14.2 Crime and Fidelity Coverage

Fidelity Versus Crime

Fidelity coverage protects the insured against loss caused by its own dishonest employees. Crime coverage is broader, adding loss caused by third parties — robbers, forgers, computer fraudsters. The modern ISO program folds both into one set of insuring agreements under the Commercial Crime Coverage Form.

Quick Answer: Employee Theft is the fidelity piece (inside threat); the other insuring agreements address outside threats.

The two principal forms are the CR 00 20 (Discovery Form) and the CR 00 21 (Loss Sustained Form). Both list the same insuring agreements; they differ only in the trigger that decides whether a loss is covered.

The Standard Insuring Agreements

Each insuring agreement carries its own limit and deductible and must be activated in the declarations.

Know the difference between robbery (taking by threat or force from a person), burglary (forcible entry with visible signs), and theft (any act of stealing, the broadest term). The exam tests these definitions constantly.

Robbery, Burglary, and Theft Defined

The crime form draws sharp lines between these terms, and confusing them is the most common scoring error.

• Robbery is the unlawful taking of property from a person by violence or the threat of violence. A witness is required.
• Safe burglary and burglary require forcible, visible entry (or exit) leaving physical marks — a pried door, a drilled safe.
• Theft is the broadest term: any act of stealing, including shoplifting or mysterious disappearance, regardless of how it was accomplished.

Because an insuring agreement may cover theft, robbery, or burglary specifically, the exam tests whether a fact pattern matches the exact peril named in the agreement that is in force.

Discovery Versus Loss Sustained — the Trigger

This is the single most tested distinction in the crime unit.

Worked Timing Example

A bookkeeper embezzles $40,000 over three years, ending two months before the company buys a Discovery Form. The scheme is uncovered six months into the new policy. Because the Discovery Form covers losses discovered during the policy period regardless of when they occurred, the loss is covered (subject to the limit and any prior-insurance offset). Under a pure Loss Sustained Form, that same loss — which occurred before inception — would generally not be covered unless continuous loss-sustained coverage bridged the prior years.

Limits, Deductibles, and Key Exclusions

Each insuring agreement has a per-occurrence Limit of Insurance and a Deductible Amount that applies to each occurrence. Employee Theft can be written per loss or per employee, which changes how a scheme involving multiple colluding employees is counted.

Worked Deductible Example

Employee Theft limit $100,000, deductible $5,000. A single dishonest employee steals $72,000 in one continuous scheme (one occurrence). The insurer pays $72,000 minus $5,000 = $67,000. If two employees acting independently each steal $72,000, that is two occurrences, each subject to its own deductible — $67,000 each, up to the limit per occurrence.

Critical Exclusions

• Inventory shortage. Loss provable only by an inventory computation or profit-and-loss calculation is excluded — you must show actual employee dishonesty, not just a missing-stock spreadsheet. This is a favorite trap.
• Acts of the named insured / owners. Dishonesty by the insured or its partners is not covered.
• Indirect or consequential loss — lost income from the theft event is excluded; only the direct loss is paid.
• War, governmental action, and legal expenses to prove a loss are excluded.

Common Exam Traps

• "Employee Theft is third-party crime." No — it is the fidelity (inside) coverage.
• Inventory proof. A shortage shown only by inventory records is not a covered employee-theft loss.
• Robbery vs. burglary. Robbery involves a person; burglary requires forcible-entry evidence.

The Standard Crime Insuring Agreements

ISO commercial crime is assembled from named insuring agreements, each addressing a distinct theft exposure:

Employee Theft is fidelity coverage (loss from your own dishonest employee), distinct from third-party crime coverage like robbery.

Discovery vs. Loss-Sustained and Key Exclusions

The two trigger forms decide when a loss is covered:

• Discovery form (CR 00 20) - covers losses discovered during the policy period regardless of when they occurred. Ideal when an employer fears undiscovered past theft.
• Loss-Sustained form (CR 00 21) - covers losses both occurring and discovered during the policy period (with a limited discovery extension after expiration). This mirrors an occurrence trigger.

Crime exclusions remove acts by the named insured (you cannot steal from yourself), indirect or consequential loss, war, and - critically tested - trading losses and inventory shortages provable only by an inventory computation. The inventory-shortage exclusion exists because a shortage shown only by counting could be shrinkage, error, or theft, so the insurer requires independent proof of actual employee dishonesty.