14.2 Crime and Fidelity Coverage

Crime and Fidelity: Covering Intentional Wrongdoing

Where property insurance answers accidental and natural perils, crime insurance answers intentional human dishonesty — employee theft, forgery, robbery, burglary, and electronic fraud. ISO writes this through the Commercial Crime Coverage Form (CR 00 20 — discovery) and (CR 00 21 — loss sustained), plus a Government Crime version. A non-negotiable thread runs through every insuring agreement: the loss must be a direct loss of covered money, securities, or other property — never a consequential loss such as lost profits, fines, or reputational damage.

Quick Answer: Crime/fidelity coverage pays for direct loss of money, securities, or property caused by dishonest acts such as employee theft, forgery, robbery, burglary, and computer fraud.

The word fidelity refers specifically to employee dishonesty — the insured's faith (fidelity) in the honesty of its own people. A fidelity bond and the modern Employee Theft insuring agreement serve the same function: protecting the employer when its own employees steal. Third-party crime (outsiders) is handled by separate insuring agreements such as robbery, burglary, and computer fraud.

A second universal condition is the territory and ownership requirement: the insured must own the property or hold it in a fiduciary or bailment capacity, and the loss must occur within the policy territory. Crime forms also impose a one-loss rule — multiple acts by the same employee, or a continuous series of related acts, count as a single occurrence subject to one per-occurrence limit, not stacked limits. This caps the carrier's exposure when a long-running embezzlement is finally uncovered.

The Insuring Agreements and Their Triggers

The ISO Commercial Crime form is modular — the insured selects insuring agreements and a limit for each. Memorize the lettering pattern and what each requires:

Coverage trigger is the single most-tested crime concept. The Discovery form pays for losses discovered during the policy period, regardless of when they actually occurred. The Loss Sustained form pays only for losses occurring during the period, with a limited extended discovery window (often 60 days, or up to one year for prior carriers).

Worked example: A controller embezzles steadily from 2021 through 2025 and is unmasked this month. Under a Discovery form in force now, the policy responds to the full covered loss up to the limit because discovery happened during the current period — even though most acts predate it. A Loss Sustained form would respond only to the portion occurring during its term.

The extended discovery period is itself tested. When a Loss Sustained policy is canceled and not replaced, the insured usually gets a window (commonly 60 days) to discover losses that occurred during the term. If a superseding crime policy from another carrier was in force during part of the loss, special prior-insurance/loss-sustained-during-prior-insurance provisions allocate the recovery, often capping it at the larger of the two limits rather than adding them together.

Defined Terms, Exclusions, and Bond Distinctions

The exam relentlessly tests precise definitions because policy meanings diverge from everyday speech:

• Robbery - unlawful taking by violence or threat of violence; a person is present and confronted.
• Burglary - unlawful entry or exit shown by visible marks of forced entry, with intent to steal; usually no one present.
• Theft - the broad act of stealing, encompassing robbery and burglary and any other taking.

Common crime exclusions include: acts by the named insured or its partners/owners; inventory shortage as sole proof of loss; loss of income (consequential); governmental seizure; war; and employee theft after the insured knew of a prior dishonest act by that employee (the canceled-as-to-that-employee rule).

Fidelity bonds vs. surety bonds is a classic distinction: a fidelity bond is a two-party arrangement (insurer and employer) protecting against employee dishonesty, functionally insurance. A surety bond is a three-party arrangement (principal, obligee, surety) guaranteeing performance or payment, where the surety expects reimbursement from the defaulting principal. Fidelity = honesty of employees; surety = performance of an obligation.

ERISA fidelity is a niche but testable wrinkle: federal law requires plan fiduciaries who handle employee-benefit-plan funds to be bonded for at least 10% of the funds handled, with a $1,000 minimum and a $500,000 maximum ($1,000,000 if employer securities are held). Finally, distinguish Employee Theft (a per-loss, no-stacking fidelity agreement) from the Forgery or Alteration agreement, which responds specifically to written instruments such as checks, drafts, and promissory notes — even if no employee is involved. A forged outside check is Coverage B; an employee skimming cash is Coverage A.