14.2 Crime and Fidelity Coverage

Commercial Crime and Fidelity

Commercial crime coverage responds to loss of money, securities, and other property caused by criminal acts - chiefly employee dishonesty, theft, robbery, burglary, forgery, and computer/funds-transfer fraud. ISO issues crime coverage on the Commercial Crime Coverage Form (CR 00 20 - discovery form) and CR 00 21 (loss-sustained form), plus government-entity versions. Crime is its own line because the standard property form excludes employee theft and many fraud perils.

Insuring agreements

The crime form is a menu of separately scheduled insuring agreements; each can carry its own limit and deductible:

1. Employee Theft (fidelity) - dishonest acts by employees
2. Forgery or Alteration - of checks, drafts, promissory notes
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. Funds Transfer Fraud
8. Money Orders and Counterfeit Money

Definitions that get tested

Precise peril definitions are heavily examined. Distinguish them carefully:

• Burglary - taking property by unlawful entry with visible signs of forced entry (marks on the premises).
• Robbery - taking property from a person by threat or use of force/violence (the victim is aware).
• Theft - the broadest term: any act of stealing, including burglary and robbery.
• Safe burglary - forced entry into a locked safe or its removal from the premises.

Mnemonic: Burglary = Breaking in (signs of force, no person); Robbery = Real person threatened.

Discovery vs. loss-sustained

The two trigger bases are a classic exam pairing:

• Discovery form (CR 00 20): covers losses discovered during the policy period (or up to 60 days after expiration), regardless of when the act occurred.
• Loss-sustained form (CR 00 21): covers losses sustained (occurring) during the policy period, with a limited extended discovery window (typically 1 year) provided no superseding insurance applies.

Employee theft is excluded once an insured discovers dishonesty by that employee - coverage terminates for that person.

Fidelity bonds and ERISA

Fidelity bonds guarantee an employer against employee dishonesty. Under ERISA, plans holding employee-benefit funds must carry a fidelity bond of at least 10% of the funds handled, with a $1,000 minimum and a $500,000 maximum ($1,000,000 if the plan holds employer securities). This statutory bonding requirement is a frequent multiple-choice item.

Worked example - employee theft limit

A business buys $100,000 Employee Theft coverage with a $5,000 per-occurrence deductible. A bookkeeper embezzles $70,000 over 14 months, discovered in a single audit. Because the scheme is treated as a single occurrence, the insurer pays:

$70,000 loss - $5,000 deductible = $65,000, within the $100,000 limit.

If the embezzlement had totaled $120,000, payment would be capped at the $100,000 limit (deductible applied within the limit per the form's language), illustrating why limit adequacy matters in fidelity underwriting.

Burglary, Robbery, and Theft Definitions

Crime questions hinge on precise peril definitions. Burglary requires unlawful entry with visible signs of forced entry and no person present. Robbery is taking property from a person aware of the act by threat or force. Theft is the broadest term covering any stealing, including both burglary and robbery. Safe burglary is forced entry into, or removal of, a locked safe. The mnemonic Burglary = Breaking in, Robbery = Real person threatened keeps them straight, and a stem describing a smashed lock with no witness is burglary while a held-up cashier is robbery.

Discovery vs. Loss-Sustained and ERISA Bonding

The two trigger forms are a classic pairing. The discovery form (CR 00 20) covers losses discovered during the period (plus a short window after expiration) regardless of when the act occurred; the loss-sustained form (CR 00 21) covers losses occurring during the period with a limited extended discovery window. Coverage on a dishonest employee ends once that employee's prior dishonesty is discovered.

Under ERISA, benefit plans must bond fiduciaries for at least 10% of funds handled, with a $1,000 minimum and a $500,000 maximum (or $1,000,000 if the plan holds employer securities) - a frequently tested statutory figure.

The Eight Crime Insuring Agreements

The commercial crime form is a menu of separately scheduled insuring agreements, each with its own limit and deductible: employee theft (fidelity), 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, funds transfer fraud, and money orders and counterfeit money. Because the standard property form excludes employee dishonesty and most fraud perils, crime is written as its own line.

A stem describing embezzlement points to employee theft; a forged check points to forgery or alteration; a hacked wire points to funds transfer fraud.

Worked Employee-Theft Limit

A business carries $100,000 employee theft coverage with a $5,000 deductible. A bookkeeper embezzles $70,000 over fourteen months, discovered in one audit and treated as a single occurrence, so the insurer pays $70,000 minus $5,000 = $65,000. Had the scheme reached $120,000, recovery would cap at the $100,000 limit. Treating a continuing dishonest scheme as one occurrence is the key to the calculation.

Fidelity Bonds vs. Crime Coverage

Distinguish a fidelity bond, which guarantees an employer against employee dishonesty, from the broader commercial crime form that also reaches outside perils such as robbery, computer fraud, and funds transfer fraud. The ERISA bonding mandate applies specifically to fiduciaries who handle benefit-plan funds, which is why a benefit-plan stem points to the fidelity bond figure while a stolen-payroll-wire stem points to funds transfer fraud.