14.2 Crime and Fidelity Coverage
Key Takeaways
- Commercial crime insurance pays only direct loss of money, securities, and other property from theft, forgery, robbery, burglary, and electronic fraud; consequential losses are excluded.
- The Discovery form (CR 00 20) covers losses discovered during the period regardless of when they occurred; the Loss Sustained form (CR 00 21) covers losses occurring during the period plus a ~1-year discovery window.
- Robbery requires a person present and force/threat; burglary requires forcible entry with visible marks and no confrontation; theft is the broadest term.
- Crime forms use a single per-occurrence limit with one deductible and no aggregate; the prior-dishonesty rule cuts off coverage once the insured knows an employee stole before.
- Fidelity (employee dishonesty) is part of crime insurance; surety is a three-party performance guarantee and is not crime coverage.
What Crime Insurance Covers
Commercial crime insurance pays for financial loss from dishonest and criminal acts - employee theft, forgery, robbery, burglary, and electronic fraud. Where property insurance handles natural and accidental perils, crime insurance targets intentional human wrongdoing. The current ISO program is the Commercial Crime Coverage Form (CR 00 20 - Discovery) and CR 00 21 (Loss Sustained), plus a Government Crime version. A requirement runs through every insuring agreement: the loss must be a direct loss of covered money, securities, or property - not a consequential loss such as lost profits or reputation.
Quick Answer: Crime policies pay for direct loss of money, securities, and other property caused by theft, forgery, and fraud by employees or outsiders.
Fidelity coverage is the employee-dishonesty piece specifically - bonds and Coverage A that protect the employer against losses caused by its own employees. Surety, by contrast, is a three-party guarantee of performance and is not crime insurance; the exam tests that distinction relentlessly.
Coverage Triggers: Discovery vs. Loss Sustained
The single most-tested crime concept is when a loss is covered.
| Discovery Form (CR 00 20) | Loss Sustained Form (CR 00 21) | |
|---|---|---|
| Trigger | Loss discovered during the policy period | Loss occurs during the policy period |
| When loss happened | Irrelevant - may predate the policy | Must fall within the period |
| Extended window | 60-day discovery extension (1 year for certain employee-benefit claims) | Typically a 1-year discovery window after expiration |
| Underwriter view | Broader for the insured | More predictable for the insurer |
Worked scenario: A bookkeeper embezzles for three years and is caught today. A Discovery form in force now pays even though most thefts predate it (subject to a single per-occurrence limit). A Loss Sustained form pays only the portion of theft that occurred while it was in force, plus losses discovered within its post-expiration window. Match the fact pattern's emphasis - occurred vs. discovered - to the right form.
An employee embezzled funds from 2022 to 2025. The theft is discovered in 2026 while a Discovery-form crime policy effective 2025-2026 is in force. How does the Discovery form respond?
The Core Insuring Agreements
| Agreement | What it covers |
|---|---|
| A - Employee Theft | Theft, embezzlement, forgery by employees (direct loss only) |
| B - Forgery or Alteration | Forged/altered checks, drafts, notes on the insured's accounts |
| C - Inside the Premises: Money & Securities | Theft, robbery, safe burglary of money/securities on premises |
| D - Inside the Premises: Robbery/Safe Burglary of Other Property | Robbery of a custodian; safe burglary of merchandise |
| E - Outside the Premises | Money/securities in a messenger's care off premises |
| F - Computer Fraud | Theft of money/property by fraudulent computer use |
| G - Funds Transfer Fraud | Fraudulent transfer instructions to the bank |
The Robbery / Burglary / Theft Distinction
- Robbery - taking property from a person by force or threat (a person is present).
- Burglary - forcible entry/exit with visible signs of the break-in; no confrontation.
- Theft - the broadest term: any act of stealing, including robbery and burglary.
Exam stems describe the fact pattern (a gun in the clerk's face = robbery; a pried-open back door overnight = burglary) and ask you to name the peril.
Definitions, Limits, and Traps
Crime forms are written on a single per-occurrence limit with one deductible per occurrence - there is no separate aggregate as in CGL. A continuous series of acts by the same employee is one occurrence.
Key definition traps:
- Employee includes leased and temporary workers and (for nonprofits) some volunteers; it excludes independent agents and brokers handling your money.
- The prior-dishonesty exclusion ends coverage for an employee the moment the insured knew of a prior theft by that person - continuing to employ them voids future coverage.
- Indirect/consequential losses (lost income, fines, investigation costs beyond a small sublimit) are excluded - only the direct loss is paid.
- Inventory shortage alone cannot prove an employee-theft loss - the insured needs independent evidence; this is a frequent test point.
A worked limit example: an employee steals $90,000 over time; the policy limit is $50,000 with a $5,000 deductible. The single-limit structure caps recovery at the limit less deductible = $45,000, no matter how many separate withdrawals occurred.
Two more high-yield distinctions round out the topic. First, territory and exclusions: crime forms cover loss in the coverage territory and exclude acts of the named insured's owners and (in the base form) acts you knew about. Second, government crime versus commercial crime: the Government Crime Coverage Form mirrors the commercial form but is tailored to public entities and adds a faithful-performance-of-duty concept.
Finally, candidates should not confuse a fidelity bond (covers the employer against employee dishonesty - a two-party arrangement) with a surety bond (a three-party guarantee that a principal will perform an obligation to an obligee). Surety is underwritten like credit and expects no losses; fidelity is true insurance against theft.
A clerk pries open the locked rear door overnight - tool marks are visible - and removes merchandise while the store is empty. No employee is present. Which crime peril is this?