14.2 Crime and Fidelity Coverage
Key Takeaways
- Two coverage triggers: the Discovery form (CR 00 22) pays for losses discovered during the policy period regardless of when they occurred; the Loss Sustained form (CR 00 23) pays only for losses occurring during the period, with a limited extended-discovery window.
- Employee Theft (Insuring Agreement 1) is the most-purchased fidelity coverage and pays only direct loss from theft, embezzlement, or forgery by employees - never consequential loss like lost profits.
- Money and securities coverages distinguish robbery (taking by threat or force, person present) from burglary (forcible entry with visible marks, no confrontation) from broad theft.
- ISO crime forms come in a Commercial Crime Coverage (CR 00 20-series) and a Government Crime program; Computer Fraud and Funds Transfer Fraud agreements address electronic theft and fraudulent transfer instructions.
- Fidelity bonds and crime policies require a fortuitous, direct loss; voluntary parting induced by trick or false pretense is excluded unless a specific False Pretense or Fraud agreement is added.
What Commercial 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. A foundational rule runs through every insuring agreement: the loss must be a direct loss of covered money, securities, or other property - not a consequential loss such as lost profits, reputational harm, or interest the funds would have earned.
Quick Answer: Crime policies pay the direct loss of money, securities, and other property caused by theft, forgery, and fraud, whether by employees or outsiders.
ISO publishes a Commercial Crime Coverage Form in the CR 00 20-series and a parallel Government Crime program; both are offered in Discovery and Loss Sustained versions.
Coverage Triggers: Discovery vs. Loss Sustained
The single most-tested crime concept is when a loss is covered.
| Discovery Form (CR 00 22) | Loss Sustained Form (CR 00 23) | |
|---|---|---|
| Trigger | Loss is discovered during the policy period | Loss occurs during the policy period |
| When loss happened | Irrelevant - may be years earlier | Must fall within the period |
| Extended window | Adds a 60-day discovery extension after expiration | Typically a 1-year prior-loss/discovery window |
| Best for | First-time buyers, uncertain history | Continuous renewing insureds |
The practical difference: a Discovery form will respond to a long-running embezzlement first uncovered today; a Loss Sustained form responds only to defalcations tied to acts during the period (or its bridging window).
The Core Insuring Agreements
| # | Insuring Agreement | What It Covers |
|---|---|---|
| 1 | Employee Theft | Theft, embezzlement, forgery by employees; direct loss only |
| 2 | Forgery or Alteration | Forged/altered checks, drafts, notes drawn on the insured |
| 3 | Inside the Premises - Money & Securities | Theft, disappearance, destruction inside |
| 4 | Inside the Premises - Robbery/Safe Burglary (Other Property) | Robbery or safe burglary of non-money property |
| 5 | Outside the Premises | Money/securities/property in a messenger's care outside |
| 6 | Computer Fraud | Electronic theft of money, securities, or property |
| 7 | Funds Transfer Fraud | Fraudulent transfer instructions to a bank |
Employee Theft (Agreement 1) is the most-purchased and the fidelity backbone of the policy. It excludes acts by the insured's owners or partners and pays only direct loss.
Robbery vs. Burglary vs. Theft
These definitions are constant exam fodder because candidates confuse them:
- Robbery - unlawful taking by threat or use of force while a person is present (a messenger held up at gunpoint).
- Burglary - unlawful entry into a building with visible signs of forced entry (marks of tools), no confrontation with a person.
- Safe Burglary - forcible entry into a locked safe or vault, or removal of the safe from the premises.
- Theft - the broadest term: any act of stealing, including robbery, burglary, and mysterious disappearance.
A Worked Limit Example
A dishonest bookkeeper diverts $120,000 over two years. The insured carries a $100,000 Employee Theft limit with a $5,000 deductible. The policy pays the limit minus the deductible: $100,000 - $5,000 = $95,000. The remaining $20,000 of actual theft and any lost interest (consequential) are not recoverable because the limit caps direct loss and consequential loss is excluded.
Fidelity Bonds vs. Crime Coverage
Historically, employee-dishonesty protection was sold as a fidelity bond - a three-party surety-style instrument among the obligee (employer), the principal (employee), and the surety (insurer). Modern ISO crime forms have largely absorbed this into Employee Theft (Insuring Agreement 1), but the exam still tests the bond vocabulary.
- Blanket bond - covers all employees automatically, regardless of position; new hires are added without scheduling.
- Schedule bond - covers only named individuals (a name schedule) or named positions (a position schedule).
- ERISA fidelity bond - federally required for handlers of employee-benefit-plan funds; must cover at least 10% of plan assets, with a $1,000 minimum and a $500,000 maximum ($1,000,000 if the plan holds employer securities).
Key Exclusions and Conditions
Crime policies exclude voluntary parting of property induced by trick, scheme, or false pretense (unless a False Pretense or Fraud agreement is added), acts of the named insured or partners, inventory-shortage proof standing alone, and trading/credit losses. Coverage requires a fortuitous, direct loss the insured can substantiate beyond a mere inventory computation. The non-cumulation of limits condition prevents stacking limits across multiple policy periods for the same continuous loss.
The Crime Insuring Agreements
The ISO commercial crime form (CR 00 21 / CR 00 22) offers separate insuring agreements, each addressing a distinct exposure tested on the exam:
| Insuring agreement | Covers |
|---|---|
| Employee theft (fidelity) | Loss of money, securities, or property from employee dishonesty |
| Forgery or alteration | Loss from forged checks/drafts |
| Inside the premises — money and securities | Theft, disappearance, destruction on premises |
| Inside the premises — robbery/safe burglary of other property | Robbery of merchandise/equipment |
| Outside the premises | Money/securities in a messenger's care off-site |
| Computer fraud / funds transfer fraud | Electronic theft and fraudulent transfer instructions |
| Money orders and counterfeit currency | Loss from accepting bad instruments |
Discovery vs. Loss-Sustained Forms
Crime policies use one of two trigger forms the exam contrasts: the discovery form covers losses discovered during the policy period regardless of when they occurred, while the loss-sustained form covers losses occurring during the period (with a limited window to discover after expiration). Because employee dishonesty often surfaces long after it began, the discovery basis is valuable for fidelity exposures.
Fidelity Bonds vs. Crime Coverage
A fidelity bond specifically protects an employer against loss from employee dishonesty — it is the surety-flavored cousin of the employee-theft crime agreement. Knowing that fidelity protects against the insured's own employees, while burglary/robbery agreements address outside criminals, and that the discovery trigger best fits long-running embezzlement, resolves most crime-coverage questions.
An employee embezzled funds steadily from 2022 through 2024 but the scheme was first uncovered in 2026. The employer's crime policy responds even though the acts occurred years earlier and outside the current period. Which form is in force?
A thief pries open a locked warehouse door at night, leaving visible tool marks, and steals inventory while no one is present. Which crime peril does this describe?