's: - Loss of other Property (not money or securities) while inside the premises from actual or attempted robbery or a custodian - Loss of other property from a safe or vault inside the premises from actual or attempted safe burglary If the insured owns the premises or is liable for damage to it, it also covers damage to the interior or exterior of the premises that results from actual or attempted robbery or safe burglary. Damage to a locked safe or vault that is inside the premises is also covered when the damage results from actual or attempted robbery or safe burglary.

*(Commercial Crime Insurance - Chapter 17)* Other Insurance

If other insurance applies to a loss and the crime policy was written on a primary basis, the crime policy will pay it proportional share of the loss if the other policy is written on the same basis as the crime policy. If the other policy was not written on the same basis, the crime policy pays on an excess basis.

*(Commercial Crime Insurance - Chapter 17)* Other Conditions that apply to all coverage's:

If the insured establishes additional premises or hires more employees while the coverage's while the coverage is in effect (other than through a merger or acquisition), the additional premises and employees are automatically covered under the policy. New employees and additional premises obtained through a consolidation, acquisition, or merger are automatically covered for 90 days. However, the insured is required to provide written notice to the insurer and pay an additional premium required. This condition does not appear in crime forms written for government entities. If a loss is covered under more than one coverage in the crime form, the most the insured will pay is the largest limit of insurance applicable to the loss. The insured cannot take legal action against the insurer for 90 days after filing the proof of loss. Legal action must be instigated within two years of the date of loss. The coverage territory includes the United States and its territories and possessions, Puerto Rico, and Canada.

*(Commercial Crime Insurance - Chapter 17)* Forgery or Alteration Coverage (condition that applies only to certain coverage's)

In addition to the proof of loss, the insured must submit the instrument involved in the loss or an affidavit describing the amount and cause of loss.

*(Commercial Crime Insurance - Chapter 17)* Commercial Crime Insurance

Insurance designed to protect businesses and government entities against property loss resulting from such crimes as burglary, robbery, theft, and employee dishonesty. Crime coverage can be provided as a monoline policy or as part of a commercial package policy (CPP). HOWEVER, unlike the other commercial lines coverage's you've studied at this point, the same forms are not used for package policies and monoline policies. For crime insurance, coverage forms are used for package policies, and policy forms are the monoline versions. The primary difference is that separate common policy conditions form is not required for a monoline policy because these conditions are incorporated into the policy. For a CPP, a separate form is required.

*(Commercial Crime Insurance - Chapter 17)* Discovery Form

Insurance written on this basis covers losses that are sustained at any time and discovered either during the policy period or up to 60 days after the policy period expires (up to one year for losses related to employee benefit plans). A loss is discovered when the insured: - first becomes aware that a loss has occurred or will occur, even if the actual amount of loss or details concerning the loss are not know; or - receives notice of an actual or potential claim for a covered loss The extended periods to discover losses terminate immediately when the insured obtains other commercial crime insurance.

*(Commercial Crime Insurance - Chapter 17)* Position Schedule Bonds (Types of Fidelity Bonds)

List positions in the company that are covered, rather than the individuals who fill these positions. A new employee hired in a scheduled position is automatically covered.

*(Commercial Crime Insurance - Chapter 17)* Per Employee Basis

Means all loss caused by one employee. Treasurers, tax collectors, and employees required by law to be individually bonded are not covered.

*(Commercial Crime Insurance - Chapter 17)* Per Loss Basis

Means the limit of insurance applies regardless of how many employees were involved in the loss

*(Commercial Crime Insurance - Chapter 17)* Extortion

Means the surrender of property away from the premises as the result of a threat communicated to the insured to do bodily harm to the insured or to an employee or a relative of the insured who is being held captive.

*(Commercial Crime Insurance - Chapter 17)* Theft

Means the unlawful taking taking of property. This broad term includes burglary, safe burglary, and robbery. However, unlike burglary, safe burglary, and robbery, which usually involve the use of force, theft also includes the taking of property by stealth (action designed to escape notice)

*(Commercial Crime Insurance - Chapter 17)* Most Commonly Used Crime Forms - Commercial Crime Form:

Monoline Policies: - Commercial Crime Policy-Discovery Version - Commercial Crime Policy-Loss Sustained Version Package Policies: - Commercial Crime Coverage Form-Discovery Version - Commercial Crime Coverage Form-Loss Sustained Version

*(Commercial Crime Insurance - Chapter 17)* Most Commonly Used Crime Forms - Government Crime Form:

Monoline Policies: - Government Crime Policy-Discovery Version - Government Crime Policy-Loss Sustained Version Package Policies: - Government Crime Coverage Form-Discovery Version - Government Crime Coverage Form-Loss Sustained Version

*(Commercial Crime Insurance - Chapter 17)* The insured's appliance store is burglarized. Among the merchandise taken is a video camera and monitor, which a wedding photographer left at the shop for repair. The photographer files suit against the insured for the loss of the equipment, claiming she was negligent in not providing enough security for the store. Would the insured's Commercial Crime Form pay defense costs arising from this suit?

