14.2 Crime and Fidelity Coverage
Key Takeaways
- ISO Commercial Crime offers two triggers: Loss Sustained (CR 00 20, loss occurs in period) and Discovery (CR 00 21, loss discovered in period regardless of when committed).
- Coverage is a menu of insuring agreements (Employee Theft, Forgery, Inside/Outside Premises, Computer Fraud, Funds Transfer Fraud, etc.), each with its own limit.
- Burglary requires visible forced entry; robbery requires force/threat against a person; theft is the broadest catch-all.
- The non-cumulation of limit condition caps multi-year schemes at one limit; limits do not stack across periods.
- Key exclusions include acts of the named insured/partners and loss proven only by inventory shortage.
The ISO Commercial Crime Program
Crime insurance covers loss of money, securities, and other property caused by dishonesty, theft, robbery, burglary, forgery, and computer/funds-transfer fraud. The national exam uses the ISO Commercial Crime program, principally the Commercial Crime Coverage Form issued in two trigger versions:
- CR 00 20 - Loss Sustained form: covers loss that occurs during the policy period and is discovered no later than one year after policy termination.
- CR 00 21 - Discovery form: covers loss discovered during the policy period, regardless of when the act occurred (subject to a retroactive limitation).
Knowing which trigger applies is a top-tested point. If a long-running embezzlement spanned several prior years but is uncovered today, the Discovery form responds; the Loss Sustained form responds only if the loss occurred while that policy (or a continuous predecessor) was in force.
Key Definitions
- Money: currency, coins, bank notes.
- Securities: negotiable and non-negotiable instruments representing money or property (stocks, bonds, tokens, tickets, stamps).
- Other property: tangible property other than money and securities (excludes data and intangibles).
The Insuring Agreements
The Commercial Crime form is organized as a menu of insuring agreements; the insured buys only those needed and a separate limit applies to each.
| # | Insuring Agreement | What it covers |
|---|---|---|
| 1 | Employee Theft | Dishonest acts of employees (replaces older blanket/scheduled fidelity bonds) |
| 2 | Forgery or Alteration | Forged/altered checks, drafts, promissory notes |
| 3 | Inside the Premises - Theft of Money & Securities | Robbery/burglary of money and securities at the premises |
| 4 | Inside the Premises - Robbery/Safe Burglary of Other Property | Robbery of a custodian or safe burglary of other property |
| 5 | Outside the Premises | Loss while in care of a messenger off premises |
| 6 | Computer Fraud | Fraudulent computer-based transfer of property |
| 7 | Funds Transfer Fraud | Fraudulent instructions to a financial institution to transfer funds |
| 8 | Money Orders & Counterfeit Money | Acceptance in good faith of bad money orders/counterfeit currency |
Burglary vs. robbery vs. theft is a perennial trap:
- Burglary: unlawful taking from inside premises with visible signs of forced entry (force is the trigger).
- Robbery: taking from a person by force or threat of force.
- Theft: the broadest term — any act of stealing, including employee dishonesty.
If the fact pattern shows no forced entry and no person threatened, it is theft (or mysterious disappearance), not burglary or robbery.
Conditions, Limits, and a Worked Recovery
Employee Theft is written on either a blanket basis (one limit covering all employees) or a named-schedule/position basis. The form excludes loss caused by the named insured, partners, or members; loss that is only provable by inventory shortage or profit-and-loss computation (the inventory computation exclusion); and indirect/consequential loss. Crime coverage typically carries a per-occurrence deductible and no coinsurance.
The non-cumulation of limit condition is exam-critical: regardless of how many years of premium were paid or how many policy periods an ongoing dishonest scheme spanned, recovery is capped at the single applicable limit, not stacked across periods.
An employee embezzled $140,000 over three policy years under continuous Employee Theft coverage with a $100,000 per-occurrence limit and a $5,000 deductible. Because the non-cumulation condition prevents stacking across periods, the loss is treated as a single occurrence: payable = limit $100,000 less the $5,000 deductible = $95,000. The $40,000 above the limit is uninsured.
This demonstrates why the Discovery form plus an adequate single limit matters more than years of coverage.
Surety and Fidelity Bonds vs. Crime Insurance
The exam pairs crime with fidelity and surety bonds because all three involve dishonesty or guaranteed performance. Distinguish the parties carefully:
- Fidelity bonds are essentially employee-theft coverage in bond form; the two-party relationship is between the employer (insured/obligee) and the surety, protecting the employer against employee dishonesty.
- Surety bonds are three-party: the principal (who must perform), the obligee (who is protected), and the surety (who guarantees performance). Examples: contract/performance bonds, bid bonds, payment bonds, license/permit bonds, and court/fiduciary bonds.
The critical surety distinction: a surety expects no losses and prices the bond as a service fee, not a loss-funded premium. If the surety pays the obligee, it has a right of reimbursement (subrogation/indemnity) against the principal - unlike insurance, where the insurer absorbs the loss.
ERISA and Required Bonds
Federal ERISA law requires fidelity bonding for anyone who handles employee-benefit-plan funds, generally for at least 10% of the funds handled, with a $1,000 minimum and a $500,000 cap (higher if employer securities are held). Exam questions on benefit-plan administrators commonly test this 10% rule.
Choosing Coverage
When a fact pattern describes protecting an employer from employee theft, both a fidelity bond and the Employee Theft insuring agreement of the crime form can respond - the crime form is the modern vehicle. When the pattern describes guaranteeing that a contractor finishes a job or pays subcontractors, the answer is a surety bond, not crime insurance.
A bookkeeper has been diverting company funds for four years. The current commercial crime policy is written on the Discovery form and the scheme is uncovered this month. The four prior years had no crime coverage. How does the Discovery form respond?
A thief enters a closed store by prying open a rear door, leaving visible tool marks, and takes merchandise from inside. Which crime peril is this?
Loss-Sustained vs. Discovery and the Employee-Theft Trigger
Commercial crime forms come in two trigger versions: a discovery form covers losses discovered during the policy period (even if the theft occurred earlier), while a loss-sustained form covers losses that occurred during the policy period and are discovered within a limited window after expiration.
Employee theft (formerly fidelity) covers dishonest acts by employees; coverage ends for an employee once the insured learns of that employee's prior dishonesty. The exam tests the discovery-vs-sustained distinction and the rule that knowledge of an employee's dishonest history terminates coverage for that employee's future acts.