14.2 Crime and Fidelity Coverage

Why Crime Coverage Is a Separate Line

Standard commercial property forms exclude dishonest acts of the insured's own employees and provide only small sublimits for theft of money and securities. The ISO Commercial Crime Program closes that gap. It can be written as a standalone policy or as a coverage part within a Commercial Package Policy.

The two principal forms are CR 00 20 and CR 00 21, each issued in a Loss Sustained version and a Discovery version. The difference in when a loss is covered — not what perils are listed — is the most heavily tested crime concept on the national exam.

Quick answer: Crime insurance pays for loss of money, securities, and other property from criminal acts the property form excludes: employee theft, forgery, robbery, burglary, computer fraud, and fraudulent funds transfers.

Loss Sustained vs. Discovery — The Core Trigger

Worked scenario: An office manager embezzles from 2022 through 2025. The scheme is uncovered in March 2026.

• On a Discovery form effective in 2026, the full embezzlement is covered because it was discovered during that policy period — even though most theft happened earlier.
• On a Loss Sustained form, only the portion of theft sustained while a crime policy was in force is recoverable, subject to prior-insurance and superseded-coverage conditions.

The Discovery form is broader for long-running, slowly uncovered schemes. The Loss Sustained form is the traditional default and limits the insurer's exposure to losses occurring during its own policy terms.

The Crime Insuring Agreements

The commercial crime form is built from numbered insuring agreements; the insured buys only what it needs:

1. Employee Theft — the modern name for fidelity (employee dishonesty) coverage; pays for loss of money, securities, or other property caused by employee dishonesty. Can be written blanket (per loss) or per employee / per position.
2. Forgery or Alteration — forged checks, drafts, promissory notes, and similar instruments.
3. Inside the Premises — Theft of Money and Securities — includes robbery and safe burglary of money and securities.
4. Inside the Premises — Robbery or Safe Burglary of Other Property — covers property other than money and securities.
5. Outside the Premises — money, securities, or other property in the care of a messenger or armored car service.
6. Computer Fraud — fraudulent transfer of property via computer system.
7. Funds Transfer Fraud — fraudulent electronic instructions to a financial institution.
8. Money Orders and Counterfeit Money — acceptance of worthless instruments in exchange for goods or services.

Definitions trap: Robbery requires taking property by force or threat of force against a person. Burglary requires unlawful entry with visible signs of forced entry (or threat while inside). Theft is the broadest term — any act of stealing without necessarily meeting robbery or burglary elements. Exam stems that mention "visible marks of forced entry" are testing burglary; a stick-up at the register tests robbery.

Limits, Deductibles, and Key Conditions

Crime coverage is written with a chosen per-occurrence or per-loss limit and a deductible. No coinsurance applies.

Valuation rules to memorize:

Important conditions:

• Territory is typically the United States, its territories, and Canada — broader for computer fraud and funds-transfer fraud.
• Employee Theft excludes dishonesty of partners and the named insured — owners who steal from their own company are not covered as "employees."
• Termination as to any employee is automatic once the insured learns of that employee's prior dishonesty — continuing coverage for a known thief is not permitted.
• Inventory shortage proven only by a count (without other evidence of theft) is generally excluded because it invites manipulation.

Fidelity vs. Surety — A Critical Distinction

A fidelity bond / crime policy is a two-party contract: the insurer pays the employer for employee dishonesty. Recovery from the dishonest employee is possible but not assumed.

A surety bond is a three-party arrangement: the surety guarantees the principal's performance or honesty to the obligee. If the surety pays a claim, it expects the principal to reimburse the surety. That reimbursement expectation is the exam's dividing line between crime/fidelity and surety.

Blanket vs. Scheduled Employee Theft

Blanket employee theft applies one limit to all covered employees collectively — a single pool for any loss. Scheduled (per employee or per position) assigns separate limits to named individuals or job categories.

When a stem asks whether colluding employees can each trigger a separate limit, it is testing scheduled versus blanket mechanics. Under a blanket form, multiple employees acting together typically constitute one loss subject to a single limit. Under a per-position schedule, coverage may respond differently depending on how positions are listed.

Exam Scenarios and Traps

Scenario A: A bookkeeper forges vendor checks over three years. Discovered under a Discovery policy. Covered — discovery during the policy period controls.

Scenario B: Overnight, a thief breaks a window and steals a safe containing cash. Inside the Premises — Theft of Money and Securities responds if purchased; the forced-entry detail confirms burglary rather than mere theft.

Scenario C: A partner diverts partnership funds. Not covered under Employee Theft — partners are excluded.

Scenario D: A hacker sends fraudulent wire instructions to the bank. Funds Transfer Fraud or Computer Fraud insuring agreement — not the property form's limited computer coverage.

National exam focus: Master the Discovery vs. Loss Sustained trigger, the Employee Theft insuring agreement, robbery/burglary/theft definitions, money-at-face-value valuation, and the two-party fidelity vs. three-party surety distinction.