14.2 Crime and Fidelity Coverage

Crime and Fidelity Insurance

Crime insurance covers loss of money, securities, and other property caused by criminal acts such as employee dishonesty, theft, robbery, burglary, forgery, and computer fraud. The ISO Commercial Crime program is built on the Commercial Crime Coverage Form and the Commercial Crime Policy, written two ways:

• Loss Sustained form - covers loss discovered during the policy period (plus a discovery extension) for acts occurring while coverage is in force.
• Discovery form - covers loss discovered during the policy period regardless of when the act occurred.

Understanding defined terms is critical. Burglary requires forcible, visible entry/exit (signs of break-in). Robbery is taking property by force or threat from a person. Theft is the broad, all-encompassing term - any act of stealing - and includes both burglary and robbery.

The Crime Insuring Agreements

The ISO crime form lists numbered Insuring Agreements; the insured buys only those needed:

Fidelity Bonds vs. Crime Coverage

Fidelity bonds (and the Employee Theft insuring agreement) protect the employer against loss from employee dishonesty - embezzlement, theft of cash or inventory. This is third-party-paid, first-party protection: the business is the insured and the beneficiary of its own employees' honesty.

Key crime concepts the exam tests:

• Employee Theft excludes loss whose only proof is an inventory shortage or profit-and-loss computation.
• Coverage applies to acts by current employees; a prior dishonesty exclusion voids coverage once the insured learns an employee committed theft/fraud (future acts by that person are not covered).
• Crime forms generally exclude acts by the named insured's owners/partners and exclude indirect or consequential loss.

Worked Example - Loss Sustained vs. Discovery Trigger

An embezzlement scheme runs from January 2024 to June 2024. The crime policy began April 1, 2024 on a Loss Sustained basis, and the theft is discovered September 2024 while coverage is still in force.

• Acts occurring before April 1 (Jan-Mar) are not covered - the loss-sustained trigger requires the act occur during the policy period.
• Acts April 1 - June 30 are covered because they occurred while coverage was in force and were discovered during the period.

Under a Discovery form, the full Jan-June loss could be covered because discovery (September) occurred during the policy period regardless of when the acts happened. This trigger distinction is a high-frequency exam item.

Crime Coverage Insuring Agreements

The ISO Commercial Crime form protects against dishonesty and theft of money, securities, and property. The exam expects familiarity with the main insuring agreements:

Discovery vs. Loss-Sustained Forms

Crime policies are written on a discovery form (covers losses discovered during the period, even if they occurred earlier) or a loss-sustained form (covers losses occurring during the period and discovered within a set window). This parallels the occurrence/claims-made distinction in liability and is frequently tested.

Key Definitions

• Money = currency, coins, bank notes; Securities = negotiable/non-negotiable instruments; Other property = tangible property other than money/securities.
• Employee theft requires manifest intent to cause loss and obtain benefit - mere negligence is not theft.

Worked Example

A bookkeeper embezzles $80,000 over two years by forging company checks, discovered during the current policy period. Under a discovery form Employee Theft agreement with a $100,000 limit, the loss is covered because it was discovered during the term - even though the thefts began earlier. The Forgery or Alteration agreement could also respond to the forged checks. If the company instead held a loss-sustained form that had lapsed before discovery, recovery for the older thefts could be barred. Distinguishing employee dishonesty (fidelity) from outside robbery, and discovery vs.

loss-sustained triggers, is the central crime-coverage concept.

Crime Definitions - Robbery, Burglary, Theft

The exam tests precise crime definitions: robbery is taking property by force or threat from a person; burglary is unlawful entry shown by visible signs of forced entry; theft is the broadest term, any act of stealing. Coverage often distinguishes inside vs. outside the premises and money/securities vs. other property. A 3-D (Dishonesty, Disappearance, and Destruction) legacy concept underlies modern crime forms. Fidelity (employee dishonesty) requires manifest intent to cause loss and gain benefit - careless errors are not covered.