14.2 Crime and Fidelity Coverage
Key Takeaways
- ISO Commercial Crime is written on the Loss Sustained form (CR 00 21) or the Discovery form (CR 00 22); discovery triggers coverage when the loss is found, sustained triggers when it occurred during the policy period.
- The seven standard insuring agreements include 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/Funds Transfer Fraud, and Money Orders/Counterfeit Money.
- Fidelity bonds cover dishonest acts of EMPLOYEES; surety bonds guarantee performance by a principal to an obligee and involve three parties.
- Employee Theft can be written per-loss (blanket, covers all employees) or per-named/scheduled basis; the limit applies per occurrence.
- Crime forms exclude loss that is only provable by an inventory shortage or profit-and-loss computation unless supported by independent evidence.
The Two Coverage Triggers: Loss Sustained vs. Discovery
ISO commercial crime is written on one of two trigger forms, and the trigger is heavily tested.
- Loss Sustained form (CR 00 21): Covers loss that is sustained (occurs) during the policy period, plus a discovery extension (usually 1 year after the policy ends) for losses that happened while the policy was in force.
- Discovery form (CR 00 22): Covers loss discovered during the policy period, no matter when it occurred — even years earlier — as long as it was not discovered before inception.
Worked scenario: An embezzlement runs from 2022 to 2025 and is discovered in 2026. Under a discovery policy in force in 2026, the loss is covered. Under a loss-sustained policy bought in 2026, it is not covered because the acts did not occur during the 2026 term.
The Seven Standard Insuring Agreements
The ISO Commercial Crime Coverage Form offers up to seven insuring agreements; each is bought and limited separately.
| # | Insuring agreement | What it covers |
|---|---|---|
| 1 | Employee Theft | Dishonest acts of employees causing loss of money, securities, or other property |
| 2 | Forgery or Alteration | Loss from forged or altered checks, drafts, promissory notes |
| 3 | Inside the Premises — Money & Securities | Theft, disappearance, destruction of money/securities on premises |
| 4 | Inside the Premises — Robbery/Safe Burglary | Robbery or safe burglary of other property |
| 5 | Outside the Premises | Money/securities/property in care of a messenger off premises |
| 6 | Computer & Funds Transfer Fraud | Fraudulent electronic transfer of money/securities |
| 7 | Money Orders & Counterfeit Money | Loss from accepting counterfeit currency or bad money orders |
Employee Theft is the most-tested agreement. It can be written on a blanket basis (covers all employees, limit applies per loss/occurrence) or a scheduled/named basis (only listed individuals or positions).
Fidelity Bonds vs. Surety Bonds
This distinction appears on nearly every exam.
- A fidelity bond protects an employer against financial loss from the dishonest acts of its own employees (theft, embezzlement). It is functionally the Employee Theft insuring agreement and involves two parties (insurer and the insured employer).
- A surety bond guarantees that a principal will perform an obligation owed to an obligee; if the principal defaults, the surety pays the obligee and then seeks reimbursement from the principal. It involves three parties and is not insurance against the insured's own loss.
| Feature | Fidelity bond | Surety bond |
|---|---|---|
| Parties | 2 (insurer, insured) | 3 (surety, principal, obligee) |
| Protects against | Employee dishonesty | Principal's nonperformance |
| Reimbursement | None expected | Surety recovers from principal |
| Example | Employee Theft agreement | Contract/performance bond |
Limits, Deductibles, and Key Exclusions
Each insuring agreement carries its own per-occurrence limit and deductible. A single occurrence includes all acts by one employee or a group acting together, so a three-year embezzlement is one occurrence subject to one limit, not one limit per year.
Critical exclusions to memorize:
- Inventory shortage exclusion: Loss provable only by an inventory computation or a profit-and-loss calculation is excluded; there must be independent evidence the loss was caused by theft.
- Acts of the insured/owners: Theft committed by the named insured, partners, or members is excluded (they are not "employees").
- Prior dishonesty: Once an employer learns an employee committed a dishonest act, coverage on that person terminates.
- Trading/accounting errors and indirect/consequential loss are excluded.
Definition of Employee and Territory
The crime forms define an employee broadly to include current employees, leased workers, and (for a limited period after termination) former employees, plus directors/trustees only while acting as employees. Volunteers, independent contractors, and agents are generally not employees unless added by endorsement, so theft by a contractor is not an Employee Theft loss. The coverage territory under the current form is worldwide for most agreements, a change from older money-and-securities forms that were limited to the United States, its territories, and Canada. Watch for stems testing whether a thief qualifies as an "employee."
Limit Reconciliation and Other Conditions
When prior insurance and current insurance both could respond to a loss discovered after a change of carriers, the Loss Sustained During Prior Insurance condition coordinates the two so the insured is not paid twice and is not left with a gap. Crime forms are written per occurrence with a single deductible per occurrence; recovery of stolen property after payment reduces the loss and is applied first to the insured's uninsured layer (deductible and amounts above the limit). Understanding that a single scheme equals one occurrence with one deductible prevents the common error of stacking limits across years.
Common Traps
- A discovery form can cover acts that occurred before the policy began (so long as not previously discovered); a loss-sustained form cannot.
- A multi-year embezzlement by one employee is one occurrence — one limit applies, not one per year.
- Loss shown only by an inventory shortage is excluded without independent proof.
- A surety bond is not fidelity coverage — surety guarantees performance to a third party (obligee).
- An independent contractor is not an "employee" for Employee Theft unless endorsed onto the policy.
An employee embezzled funds from 2022 through 2025; the theft is first discovered in 2026. The employer holds a Commercial Crime DISCOVERY form (CR 00 22) effective in 2026. Is the loss covered?
Which statement correctly distinguishes a fidelity bond from a surety bond?