14.2 Crime and Fidelity Coverage
Key Takeaways
- ISO Commercial Crime coverage (CR 00 20 discovery / CR 00 21 loss-sustained) insures losses from employee dishonesty and outside criminals that standard property forms exclude.
- The discovery form triggers when a loss is found during the policy period, even for old acts; the loss-sustained form triggers only for losses occurring during the current or continuous prior policy.
- Seven insuring agreements include Employee Theft, Forgery/Alteration, Inside/Outside the Premises theft, Computer Fraud, and Funds Transfer Fraud, each with its own limit.
- All dishonest acts of a single employee count as one occurrence, capping recovery at the Employee Theft limit with one deductible applied.
- Theft, robbery, and burglary have distinct definitions; mysterious disappearance is generally not covered without endorsement.
Why Crime Coverage Is a Separate Line
Standard commercial property forms exclude or sharply sublimit losses caused by dishonesty, theft, and fraud. To insure these exposures fully, businesses buy the ISO Commercial Crime Program, written on either the Commercial Crime Coverage Form CR 00 20 (discovery form) or CR 00 21 (loss-sustained form). Government entities use the parallel Government Crime forms (CR 00 25 / CR 00 26).
Crime coverage addresses two distinct enemies: the dishonest insider (an employee who steals) and the outside criminal (a robber, burglar, or forger). The line overlaps with fidelity bonds, which historically guaranteed an employee's honesty, but modern commercial crime forms absorb most fidelity needs into named insuring agreements.
Discovery Form vs. Loss-Sustained Form
The coverage trigger is one of the most tested distinctions:
| Feature | Discovery Form (CR 00 20) | Loss-Sustained Form (CR 00 21) |
|---|---|---|
| Trigger | Loss discovered during the policy period | Loss sustained during the policy period |
| Reaches back to prior acts? | Yes, regardless of when act occurred | Only if prior policy was continuous (superseded coverage) |
| Extended discovery period | 60 days (1 year for employee benefit plans) | 1 year to discover |
A discovery form responds when you find the loss while the policy is in force, even if the dishonest acts happened years earlier. A loss-sustained form responds only for losses that actually occurred during the policy period (or under a continuous prior policy), and gives you up to a year after expiration to discover them.
The Seven Insuring Agreements
The Commercial Crime form lets the insured select among standard insuring agreements, each with its own limit:
- Employee Theft (the fidelity core) - loss of money, securities, or property caused by employee dishonesty
- Forgery or Alteration - of checks, drafts, promissory notes
- Inside the Premises - Theft of Money and Securities (covers robbery/safe burglary)
- Inside the Premises - Robbery or Safe Burglary of Other Property
- Outside the Premises - money/securities in the care of a messenger
- Computer Fraud - fraudulent transfer of property via computer
- Funds Transfer Fraud - fraudulent wire/electronic instruction to a financial institution
Key definition: Theft = the unlawful taking of property. Robbery = taking by force or threat from a person. Burglary = taking with visible signs of forced entry. Mysterious disappearance is generally not covered without specific endorsement.
Limits, Per-Loss Application, and a Worked Numeric
Crime limits apply per occurrence, and the Employee Theft agreement treats all acts of one employee (or all employees acting together) as a single occurrence. A common exam trap is double-counting acts.
Worked example. A bookkeeper embezzles over three years: $30,000 in year one, $45,000 in year two, and $50,000 in year three, discovered now. The Employee Theft limit is $100,000 with a $2,500 deductible. Because all acts of the same employee are one occurrence, the total loss is $125,000, but recovery is capped at the $100,000 limit, then the deductible is applied once: payment = $100,000 - $2,500 = $97,500. The insured eats the $25,000 excess over the limit plus the deductible.
Remember: the named employee must not be someone the insured knew had previously committed theft - prior knowledge voids coverage for that person.
Fidelity Bonds vs. Crime Insurance and Key Exclusions
Students confuse fidelity bonds with crime insurance. A bond is a three-party agreement: the principal (employee whose honesty is guaranteed), the obligee (employer protected), and the surety (insurer). A crime policy is a two-party insurance contract between insurer and insured. Functionally, modern Employee Theft coverage replaces the older fidelity bond for most commercial buyers.
Financial institutions still buy a specialized bond - the Financial Institution Bond (formerly the Bankers Blanket Bond) - which packages employee dishonesty, on-premises and in-transit loss, forgery, and securities coverage for banks.
The Commercial Crime form excludes several losses agents must flag:
- Acts of the named insured or partners - owners cannot steal from themselves
- Inventory shortages proven only by a profit-and-loss computation or physical count
- Indirect or consequential loss, including lost income
- Trading losses and losses from giving/surrendering property in an exchange or purchase
- Governmental action and war
Coverage applies to loss sustained anywhere, but property must belong to the insured or be held by the insured for others. Recordkeeping is the insured's burden: without books and records, proving the amount of an employee-theft loss is difficult.
An employer discovers that a single employee embezzled $140,000 over four years. The Commercial Crime policy has a $100,000 Employee Theft limit and a $1,000 deductible, and all acts of one employee are deemed one occurrence. How much does the insurer pay?
A company finds embezzlement in 2026 that an employee began in 2022, while continuously insured. Which crime coverage trigger responds even though the dishonest acts predate the current policy?
Discovery vs. Loss-Sustained and the Insuring Agreements
Commercial crime coverage is written on one of two trigger bases, a distinction the exam tests like the occurrence/claims-made split:
| Trigger | Pays when |
|---|---|
| Discovery form | Loss is discovered during the policy period, whenever it occurred (even before inception, subject to prior-insurance condition) |
| Loss-sustained form | Loss is both sustained and discovered during the period (or within a short discovery window after) |
The ISO crime form offers several insuring agreements the candidate should recognize: Employee Theft (fidelity), Forgery or Alteration, Inside the Premises – Theft of Money and Securities, Inside the Premises – Robbery/Safe Burglary of Other Property, Outside the Premises, Computer Fraud, Funds Transfer Fraud, and Money Orders/Counterfeit Currency.
Worked numeric: Employee Theft limit $100,000, deductible $5,000. A bookkeeper embezzles $140,000 over two years. The loss is a single occurrence (a series of acts by one employee), so the policy pays the $100,000 limit minus the $5,000 deductible = $95,000; the insured absorbs the $45,000 excess. Fidelity (employee dishonesty) is the heart of crime coverage and is excluded from standard property and CGL forms, which is why crime is a separate line. Crime forms also exclude losses only provable by inventory shortage and acts of the named insured/owners.