No

*(Commercial Crime Insurance - Chapter 17)* Thieves dynamite the insured's safe, causing damage to the interior of the building. The insured has to close the business for 2 days while repairs are made. Would the Commercial Crime Coverage Form cover the 2 days of lost business revenue?

No

*(Commercial Crime Insurance - Chapter 17)* Extortion-Commercial Entities Endorsement

Pays for loss of money, securities, and other property resulting from extortion. The endorsement covers payments made in response to threats of bodily injury harm to employees of the insured and relatives or invitees who are also captured in the covered territories. The territory is the United States (including its territories and possessions), Puerto Rico, Canada, and other locations shown on the endorsement schedule.

*(Commercial Crime Insurance - Chapter 17)* Employee Theft Coverage

Pays for loss of or damage to money, securities, and other property resulting from theft or forgery committed by an employee, either acting alone or in collusion with others. The employee does not have to be identified for coverage to apply. There is no coverage for: - an employee who has previously had similar insurance canceled and not reinstated; - loss resulting from trading, either in the insured's name or in a genuine or fictitious account; or - loss resulting from fraudulent or dishonest use of warehouse receipts. Proof of loss may not be based on an inventory shortage or profit and loss computation. An employee benefit plan may be listed in the declarations as a named insured for employee theft coverage. No deductible applies to losses sustained by an employee benefit plan. Under the government crime forms, employee theft losses may be written on a per loss basis, which means the limit of insurance applies regardless of how many employees were involved in the loss, or on a per employee basis, meaning all loss caused by one employee. Treasurers, tax collectors, and employees required by law to be individually bonded are not covered.

*(Commercial Crime Insurance - Chapter 17)* Forgery or Alteration Coverage

Pays for loss resulting from forgery or alteration of checks, drafts, promissory notes, or similar instruments made or drawn by or on the named insured or the insured's agent. This includes documents that are forged or altered with a mechanically reproduced facsimile signature. Coverage is provided worldwide.

*(Commercial Crime Insurance - Chapter 17)* Inside the Premises-Theft of Money and Securities Coverage

Pays for theft, disappearance, or destruction of money and securities while inside the insured premises or a banking premises. If the insured owns the premises or is liable for damage to it, it also covers damage to the interior or exterior of the premises that results from theft or attempted theft. Damage to a locked safe, vault, cash register, cash box, or cash drawer that is inside the premises is also covered when the damage results from theft, attempted theft, or unlawful entry.

*(Commercial Crime Insurance - Chapter 17)* EX of Burglary

Professional crooks use dynamite to break into an isolated electronics warehouse after the building is closed for the day.

*(Commercial Crime Insurance - Chapter 17)* Territory Condition

Provides coverage for losses that occur when the employee is temporarily outside the coverage territory for 90 consecutive days or less.

*(Commercial Crime Insurance - Chapter 17)* Outside the Premises Insuring Agreement

Provides two types of coverage's: - Theft, disappearance, or destruction of money and securities while outside the premises and in the care and custody of a messenger or an armored car company - Loss of other property by actual or attempted robbery while outside the premises and in the care and custody of a messenger or an armored car company

*(Commercial Crime Insurance - Chapter 17)* Forgery

Signing the name of another person or organization with the intent to deceive.

*(Commercial Crime Insurance - Chapter 17)* Custodian

Someone who has care or custody of property inside the premises. It includes the insured, the insured's partners or members, or any employee. It does not include a watchperson or janitor.

*(Commercial Crime Insurance - Chapter 17)* EX of Parties to a Bond

Suppose the XYZ Insurance Company Issues a Fidelity bond to Baker and Company that covers Baker's treasurer. XYZ Insurance Company is the surety, Baker and Company is the obligee, and Baker's treasurer is the principle.

