14.2 Crime and Fidelity Coverage
Key Takeaways
ISO Commercial Crime is written on a loss-sustained or discovery basis; the discovery form pays for losses found during the policy period regardless of when they occurred.
Employee theft (fidelity) covers dishonest acts by employees, while the remaining insuring agreements cover third-party crime such as robbery, burglary, theft, forgery, and computer/funds-transfer fraud.
Money and securities are covered separately for inside-the-premises and outside-the-premises exposures, and 'theft' is the broadest crime peril.
Fidelity bonds guarantee employee honesty for a third party (the obligee), distinguishing a three-party bond from a two-party insurance contract.
Key conditions include the non-cumulation of limits across policy periods and the loss-sustained discovery extension that protects against losses discovered after cancellation.
The two coverage triggers: loss-sustained vs. discovery
ISO Commercial Crime is issued as either a Coverage Form (policy) or a Coverage Part within a CPP, on one of two triggers:
- Loss Sustained Form - covers loss that is sustained during the policy period and discovered during the policy period or within an extended discovery window (commonly 1 year after the policy ends).
- Discovery Form - covers loss discovered during the policy period regardless of when the loss actually occurred (subject to a retroactive limitation).
This trigger distinction is the crime equivalent of occurrence vs. claims-made on the liability side. A common exam stem describes an embezzlement that ran for three years but was found this year; the discovery form responds because discovery - not the act date - controls.
Insuring agreements: fidelity vs. third-party crime
The Commercial Crime form is a menu of separately scheduled insuring agreements, each with its own limit:
| Insuring agreement | What it covers |
|---|---|
| Employee Theft (Fidelity) | Dishonest acts by the insured's own employees |
| Forgery or Alteration | Forged/altered checks, drafts, promissory notes |
| Inside the Premises - Money & Securities | Theft, disappearance, destruction on premises |
| Inside the Premises - Robbery/Safe Burglary (Other Property) | Robbery of a custodian; safe burglary of other property |
| Outside the Premises | Money, securities, other property in a messenger's care |
| Computer & Funds Transfer Fraud | Fraudulent electronic transfer of money/securities |
| Money Orders & Counterfeit Money | Acceptance of bad money orders / counterfeit currency |
Fidelity = protection against your own employees. The rest are third-party crime committed by outsiders.
Precise peril definitions (high-frequency exam content)
The crime perils are defined narrowly, and the exam loves to swap the definitions:
- Theft - the broadest peril: any act of stealing. (Money & securities coverage uses 'theft.')
- Robbery - taking property from a person by force, threat of force, or an obvious act of violence. There must be a person who is confronted.
- Burglary - taking property by forcible, unlawful entry into a premises, with visible signs of forced entry (marks of forced entry). No person needs to be present.
- Safe burglary - forced entry into a locked safe/vault, or removal of the safe from the premises.
Memory hook: Robbery involves a person; Burglary involves a place with visible damage; Theft is everything. A shoplifter who simply pockets goods is committing theft, not robbery or burglary, because there was no force against a person and no forced entry.
Loss-Sustained vs. Discovery Trigger Recap
The two crime-policy triggers are a guaranteed exam item. A discovery form covers losses discovered during the policy period (or a short discovery extension after expiration), regardless of when the act occurred — ideal when the insured cannot pinpoint when an embezzlement began. A loss-sustained form covers losses that occurred and were discovered during the policy period or during prior policies with the same insurer in an unbroken chain. The non-cumulation condition prevents stacking limits across multiple years for one ongoing scheme.
Distinguish employee dishonesty/fidelity (first-party loss from the insured's own employees) from third-party crime perils — robbery, burglary, theft, forgery, and computer/funds-transfer fraud — each with its own precise definition the exam tests by fact pattern.
A masked individual breaks the rear door lock of a closed jewelry store at night, leaving pry marks, and takes merchandise. No employee is present. Which crime peril most precisely describes this loss?
Robbery, because property was taken without consent
Burglary, because there was forcible, unlawful entry with visible signs of forced entry
Theft only, because no one was confronted
Safe burglary, because merchandise was removed from the premises
Money and securities: inside vs. outside
The form separates the money-and-securities exposure by location:
- Inside the Premises - Money & Securities covers theft, disappearance, or destruction of money and securities while on the insured's premises or inside a banking premises.
- Outside the Premises covers the same property while in the care of a messenger away from the premises - for example, an employee carrying the daily deposit to the bank.
'Disappearance' is broader than theft - it pays even when the cause of loss cannot be proven (e.g., cash that simply vanishes), which is why the money-and-securities agreements are valuable beyond pure theft scenarios. Securities include negotiable and non-negotiable instruments and contracts; money is currency, coins, and bank notes.
Fidelity bonds: a three-party relationship
A fidelity bond guarantees the honesty of employees and protects the employer (the obligee) against employee dishonesty. Although often discussed alongside crime insurance, a bond is structurally a three-party instrument:
- Principal - the employee whose honesty is guaranteed
- Obligee - the employer protected by the bond
- Surety/insurer - the company providing the guarantee
This contrasts with an ordinary two-party insurance contract (insurer and insured). Common bond forms:
- Name schedule bond - lists each covered employee by name
- Position schedule bond - covers employees by job position
- Blanket bond - covers all employees automatically (commercial blanket or blanket position)
A blanket bond removes the gap created when a new hire is not yet added to a name schedule - a frequent exam point.
Key conditions: non-cumulation and discovery extension
Two crime conditions are heavily tested:
- Non-cumulation of limits - the limit of insurance does not stack across consecutive policy periods. If a dishonest scheme spans three annual periods, the insured recovers only one limit, not three times the limit. This prevents an insured from multiplying recovery for a single continuing loss.
- Extended period to discover loss - under the loss-sustained form, losses sustained during the policy period but discovered after expiration are still covered if found within the discovery window (commonly 1 year), provided no replacing coverage exists.
Numeric example: a $50,000 employee-theft limit and a continuous embezzlement of $120,000 across two policy years pays a maximum of $50,000 (one limit) under non-cumulation - not $100,000.
An employee embezzled a total of $120,000 over two consecutive annual crime policy periods, each carrying a $50,000 Employee Theft limit. Under the non-cumulation of limits condition, the maximum the insurer pays is:
$120,000, the full amount stolen
$100,000, two annual limits added together
$50,000, a single limit because limits do not stack across periods
$60,000, half the loss in each year
Sections you finish are checked off in the contents.