7.4 Commercial Crime (2013): Burglary, Robbery and Theft Definitions, the Eight Insuring Agreements & Discovery vs. Loss Sustained

Commercial Crime (2013): Burglary, Robbery and Theft Definitions, the Eight Insuring Agreements & Discovery vs. Loss Sustained

Exam Focus: Commercial crime sits inside the Commercial Package Policy (9%) domain. Two things are tested almost every time: the precise definitions of burglary, robbery, safe burglary and theft, and the difference between the discovery form and the loss sustained form. Get the definitions exactly right — they turn on marks of forcible entry, from a person, and unlawful taking.

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Why Crime Is a Separate Policy

The commercial property forms in Sections 7.1 and 7.2 exclude dishonest or criminal acts by the insured, partners, members, officers, managers, employees or anyone to whom the property is entrusted. The Special Form covers theft of ordinary business personal property, but excludes or sharply sub-limits money and securities, which are the assets crime coverage is built around. Commercial crime insurance fills both gaps.

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The Definitions That Decide Claims

Discrimination Drill. A cleaner with a key opens the office at night and empties the cash drawer: theft, not burglary (no forcible entry) and not robbery (no person present). A thief pries the rear door and takes the drawer overnight: burglary. A thief displays a weapon to the cashier and demands the drawer: robbery.

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The Two Coverage Forms

Discovery Form (CR 00 22)

Covers loss discovered during the policy period (or during the extended period to discover loss), regardless of when the act occurred — subject only to a stated retroactive date if one is used. It is the cleaner form for an insured with no prior crime coverage, because it reaches back over acts committed before inception.

Loss Sustained Form (CR 00 20)

Covers loss sustained during the policy period, and discovered either during the policy period or within one year after it ends (the extended period to discover loss). It also contains a loss sustained during prior insurance provision that allows a claim on a prior policy that has expired, provided coverage has been continuous and the discovery would have been timely under the earlier form — with the recovery capped at the lesser of the amount recoverable under the current or the prior insurance, not the sum of both.

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The Eight Insuring Agreements

1. Employee Theft. Loss of money, securities and other property resulting directly from theft committed by an employee, whether identified or not, acting alone or in collusion. The key exclusions and conditions:
   • Inventory computation cannot be the sole proof of loss — the insured must supply independent evidence that an employee committed the theft, though an inventory or profit-and-loss computation may then support the amount.
   • Coverage terminates immediately as to any employee on the day the insured or an official (other than one in collusion) learns of a theft or dishonest act committed by that employee, whether before or during employment.
   • Acts committed by the named insured, partners or members are excluded — an owner cannot steal from himself.
   • Trading losses and losses from the giving or surrendering of property in an exchange or purchase are excluded.
2. Forgery or Alteration. Loss resulting directly from forgery or alteration of checks, drafts, promissory notes or similar written promises, orders or directions to pay drawn by or on the insured's accounts. The agreement includes reasonable legal expenses the insured incurs defending a suit over an alleged forged instrument, subject to the insurer's written consent.
3. Inside the Premises — Theft of Money and Securities. Money and securities inside the premises or a banking premises, by theft, disappearance or destruction.
4. Inside the Premises — Robbery or Safe Burglary of Other Property. “Other property” — that is, property other than money and securities — but only by robbery of a custodian or safe burglary, plus damage to the premises and to a locked safe or cash drawer.
5. Outside the Premises. Money and securities outside the premises in the care of a messenger or armoured motor vehicle company, and other property by robbery of a messenger.
6. Computer Fraud. Loss resulting directly from the use of a computer to fraudulently cause a transfer of money, securities or other property from inside the premises or a banking premises to a person or place outside.
7. Funds Transfer Fraud. Loss resulting directly from a fraudulent instruction directing a financial institution to transfer, pay or deliver funds from the insured's transfer account.
8. Money Orders and Counterfeit Money. Loss resulting directly from the good-faith acceptance, in exchange for merchandise, money or services, of a money order not paid on presentation, or counterfeit money.

Social Engineering Gap. Agreements 6 and 7 are narrower than insureds assume. A computer fraud loss requires a fraudulent computer-caused transfer, and funds transfer fraud requires a fraudulent instruction to the financial institution. An employee who is deceived by a convincing email into voluntarily wiring money has authorised the transfer, and many courts have found neither agreement to respond. That is why a separate social engineering / deception fraud endorsement is now a standard purchase, and why it is also a module of the cyber policy in Section 16.1.

Identity Theft

Identity theft on a commercial risk is usually addressed by endorsement and is an expense reimbursement benefit — restoration costs, notary and mailing expense, lost wages and legal fees — rather than reimbursement of the stolen funds, which is the crime policy's job. Section 16.2 covers the personal lines version.

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Limits, Deductibles and Conditions

• Limit of insurance is stated per insuring agreement and applies per occurrence, not per employee, so three colluding employees stealing over four years is generally one occurrence subject to one limit.
• A deductible applies separately to each occurrence except, on most forms, to the employee theft agreement for an ERISA plan, where ERISA prohibits a deductible as to the plan.
• Territory is typically the United States, its territories and possessions, Canada and Puerto Rico, with a short window for property temporarily outside.
• The duties in the event of loss condition requires prompt notice, notice to the police where a law may have been broken, a sworn proof of loss within 120 days, and submission to examination under oath and production of records.
• Joint insured and consolidation/merger conditions govern multi-entity programs; the first named insured acts for all.