14.2 Crime and Fidelity Coverage

The Three Crime Definitions You Must Know Cold

Most crime exam questions hinge on three precise definitions:

• Burglary — taking of property by someone who unlawfully enters or exits the premises, evidenced by visible signs of forced entry or exit (broken lock, pry marks). No people need be present.
• Robbery — taking property from a person who has care and custody, by one who has caused or threatened bodily harm or committed an obvious unlawful act witnessed by that person. The key is force or threat against a person.
• Theft — the broadest term, meaning any act of stealing, including burglary, robbery, and mysterious disappearance or shoplifting.

Memory hook: Burglary = forced entry; Robbery = force on a person; Theft = everything.

Apply it to fact patterns: a clerk handing over cash at gunpoint is robbery; a smashed back door with inventory gone overnight is burglary; cash missing from the drawer with no explanation is covered only under a theft insuring agreement. Safe burglary is a sub-type requiring forced entry into a locked safe or vault evidenced by marks, or removal of the whole safe.

ISO Commercial Crime Forms and Trigger

ISO offers the Commercial Crime Coverage Form in two trigger versions, and choosing between them is a common exam item:

• CR 00 21 - Loss Sustained Form: pays for loss sustained during the policy period and discovered during the policy period or within one year after it ends (with the prior carrier's coverage continuing for older losses). This is the more common business form.
• CR 00 20 - Discovery Form: pays for loss discovered during the policy period, regardless of when it occurred (subject to retroactive limits). Useful when prior coverage gaps exist.

The loss-sustained form is like occurrence-style timing; the discovery form is like claims-made timing for theft. Crime forms are written per occurrence, and a series of related dishonest acts by the same employee is treated as a single occurrence.

Standard Insuring Agreements

A commercial crime policy is a menu of insuring agreements; the insured buys the ones it needs:

Employee theft is the fidelity portion; everything else addresses outside crime exposures.

Discovery vs. Loss-Sustained Forms and ERISA Bonds

Commercial crime is written on one of two trigger forms the exam distinguishes. The discovery form covers losses discovered during the policy period (or the extended discovery window) no matter when they occurred; the loss-sustained form covers losses that both occurred and were discovered during the period, with a limited prior-loss extension. A business switching carriers needs the superseded suretyship provision to avoid a coverage gap between forms.

A specialized fidelity requirement: ERISA requires those handling employee-benefit-plan funds to be bonded for at least 10% of the funds handled, minimum $1,000 and maximum $500,000 (or $1,000,000 if the plan holds employer securities). The exam tests these ERISA bonding floors directly.

Fidelity Bonds vs. Crime Insurance

A fidelity bond protects an employer (the obligee) against financial loss caused by the dishonest acts of its employees (the principal). Structurally it resembles suretyship — three parties — but functionally it behaves like insurance for the employer. Common forms include the Commercial Blanket Bond and Blanket Position Bond:

• Commercial Blanket Bond — a single aggregate limit applies to any one loss regardless of how many employees were involved.
• Blanket Position Bond — the limit applies per employee involved, so a collusion loss involving three employees can pay up to three times the position limit.

Exam trap: with the blanket position approach a multi-employee scheme can recover more than under a commercial blanket bond, because the limit multiplies by the number of dishonest employees. Government entities often use the Public Official Bond, which guarantees faithful performance and honesty of an elected or appointed official.

Conditions, Limits, and Common Exclusions

Crime forms share important conditions. Employee is defined to include leased and temporary workers but excludes independent agents, brokers, and (usually) directors not acting as employees. Coverage terminates as to any employee the instant a manager learns of a prior dishonest act by that person.

The territory is typically the United States and Canada for most agreements, expanded for funds transfer and computer fraud. A single per-occurrence limit and a deductible apply to each insuring agreement separately.

Key exclusions to memorize:

• Loss the insured cannot prove except by inventory shortage / profit-and-loss computation alone.
• Acts of the named insured, partners, or members (their own dishonesty is not covered).
• Trading losses and indirect/consequential loss.
• Legal expenses (with narrow exceptions for forgery defense).

Finally, distinguish non-cumulation of limit: crime forms do not stack limits across policy periods for the same continuous loss, so a single embezzlement scheme spanning several renewals is still capped at one occurrence limit, not the sum of each year's limit. This pairs with the single-occurrence rule for a series of related acts and is a favorite combination on the national exam.