*(Commercial Crime Insurance - Chapter 17)* EX of Loss Sustained During Prior Insurance Condition

Suppose the insured's commercial crime policy with Company A had an effective date of January 1, 2003, and expired January 1, 2004. The insured then purchased a policy from Company B that was effective from January 1, 2004, through January 1, 2005, and then renewed for another year. The insured had a crime loss that occurred in February 2003 but was not discovered until March 2005. The policies from both companies were written on a loss sustained basis. Assume that, without regard to the date, the loss would have been covered under either policy. This loss would be covered under Company B's policy.

*(Commercial Crime Insurance - Chapter 17)* Outside the Premises Coverage (condition that applies only to certain coverage's)

The insurer will pay only the amount of loss that cannot be recovered under the insured's contract with the armored car company and from any insurance available from the armored car company.

*(Commercial Crime Insurance - Chapter 17)* The Surety

The party (often the insurance company) who agrees to be responsible for loss that may result if the principle does not keep his promise

*(Commercial Crime Insurance - Chapter 17)* The Obligee

The party to whom the principle makes the promise, and for whose protection the bond is being written.

*(Commercial Crime Insurance - Chapter 17)* The Principle

The party who promises to do (or not do) a specific thing (this is the person or company bonded)

*(Commercial Crime Insurance - Chapter 17)* Burglary

The taking of property from inside the premises by a person unlawfully entering or leaving the premises. There must be evidence of forcible entry or exit, such as marks made by tools, explosives, chemicals, or electricity.

*(Commercial Crime Insurance - Chapter 17)* Safe Burglary

The taking of property from within a locked safe or vault by a person unlawfully entering the safe or vault, as evidenced by marks of forcible entry on the exterior of the safe or vault. It also includes the taking of the entire safe or vault from inside the premises.

*(Commercial Crime Insurance - Chapter 17)* Robbery

The unlawful taking of property from the care and custody of another person. The robber must have caused or threatened to cause bodily harm to the person being robbed or must have committed an obviously unlawful act that is witnessed by the person being robbed.

*(Commercial Crime Insurance - Chapter 17)* Parties to a Bond

There are many similarities between insurance policies and bonds (insurance companies often issue both), but there are some important distinctions as well. Insurance contracts include two parties - the insured and the insurance company. BONDS are contracts between three parties: - The Principle - The Surety - The Obligee

*(Commercial Crime Insurance - Chapter 17)* EX of Forgery

While dining at a small eatery, a customer finds the owner's checkbook and slips it into his pocket. Later, he makes purchases using the checks and signing the restaurant owner's name.

*(Commercial Crime Insurance - Chapter 17)* A customer in a liquor store points a gun at the clerk and demands that she hand over several bottles of expensive whiskey. The clerk complies. Would this loss be covered under the store's Inside the Premises-Robbery or Safe Burglary of Other Property Coverage?

Yes

*(Commercial Crime Insurance - Chapter 17)* While on her way to make the daily deposit at the bank, the insured stops at a gas station. When she returns to her car after paying the cashier, she discovers that someone has taken the money from her unlocked car. Would this loss be covered under Outside the Premises coverage?

Yes

*(Commercial Crime Insurance - Chapter 17)* The insureds crime policy is written on a discovery basis and is effective from March 1, 2004 to March 1, 2005. In December 2004, an audit of the insureds financial records reveals that the bookkeeper has embezzled over $50,000 from the business over the previous 3 years. Would this loss be covered?

Yes, because it was discovered during the policy period

*(Commercial Crime Insurance - Chapter 17)* Employee Benefit Plan

any welfare or pension plan subject to the Employee Retirement Income Security Act Of 1974 (ERISA), such as a 401(k), profit sharing, health, life, or disability insurance plan. Government plans, such as Social Security, are not employee benefit plans.

*(Commercial Crime Insurance - Chapter 17)* Securities

are instruments or contracts that represent money or property. Checks, drafts, bonds, certificates of deposit, stock certificates, stamps, and credit card receipts are all considered securities

*(Commercial Crime Insurance - Chapter 17)* Money

includes currency, coins, bank notes, travelers checks, register checks, and money orders.

*(Commercial Crime Insurance - Chapter 17)* Other Property

means any tangible property other than money or securities that has value. It does not include computer programs or electronic data.

*(Commercial Crime Insurance - Chapter 17)* Watchperson

someone retained specifically by the insured whose sole duty is to have care and custody of property inside the premises.

*(Commercial Crime Insurance - Chapter 17)* Messenger

someone who has care and custody of property while it is outside the premises. It can include the insured, a relative of the insured, the insured's partners or members, or any employee