Crime & Fidelity Coverage
Key Takeaways
- Crime insurance covers money, securities, and property losses that property forms exclude or limit, including employee theft.
- Employee dishonesty (fidelity) coverage addresses theft by the insured's own employees, which the CGL excludes.
- Burglary requires visible signs of forced entry; robbery requires force or threat against a person; theft is any stealing.
- Fidelity bonds protect an employer against employee dishonesty (two-party), while surety bonds guarantee a principal's performance (three-party).
Insuring Against Dishonesty and Theft
Crime insurance covers loss of money, securities, and property from criminal acts that property forms exclude or limit, and fidelity coverage specifically addresses employee dishonesty. Because the standard property forms cap or exclude money and employee theft, crime coverage fills a distinct gap, and the exam tests the main crime insuring agreements.
| Crime coverage | Insures against |
|---|---|
| Employee dishonesty (fidelity) | Theft by the insured's own employees |
| Forgery or alteration | Loss from forged or altered checks and similar instruments |
| Theft of money and securities (inside) | Robbery or safe burglary on the premises |
| Robbery/safe burglary (outside) | Loss in transit or off premises (messenger) |
| Computer and funds-transfer fraud | Fraudulent electronic transfers |
| Money orders and counterfeit money | Acceptance of bad instruments |
Employee Dishonesty (Fidelity)
The employee dishonesty insuring agreement (a fidelity coverage) pays for loss of money, securities, or other property caused by an employee's dishonest acts committed with the intent to cause the insured a loss and to obtain a benefit. It is the core fidelity coverage because employee theft is excluded by the CGL (the care-custody and dishonesty exclusions) and limited by property forms. Coverage can be written per-loss or per-employee, and the exam tests that fidelity addresses the insured's own employees, distinguishing it from third-party theft.
Burglary, Robbery, and Theft Defined
Crime coverage uses precise definitions the exam tests:
- Burglary is unlawful entry into or exit from premises evidenced by visible signs of forced entry.
- Robbery is taking property from a person by force or threat of force (a holdup).
- Theft is the broadest term, any act of stealing, including burglary, robbery, and other taking.
These distinctions matter because some crime coverages respond only to burglary (forced entry) or only to robbery (force against a person), while broader theft coverage responds to any stealing. A loss with no signs of forced entry may not be a covered burglary.
Surety vs. Fidelity
The exam contrasts fidelity bonds (which protect an employer against loss from employee dishonesty, a two-party relationship between insurer and insured) with surety bonds (a three-party guarantee that a principal will perform an obligation to an obligee, covered in a later section). A fidelity bond is essentially insurance against employee theft; a surety bond guarantees performance and contemplates recovery from the principal. Do not confuse the two.
Applying Crime Coverage
When a scenario describes a loss of money or property, ask who committed the act. If an employee stole it, the answer is employee dishonesty (fidelity). If an outsider broke in with forced entry, it is burglary coverage. If money was taken by force from a person, it is robbery. If a forged check was paid, it is forgery or alteration. If funds were transferred by an electronic scam, it is computer or funds-transfer fraud.
Matching the manner of the loss to the specific crime insuring agreement, and remembering that crime coverage exists precisely because property and liability forms exclude employee dishonesty and limit money, is the reliable method for the crime questions the exam presents.
A bookkeeper embezzles funds from her employer over several months. Which crime coverage responds to this loss?
Crime coverage defines 'burglary' as requiring what element that distinguishes it from ordinary theft?
Matching the Manner of Loss to the Crime Coverage
Crime coverage fills the gap left by property and liability forms, which exclude employee dishonesty and limit money. The key skill is matching the manner of the loss to the right insuring agreement. If an employee stole, the answer is employee dishonesty (fidelity). If an outsider broke in with forced entry, it is burglary. If money was taken by force from a person, it is robbery. If a forged check was paid, it is forgery or alteration. If funds were moved by an electronic scam, it is computer or funds-transfer fraud.
The definitions are precise and tested. Burglary requires visible signs of forced entry or exit; robbery requires force or threat against a person; theft is the broadest term for any stealing.
| Loss manner | Coverage |
|---|---|
| Employee embezzlement | Employee dishonesty (fidelity) |
| Forced-entry break-in | Burglary |
| Holdup of a person | Robbery |
| Forged/altered check | Forgery or alteration |
| Fraudulent funds transfer | Computer/funds-transfer fraud |
Finally, distinguish fidelity from surety. A fidelity bond protects an employer against employee dishonesty, a two-party, insurance-like relationship with no expectation of reimbursement from the wrongdoer (though subrogation may follow). A surety bond is a three-party guarantee that a principal will perform, with reimbursement expected. When a scenario describes a loss of money or property, ask who committed the act and how, then select the specific crime insuring agreement, and do not confuse employee-dishonesty fidelity with a performance-guaranteeing surety bond.
Match the manner of the loss to the crime coverage: employee embezzlement is employee dishonesty (fidelity); a forced-entry break-in is burglary; a holdup of a person is robbery; a forged check is forgery or alteration; and an electronic scam is computer or funds-transfer fraud. The definitions are precise, burglary requires visible signs of forced entry, robbery requires force or threat against a person, and theft is any stealing.
Distinguish fidelity (a two-party, insurance-like coverage protecting an employer against employee dishonesty) from surety (a three-party performance guarantee with reimbursement expected from the principal).