14.2 Crime and Fidelity Coverage

Crime Insurance Fundamentals

Crime insurance protects businesses against loss of money, securities, and other property caused by criminal acts - employee dishonesty, theft, robbery, burglary, forgery, and computer fraud. ISO offers two principal programs: the Commercial Crime Coverage Form and the Government Crime Coverage Form, each available on a Discovery or Loss Sustained basis.

Definitions are tested precisely:

• Burglary - taking property from inside premises by someone who unlawfully entered, leaving visible signs of forced entry (marks on the exterior).
• Robbery - taking property from a person by threat or violence.
• Theft - any act of stealing, the broadest term (includes burglary and robbery).
• Money - currency, coins, bank notes. Securities - negotiable and non-negotiable instruments, including tokens and stamps.

Crime is its own line because the standard property and liability forms exclude or sharply limit dishonesty and theft of money. A businessowners or commercial property policy may grant a token money-and-securities limit (such as $10,000), but a firm handling significant cash, payroll, or client funds needs the dedicated crime program. The distinction between third-party crime (outsiders - burglary, robbery, computer fraud) and first-party fidelity crime (the insured's own employees) frames the whole product and is the lens the exam uses when asking which insuring agreement responds to a given fact pattern.

The ISO Insuring Agreements

The Commercial Crime form is organized into numbered Insuring Agreements; the insured selects which to activate and assigns a limit to each:

Employee Theft (IA 1) is the modern term for what older forms called fidelity / employee dishonesty coverage.

Discovery vs. Loss Sustained

Two trigger bases are heavily tested:

• Discovery Form - covers losses discovered during the policy period (or extended discovery period), regardless of when the act occurred.
• Loss Sustained Form - covers losses sustained during the policy period, plus a limited extended-discovery window (often 1 year) after expiration for prior carriers' coverage continuity.

Loss Sustained contains a non-cumulation / superseded-coverage clause to avoid stacking with prior policies. A common trap: under Loss Sustained, a dishonest act that occurred under a prior policy is only covered if continuous coverage existed and the loss is discovered within the extended period.

Key exclusions across crime forms: inventory shortage alone cannot prove employee theft, trading/securities losses, acts of the named insured/owners, and indirect/consequential loss.

Crime forms also contain a cancellation as to any employee condition: coverage on a specific employee ends as soon as the insured learns of any dishonest act by that person, whether under the current or a prior employer. The territory is generally the United States, its territories, and Canada, with worldwide coverage available by endorsement for funds-transfer and computer fraud.

Loss is valued at actual cash value for property other than money, and money is valued at face value (foreign currency at the rate on the day of discovery). Knowing that prior knowledge of dishonesty terminates coverage for that employee is a favorite exam trap that catches candidates who assume the limit always applies.

Worked Example: Employee Theft Limit

A wholesaler carries Employee Theft (IA 1) with a $100,000 limit per occurrence and a $2,500 deductible. An accountant embezzles $140,000 over 14 months through a series of fraudulent entries. The crime form treats a continuous series of acts by the same employee as a single occurrence.

Recovery = limit, after deductible, but capped at the per-occurrence limit:

$140,000 loss − $2,500 deductible = $137,500, but the policy caps at the $100,000 limit.

The insured collects $100,000. The deductible does not increase recovery above the limit; the limit is the ceiling. Recognizing the single-occurrence treatment of a series of related dishonest acts is the tested concept.

Employee Dishonesty vs. Outside Crime

Commercial crime coverage splits along who commits the loss. Employee dishonesty / fidelity covers theft by the insured's own employees. Outside crime covers acts by third parties — burglary (forced entry with visible marks), robbery (taking by force or threat), and theft (the broadest term). The money and securities forms cover loss of cash and instruments inside the premises and in transit (messenger coverage).

Crime Definitions and Coverage Triggers

Precise definitions drive crime questions:

Crime forms can be written loss-sustained (covers loss discovered during the term for acts during coverage) or discovery (covers loss discovered during the term regardless of when it occurred). ERISA requires a fidelity bond covering at least 10% of plan assets (min $1,000, max often $500,000) for those handling employee-benefit funds — a tested figure.

Worked Distinction — Burglary, Robbery, Theft

A store is broken into overnight, the lock pried open and cash taken: that is burglary (forcible entry with visible marks). A clerk is held at gunpoint and forced to hand over the register: that is robbery (taking by force or threat from a person). An employee quietly pockets cash over months: that is employee dishonesty (fidelity), not burglary or robbery. Theft is the umbrella term covering all stealing.

Because crime forms can be written narrowly, a policy that covers only burglary would not pay the gunpoint loss — which is why the broad-form money and securities and employee dishonesty coverages are bought together to close the gaps these definitions create.