14.2 Crime and Fidelity Coverage

The Commercial Crime Program

Crime insurance protects businesses against loss of money, securities, and other property caused by criminal acts. The ISO commercial crime program offers two principal forms: the CR 00 20 Loss Sustained Form and the CR 00 21 Discovery Form. The two differ only in their coverage trigger, but that distinction is heavily tested.

• Loss Sustained Form - covers loss that is sustained during the policy period and discovered no later than one year after the policy ends. It bridges to a prior policy, so an ongoing/continuing theft is allocated across consecutive policies.
• Discovery Form - covers loss discovered during the policy period regardless of when it occurred, even before the policy began (subject to no prior coverage that paid).

The program covers commercial entities under CR 00 20/21 and uses a separate Government Crime Form (CR 00 25/26) for public entities.

Crime coverage replaced the older 'fidelity bond' terminology for most commercial accounts, though the employee-dishonesty insuring agreement is still called fidelity coverage. A surety-style financial institution bond remains a separate product for banks and brokers. On the exam, treat 'fidelity bond' and 'employee theft coverage' as synonyms for the protection an employer buys against its own staff's dishonesty - distinct from a surety bond, which guarantees the performance of a third party.

The Insuring Agreements

The crime form is a menu of insuring agreements; the insured buys only the ones needed and shows limits per agreement on the declarations:

Employee Theft is the most important agreement and the heart of a fidelity bond - it covers an employer for losses caused by its own dishonest employees, including theft and embezzlement.

Key Definitions and Exclusions

The form draws sharp definitional lines that examiners test:

• Robbery - taking property by force or threat of violence, directly from a person who is aware.
• Burglary - taking property by unlawful entry/exit, evidenced by visible signs of forced entry; safe burglary requires marks on the safe.
• Theft - the broadest term: any unlawful taking (includes robbery and burglary).
• Money - currency and coin; Securities - written instruments like checks, stock certificates, tokens, tickets (NOT money).

Major exclusions: acts of the insured/owners/partners, loss the proof of which depends solely on inventory shortage or profit-and-loss computation, indirect/consequential loss, and acts of employees discovered after a prior loss and not reported. Employee dishonesty coverage terminates as to any employee once the insured learns that employee committed a prior dishonest act.

Two more tested mechanics: crime forms are written on a discovery or loss-sustained trigger (covered above), and they contain a loss-sustained bridge / superseded coverage condition so that an ongoing theft spanning two consecutive policies does not collect twice. Coverage territory is broad, and the deductible applies per single loss, not per item taken. Candidates should also distinguish money (currency/coin) from securities (negotiable and non-negotiable instruments) and from other property, because several insuring agreements limit recovery by category.

Worked Example: Employee Theft Limit and Deductible

A wholesaler carries Employee Theft with a $100,000 single-loss limit and a $2,500 single-loss deductible. A bookkeeper embezzles $140,000 over two years through a single scheme of falsified invoices.

Most crime forms treat a single dishonest scheme by one employee as one occurrence, so the single-loss limit applies once:

• Gross loss: $140,000
• Less deductible: -$2,500
• Net before limit: $137,500
• Capped at single-loss limit: $100,000 paid

The insured absorbs the $40,000 excess. Trap: candidates often try to multiply the limit by the number of years or paychecks - a continuing scheme by one employee is a single loss subject to one limit.

Crime and Fidelity Insuring Agreements

The ISO Commercial Crime program covers losses from dishonesty, theft, and fraud that property forms exclude. The exam tests the major insuring agreements:

Crime forms can be written loss-sustained (covers losses discovered during the period for acts during the period or prior coverage) or discovery (covers losses discovered during the period regardless of when they occurred).

Exam trap: Know the definitions: Burglary requires forcible entry with visible signs; robbery is taking property from a person by threat or force; theft is the broad any-act-of-stealing term. Fidelity/employee-theft bonds cover dishonesty of the insured's own employees - the most common and most claimed crime coverage. The ERISA fidelity bond is a special compliance requirement for those handling employee benefit plan funds.