14.2 Crime and Fidelity Coverage

Crime vs. Property Theft

Standard commercial property forms cover theft as a peril for owned property but exclude employee dishonesty and money/securities losses. Commercial crime fills that gap. The ISO program is the Commercial Crime Coverage Form (CR 00 21) for non-financial entities, written on either a loss-sustained or discovery basis.

• Discovery form pays losses discovered during the policy period (or extended discovery period), regardless of when the act occurred.
• Loss-sustained form pays losses occurring during the policy period and discovered within one year after the policy ends.

Quick Answer: Crime covers dishonest acts and money/securities; property forms cover theft of owned merchandise and equipment.

The Eight ISO Crime Insuring Agreements

The CR 00 21 form lists insuring agreements the insured selects and schedules a limit for each.

Key Definitions and Triggers

• Burglary - taking property by forcible entry, with visible signs of forced entry (marks of tools, etc.).
• Robbery - taking property from a person by force or threat of force.
• Theft - the broad term: any unlawful taking, including burglary, robbery, and shoplifting/larceny.
• Employee theft is a fidelity coverage; it is written on a per-loss (single occurrence covering all employees) or per-employee basis.

Trap: "Mysterious disappearance" (property simply missing with no evidence of how) is covered under theft wording but is not burglary or robbery, because there are no visible signs of forced entry and no person was confronted.

Fidelity Bonds and the ERISA Requirement

Fidelity bonds guarantee the honesty of employees and protect the employer (the obligee) against employee dishonesty (the principal is the bonded employee). The financial institution bond (Form 24) covers banks.

For employee benefit plans, ERISA Section 412 requires a fidelity bond covering every person who handles plan funds for at least 10% of the funds handled, with a minimum of $1,000 and a maximum of $500,000 ($1,000,000 if the plan holds employer securities). This statutory minimum-bond requirement is a recurring exam item.

Worked Coinsurance-Style Limit Example

A retailer schedules $50,000 employee-theft coverage with a $1,000 deductible. A trusted bookkeeper embezzles $72,000 over two years, discovered this period under a discovery form. Recovery is the limit minus deductible: $50,000 - $1,000 = $49,000. The remaining $22,000 is uninsured because the loss exceeded the scheduled limit - illustrating why employee-theft limits should reflect the funds an employee actually handles, not just average cash on hand.

Commercial Crime Coverage and Insuring Agreements

Commercial Crime coverage protects against loss of money, securities, and other property from criminal acts, written on either a loss-sustained form (covers loss discovered during the policy that occurred during this or a prior policy with continuous coverage) or a loss-discovered (discovery) form (covers loss discovered during the period regardless of when it occurred). The ISO Crime program offers several insuring agreements, selected individually:

• Employee Theft (fidelity) — dishonest acts by employees causing loss of money, securities, or property.
• Forgery or Alteration — loss from forged/altered checks, drafts, or similar instruments.
• Inside the Premises — Theft of Money and Securities, and Robbery/Safe Burglary of Other Property.
• Outside the Premises — money/securities and property in the hands of a messenger.
• Computer Fraud and Funds Transfer Fraud — fraudulent electronic transfers.
• Money Orders and Counterfeit Money.

Fidelity Bonds, ERISA, and Key Crime Definitions

Fidelity bonds specifically guarantee an employer against employee dishonesty — embezzlement, theft, forgery by employees handling money or property. They can be written per named individual, by position (covering whoever holds a listed job), or as a blanket bond covering all employees. A commercial blanket bond pays up to the full limit for a single loss regardless of how many employees were involved, while a blanket position bond pays the limit per employee involved — a distinction the exam tests.

Employee-benefit-plan administrators must carry ERISA fidelity bonding equal to at least 10% of the funds handled (with a $1,000 minimum and statutory maximum), which the crime form can satisfy.

Key definitions and exclusions: crime forms cover employees but exclude acts of the named insured's owners/partners and losses the insured can only prove by inventory shortage (inventory computation is not, by itself, sufficient proof). Coverage is typically written on a discovery basis with a defined period after cancellation to discover and report losses. Distinguishing the crime insuring agreements (employee theft vs. forgery vs. computer fraud) and the fidelity-bond structures (blanket vs. position, commercial blanket vs. blanket position) covers the most-tested crime content.