14.2 Crime and Fidelity Coverage
Key Takeaways
- The ISO Commercial Crime program uses the Discovery Form (CR 00 20), which pays on losses discovered in the period, and the Loss Sustained Form (CR 00 21), which pays on losses sustained in the period and discovered within one year after termination.
- Coverage is modular across seven insuring agreements: Employee Theft, Forgery or Alteration, Inside Premises (money/securities and other property), Outside the Premises, Computer Fraud, and Funds Transfer Fraud.
- Fidelity bonds are a three-party instrument (employer, dishonest employee, insurer/surety) covering employee dishonesty, with no subrogation against an honest principal.
- ERISA fidelity bonds for plan fiduciaries are set at 10% of funds handled, minimum $1,000 and maximum $500,000 ($1,000,000 with employer securities).
- Burglary requires visible forced entry, robbery requires force or threat against a person, and theft is the broadest term; one employee's series of acts is a single occurrence subject to one limit and deductible.
The ISO Commercial Crime Program
Crime insurance covers loss of money, securities, and other property caused by criminal acts — chiefly employee dishonesty, theft, robbery, burglary, forgery, and computer/funds-transfer fraud. The modern Insurance Services Office (ISO) program revolves around two policy forms: CR 00 20 Commercial Crime Policy (Discovery Form) and CR 00 21 Commercial Crime Policy (Loss Sustained Form). The trigger distinction is the single most-tested crime concept.
- Discovery Form (CR 00 20): pays for loss discovered during the policy period (or the discovery extension), no matter when the act occurred. Ideal when a business is buying coverage for the first time.
- Loss Sustained Form (CR 00 21): pays only for loss sustained during the policy period and discovered during the period or within one year after policy termination. It carries superseded suretyship language to bridge prior policies.
Key vocabulary the exam tests: Money (currency, coins, bank notes), Securities (negotiable and non-negotiable instruments, tokens, tickets, stamps), and Other Property (tangible property other than money/securities).
The Seven Insuring Agreements and Fidelity Bonds
The commercial crime forms offer modular insuring agreements; the insured selects and schedules limits for each. The classic seven:
| # | Insuring agreement | Covers |
|---|---|---|
| 1 | Employee Theft | Dishonest acts of employees (the fidelity coverage) |
| 2 | Forgery or Alteration | Forged/altered checks, drafts, promissory notes |
| 3 | Inside the Premises — Theft of Money & Securities | Robbery/safe burglary on premises |
| 4 | Inside the Premises — Robbery/Safe Burglary of Other Property | Other property taken by force |
| 5 | Outside the Premises | Money/securities/other property off premises |
| 6 | Computer Fraud | Theft via computer manipulation |
| 7 | Funds Transfer Fraud | Fraudulent transfer instructions to a financial institution |
Fidelity bonds are the employee-dishonesty piece (Insuring Agreement 1). A fidelity bond is technically a three-party instrument: the employer (obligee/insured), the dishonest employee (principal), and the insurer (surety). Unlike a surety bond, the insurer does not seek reimbursement from an honest principal — it indemnifies the employer against employee dishonesty.
ERISA bonds are a special fidelity bond required of pension-plan fiduciaries under the Employee Retirement Income Security Act, statutorily set at 10% of funds handled, with a $1,000 minimum and a $500,000 maximum ($1,000,000 if the plan holds employer securities).
Definitions, Exclusions, and Worked Limit Example
Burglary vs. robbery vs. theft — a perennial exam trap:
- Burglary: unlawful taking from inside premises by someone who broke in, leaving visible signs of forced entry. Forced entry evidence is required.
- Robbery: taking property from a person by force or threat of force (a watchperson or messenger).
- Theft: the broadest term — any act of stealing, including burglary and robbery; covered only when the form names it.
Common exclusions: acts of the named insured/partners, inventory shortage proven solely by an inventory computation (a classic), war, governmental seizure, trading losses, and indirect/consequential loss.
Worked example — single-loss limit and deductible: A retailer carries Employee Theft with a $100,000 single-loss limit and a $5,000 deductible per occurrence. A bookkeeper embezzles $140,000 over two years through a continuous scheme. Because the acts of one employee in a series are treated as a single occurrence, the insurer pays $100,000 limit minus $5,000 deductible = $95,000, not $140,000 and not two separate limits. Understanding the single-occurrence aggregation rule is repeatedly tested.
Cancellation and discovery period: Crime coverage for any single employee terminates as soon as the insured learns of a dishonest act by that employee — a built-in safeguard. On cancellation, the Loss Sustained form grants a one-year extended discovery period for losses sustained before termination, while the Discovery form grants 60 days (or longer if a successor policy with retroactive coverage is purchased). These windows are frequently tested traps.
Which crime-coverage trigger pays for a loss that is identified during the policy period regardless of when the criminal act actually occurred?
An employee embezzles $140,000 through a continuous scheme spanning two policy years. The Employee Theft agreement has a $100,000 single-loss limit and a $5,000 deductible, and treats one employee's acts as a single occurrence. How much is paid?
Discovery vs. Loss-Sustained, and the Employee-Theft Trap
Crime policies use one of two coverage triggers, and choosing the wrong one creates a gap when an insured switches carriers.
| Trigger form | Pays when | Watch for |
|---|---|---|
| Discovery form | Loss is discovered during the policy period (regardless of when it occurred) | Generous, easier to claim |
| Loss-sustained form | Loss both occurs and is discovered during the period (or a limited extended discovery window) | Gaps at carrier change |
The seven ISO insuring agreements - employee theft, forgery or alteration, inside the premises (theft of money/securities), inside the premises (robbery/safe burglary of other property), outside the premises, computer fraud, and funds transfer fraud - are bought individually, each with its own limit.
Exam Trap: Employee theft (fidelity) covers dishonest acts by the insured's own employees; theft by an outsider falls under the burglary, robbery, or computer-fraud agreements. A fidelity bond is three-party (principal, obligee, surety) but functions like insurance against employee dishonesty. Most crime forms exclude loss proven only by an inventory shortage.
ERISA Bonds and the Manuscript-vs-Blanket Choice
Crime coverage can be written to name individuals or to blanket a class of employees, and certain plans require a bond by law.
| Bond form | Covers |
|---|---|
| Blanket position | All employees, a separate limit per employee involved |
| Commercial blanket | All employees, one limit per loss regardless of how many involved |
| Name schedule / individual | Only the specifically named persons or positions |
| ERISA fidelity bond | Required for those who handle employee-benefit-plan funds (commonly 10% of funds, min $1,000) |
Exam Trap: A blanket position bond can pay more than a commercial blanket bond on the same loss, because it applies the limit separately to each dishonest employee involved, while the commercial blanket caps the entire loss at a single per-occurrence limit.