14.2 Crime and Fidelity Coverage
Key Takeaways
- Commercial crime insurance covers loss of money, securities, and other property from dishonest acts such as employee theft, robbery, burglary, and forgery.
- Fidelity bonds (employee dishonesty/theft coverage) protect the employer from losses caused by its own employees.
- Burglary requires visible signs of forced entry; robbery requires taking from a person by threat or force; theft is the broadest term.
- Crime forms can be written on a loss-sustained or discovery basis, which changes when a loss must occur or be found to trigger coverage.
- Money and securities have their own valuation rules; securities are valued at the time of discovery.
The Crime Perils Defined
Commercial crime insurance turns on precise definitions, and the exam tests them relentlessly. Memorize these:
- Burglary - the unlawful taking of property from inside premises by someone who forcibly enters or exits, leaving visible signs of the break-in.
- Robbery - taking property from a person who is aware of it, by force or the threat of force.
- Theft - the broadest term; any act of stealing, including burglary and robbery.
- Employee dishonesty / fidelity - loss caused by an employee's dishonest acts intended to benefit the employee.
Trap: an employee pocketing cash from the register at night is theft/employee dishonesty - NOT burglary, because there is no forced entry.
ISO Commercial Crime Forms
ISO writes crime through the Commercial Crime Coverage Form, available as a loss-sustained form (CR 00 21) or a discovery form (CR 00 20). The distinction is the trigger:
- Discovery form - covers loss discovered during the policy period, regardless of when it occurred, plus a discovery period after expiration.
- Loss-sustained form - covers loss occurring during the policy period and discovered during the policy or a limited extended-reporting window.
The coverage form offers separate insuring agreements, each independently limited: employee theft, forgery or alteration, money and securities (inside and outside the premises), money orders and counterfeit currency, and computer/funds-transfer fraud.
Fidelity Bonds vs. Crime Insurance
A fidelity bond protects an employer against loss from its own employees' dishonesty - it is a three-party arrangement (insurer/surety, employer/insured, employee). Modern ISO practice folds employee dishonesty into the crime form as the Employee Theft insuring agreement, but the bond concept still appears on exams.
Key valuation rule: securities are valued at the value at the close of business on the day the loss is discovered, while money is valued at face value. Foreign currency may be converted to US dollars.
Worked Example - Per-Occurrence Limit
A bookkeeper embezzles $75,000 over eight months through a series of false invoices, all part of one scheme. The Employee Theft insuring agreement has a $50,000 per-occurrence limit and a $1,000 deductible.
Because all acts by the same employee form a single occurrence, the loss is treated as one event. The insurer pays the limit of $50,000 less the $1,000 deductible = $49,000. The remaining $25,000 is uninsured. The exam tests that multiple dishonest acts by one employee are one occurrence.
A thief enters a closed store at night by prying open a rear door, leaving pry marks, and steals inventory. Which crime peril applies?
Under the ISO crime discovery form, when does a covered loss trigger coverage?
Inside vs. Outside the Premises
Money and securities coverage in the crime form splits by location, and the exam tests the split:
- Money and securities - inside the premises covers loss by theft, disappearance, or destruction while on the insured's premises or in a banking institution.
- Money and securities - outside the premises covers loss while a messenger or armored-car service is carrying the funds away from the premises.
A robbery of a deposit being carried to the bank is an outside loss; a safe burglary at the store is an inside loss. Producers must confirm both limits are set, because a business with frequent bank runs is heavily exposed outside the premises.
Forgery, Computer Fraud, and Exclusions
The Forgery or Alteration insuring agreement covers loss from forged or altered checks, drafts, and similar instruments drawn by the insured. The Computer and Funds Transfer Fraud agreements respond to fraudulent electronic transfers and hacking that causes money to leave the insured's account.
Common crime exclusions to memorize:
- Inventory shortage alone cannot prove an employee theft claim
- Acts by the named insured or its owners/partners are excluded
- Trading losses and indirect/consequential loss are excluded
- Theft by a person after the insured learned of that person's prior dishonesty (coverage terminates for that employee)
Limits, Deductibles, and Bonding Amounts
Crime coverage is written with a per-occurrence limit for each insuring agreement and a single deductible per occurrence. Higher-hazard operations - check-cashing, jewelry, cash-intensive retail - warrant higher employee-theft limits. A common producer error is setting one global limit and ignoring the fact that money-and-securities sub-limits are often far lower than the building/contents limits.
When estimating an adequate fidelity amount, underwriters weigh the number of employees with access to funds, the speed of audits, and the maximum exposure any one employee could create before detection. Frequent reconciliation reduces the size of a single-occurrence loss and supports a lower limit, while infrequent oversight argues for a higher bond amount.
The ISO Crime Insuring Agreements
The Commercial Crime policy (ISO) is built from selectable insuring agreements — know the headline ones:
| Insuring agreement | Covers |
|---|---|
| Employee Theft | Loss of money, securities, or property caused by employee dishonesty |
| Forgery or Alteration | Loss from forged/altered checks, drafts, or promissory notes |
| Inside the Premises — Theft of Money & Securities | Robbery/safe burglary of money and securities on premises |
| Inside the Premises — Robbery/Safe Burglary of Other Property | Robbery of property other than money/securities |
| Outside the Premises | Money/securities in a messenger's care off-site |
| Computer Fraud / Funds Transfer Fraud | Loss from fraudulent electronic transfer instructions |
| Money Orders & Counterfeit Money | Loss from accepting bad money orders or counterfeit currency |
Discovery vs. Loss-Sustained Trigger
A key timing distinction: a Discovery Form covers losses discovered during the policy period regardless of when they occurred, while a Loss-Sustained Form covers losses occurring during the period (with a discovery window after expiration). Because employee theft is often hidden for years, the discovery trigger and the rule that coverage terminates for any employee once the insured learns of that person's prior dishonesty are heavily tested.
Crime vs. Fidelity Terminology
Modern ISO crime policies fold what used to be the separate fidelity bond (employee dishonesty) into the Employee Theft insuring agreement. So "fidelity" and "employee theft coverage" describe the same protection, and both are crime insurance (some loss expected, no plan to recover from the thief) — distinct from a surety guarantee of performance. A scenario describing a bookkeeper diverting company funds points to the Employee Theft agreement, with the loss capped at that agreement's per-occurrence limit, not the building or contents limit.