14.2 Crime and Fidelity Coverage

Why Crime Coverage Is a Separate Line

Standard commercial property forms exclude or sharply limit theft, employee dishonesty, and money/securities. The dedicated ISO Commercial Crime Program (forms CR 00 20 discovery-form and CR 00 21 loss-sustained form, plus the Government Crime forms CR 00 23/CR 00 24) fills that gap. Crime coverage protects against loss caused by dishonest acts, theft, and certain transfer frauds, classes that property policies treat as morally hazardous and price separately.

Two trigger bases drive every crime exam question:

• Discovery form (CR 00 20): covers loss discovered during the policy period (or up to one year after termination), regardless of when the act occurred.
• Loss-sustained form (CR 00 21): covers loss sustained during the policy period (with a limited extended discovery period for the prior carrier's coverage).

Quick Answer: If a long-running embezzlement is found today, the discovery form pays based on when you found it; the loss-sustained form looks at when each act of loss occurred.

The Insuring Agreements

The commercial crime form is modular: you buy the insuring agreements you need. The classic eight include:

Employee Theft is the modern term for fidelity (employee dishonesty) coverage. Fidelity historically meant covering an employer against losses from dishonest employees; surety is a different three-party guarantee covered in the marine/bond chapters.

Key Conditions and Worked Numeric

Crime forms carry distinctive conditions the exam tests heavily:

1. Loss sustained / discovered trigger (above).
2. Territory is broadly the U.S., its territories, Canada, and (for some agreements) anywhere in the world for the destruction/disappearance of money.
3. Ownership condition: covers property the insured owns, leases, or holds for others.
4. Termination as to any employee the moment the insured learns of a dishonest act by that employee.
5. Non-cumulation of limit: the limit does not stack across policy periods for a continuing loss.

Worked numeric (non-cumulation): An employee embezzles $30,000 in year 1 and $50,000 in year 2 under a $60,000 Employee Theft limit. Because crime limits do not cumulate across periods for a single continuing act, the total recoverable is capped at the single $60,000 limit, not $120,000. With a $5,000 deductible, the insurer pays $55,000 on the $80,000 total loss.

Robbery vs. Burglary vs. Theft - the Definitions Trap

Crime exams hinge on precise definitions. Memorize the distinctions:

• Theft is the broadest term: any unlawful taking. Money & securities agreements often cover theft, disappearance, and destruction.
• Burglary requires unlawful entry evidenced by visible signs of forced entry (marks on the exterior).
• Robbery requires taking property from a person by threat or act of violence - a person must be present and aware.
• Safe burglary requires forced entry into a locked safe or vault, or the taking of the entire safe.

Trap: A cleaning crew quietly pockets cash with no force and no person present. That is theft (or mysterious disappearance), not burglary or robbery, so it only pays under an agreement that includes theft/disappearance, not a robbery-only form.

Employee Theft and Fidelity Bonds

Crime coverage addresses dishonesty exposures the property policy excludes. The cornerstone is Employee Theft (fidelity) coverage, which pays for loss of money, securities, or other property caused by the dishonest acts of the insured's own employees - embezzlement, theft of inventory, or fraudulent transfers. Coverage can be written on a blanket basis (covering all employees) or a scheduled basis (named individuals or positions). A fidelity bond protects the employer from employee dishonesty - unlike a surety bond, which guarantees a third party that an obligation will be performed.

The Commercial Crime Insuring Agreements

The ISO Commercial Crime form offers several insuring agreements the insured selects: Employee Theft; Forgery or Alteration (of checks, drafts, promissory notes); Inside the Premises - Theft of Money and Securities (robbery/safe burglary); Inside the Premises - Robbery or Safe Burglary of Other Property; Outside the Premises (money and securities in a messenger's care); Computer Fraud and Funds Transfer Fraud (electronic theft and fraudulent transfer instructions); and Money Orders and Counterfeit Money.

Computer-fraud and funds-transfer-fraud agreements have grown in importance and frequently appear in modern exam scenarios.

Discovery vs. Loss-Sustained and Key Definitions

Crime policies are written on a discovery basis (covers loss discovered during the policy period regardless of when it occurred) or a loss-sustained basis (covers loss occurring during the period and discovered within a stated time after). The form defines money (currency, coins, bank notes), securities (negotiable and non-negotiable instruments), and employee carefully, and it excludes acts of the insured/owners, indirect/consequential loss, and inventory shortages provable only by an inventory computation.

A scenario where embezzlement spanning several years is found this year tests the discovery-versus-loss-sustained trigger.