14.2 Crime and Fidelity Coverage

The Two Coverage Triggers: Loss Sustained vs. Discovery

ISO commercial crime is sold using the Commercial Crime Coverage Form (CR 00 21) and Commercial Crime Policy (CR 00 20). The single most-tested mechanic is the trigger:

• Loss Sustained Form — Covers loss that is sustained (occurs) during the policy period and discovered no later than one year after the policy ends. It also bridges to a prior policy via a superseded-coverage provision so a long-running embezzlement isn't lost at renewal.
• Discovery Form — Covers loss discovered during the policy period, regardless of when the act actually occurred (subject to a retroactive date). Discovery means a reasonable person would assume a loss had happened.

Worked Timing Example

An employee embezzles from January 2024 through June 2025. The theft is discovered in March 2026.

• Under a discovery form in effect in March 2026, the loss is covered even though much of the theft occurred years earlier (subject to the retroactive date).
• Under a loss-sustained form that expired December 31, 2025, the March 2026 discovery is within the one-year discovery window, so the loss sustained through expiration is covered.

The exam point: match the date of discovery to the form type. A loss discovered after the one-year window on a loss-sustained form is uncovered.

Money, Securities, and Other Property

The crime form defines three property categories precisely. Money is currency, coins, and bank notes. Securities are negotiable and non-negotiable instruments and contracts representing money or property (stocks, bonds, tokens, stamps). Other property is tangible property other than money and securities. The distinction matters because some insuring agreements (e.g., "Theft of Money and Securities") cover only money and securities, while others ("Robbery or Safe Burglary of Other Property") cover the tangible-property category. Choosing coverage for the wrong category is a classic exam trap.

Defining the Perils: Robbery vs. Burglary vs. Theft

Examiners love to test the precise definitions because the wrong word changes whether a loss is covered.

If an employee is held up at gunpoint, that is robbery. If a thief pries open a back door at night while the store is empty, that is burglary. If a customer simply pockets merchandise, that is theft (shoplifting) and is generally NOT covered by basic robbery/burglary agreements.

The Insuring Agreements

The ISO crime form is modular. Key insuring agreements include:

1. Employee Theft (the old fidelity bond) — dishonest acts of employees
2. Forgery or Alteration — checks, drafts, promissory notes
3. Inside the Premises – Theft of Money and Securities
4. Inside the Premises – Robbery or Safe Burglary of Other Property
5. Outside the Premises — messenger coverage
6. Computer Fraud
7. Funds Transfer Fraud
8. Money Orders and Counterfeit Money

Each insuring agreement carries its own limit and can be turned on or off, letting the buyer tailor coverage to the exposure. A messenger who carries deposits to the bank needs the Outside the Premises agreement; a business that takes electronic payments needs Computer Fraud and Funds Transfer Fraud; a firm that accepts checks needs Forgery or Alteration. Loss of property of others in the insured's custody can also be added. Reading the declarations to confirm which agreements are scheduled is essential before predicting how a crime loss will be paid.

Fidelity, Computer/Funds-Transfer Fraud, and the Social-Engineering Gap

Employee Theft (Insuring Agreement 1) is the modern name for the old fidelity bond. It pays for loss of money, securities, and other property caused by employee dishonesty. It can be written on a per-loss limit (one limit per occurrence regardless of how many employees were involved) or per-employee basis. Critically, coverage terminates as to any employee the moment the insured (other than an employee in collusion) learns of a prior dishonest act by that employee.

Computer Fraud vs. Funds Transfer Fraud vs. Social Engineering

• Computer Fraud — covers loss caused by the use of a computer to fraudulently transfer money/securities/property from inside the premises to a person or place outside.
• Funds Transfer Fraud — covers loss from a fraudulent instruction to a financial institution to transfer funds from the insured's account.
• Social Engineering / Deception — when an employee is tricked into voluntarily sending funds (e.g., a fake CEO email). This is a notorious coverage gap; the base crime form generally excludes it because the transfer was "authorized." A separate deception/social-engineering endorsement (often sub-limited) is required.

ERISA Plans

If the insured sponsors an employee benefit plan, federal ERISA rules require a fidelity bond equal to at least 10% of the plan funds handled, with a $1,000 minimum and a $500,000 maximum (higher for plans holding employer securities). Exam questions test that this is a federal compliance minimum, not an insurer option.