14.2 Crime and Fidelity Coverage
Key Takeaways
- Commercial crime insurance pays for direct loss of money, securities, and other property from theft, forgery, and fraud - never consequential loss such as lost profits.
- Two triggers: the Discovery form pays losses discovered during the period regardless of when they occurred; the Loss Sustained form pays losses occurring in-period with a one-year extended discovery window.
- Robbery requires a person present and confronted; burglary requires visible marks of forced entry; theft is the broad umbrella term.
- Non-cumulation of limits treats a single multi-year scheme as one occurrence subject to one limit, not stacked year over year.
- Fidelity bonds guarantee employee honesty and overlap with Coverage A employee theft; specialized variants include the Financial Institution Bond (Form 24).
What Crime Insurance Covers
Commercial crime insurance pays for financial loss from dishonest and criminal acts - employee theft, forgery, robbery, burglary, and electronic fraud. Where property insurance handles natural and accidental perils, crime insurance targets intentional human wrongdoing. Every insuring agreement shares one rule: the loss must be a direct loss of covered money, securities, or other property - never a consequential loss such as lost profits or reputational harm. The standard contract is the ISO Commercial Crime Coverage Form (CR 00 21).
Coverage Triggers: Discovery vs. Loss Sustained
The single most-tested crime concept is when a loss is covered.
| Discovery Form | Loss Sustained Form | |
|---|---|---|
| Trigger | Loss is discovered in the period | Loss occurs in the period |
| When loss happened | Irrelevant - may be years earlier | Must fall within the period |
| Extended window | Discovery extension may apply | Typically a 1-year discovery window after expiration |
| Best for | Broader for the insured | More predictable for the insurer |
Worked scenario: A bookkeeper embezzles for three years and is caught today. A Discovery form in force now pays even though most thefts predate it. A Loss Sustained form pays only the portion of theft occurring while it was in force, plus losses discovered within its one-year post-expiration window.
Core Insuring Agreements
| Agreement | Covers |
|---|---|
| A - Employee Theft | Theft, embezzlement, forgery by employees (direct loss) |
| B - Forgery or Alteration | Forged/altered checks and drafts on the insured's accounts |
| C - Inside the Premises: Money & Securities | Theft, robbery, safe burglary of money/securities on premises |
| D - Inside: Robbery/Safe Burglary of Other Property | Robbery or safe burglary of property other than money |
| E - Outside the Premises | Money/securities in a messenger's or armored car's care off-site |
| F - Computer Fraud | Theft of money/securities via fraudulent computer use |
| G - Funds Transfer Fraud | Fraudulent instructions to a bank to transfer the insured's funds |
Robbery vs. Burglary vs. Theft - Precise Definitions
These terms have technical policy meanings the exam tests relentlessly.
| Term | Policy definition | Key element |
|---|---|---|
| Robbery | Unlawful taking by violence or threat of violence | A person is present and confronted |
| Burglary | Unlawful entry/exit shown by visible marks of forced entry, with intent to steal | Forcible entry; usually no one present |
| Theft | The broad act of stealing | Includes robbery, burglary, and any other taking |
Example: A masked person threatens a clerk and empties the register - robbery. A thief pries open a locked door overnight, leaving pry marks - burglary. "Theft" is the umbrella; broad money-and-securities forms cover all three, while a narrow form may demand visible signs of burglary.
Key Exclusions
- Direct loss only - no downstream consequential damages or business income.
- Inventory-shortage exclusion - loss provable only by an inventory computation or profit-and-loss comparison is excluded; you must show actual theft.
- Prior-knowledge exclusion - employee theft ends for an employee once the insured learns of an earlier dishonest act by that person.
- Acts of owners/partners are excluded - a sole proprietor cannot "steal" from himself for coverage purposes.
Non-Cumulation of Limits (Worked Numeric Example)
A heavily tested rule is non-cumulation: a single dishonest scheme spanning several policy years is one occurrence subject to one limit, not stacked. A controller embezzles $400,000 over four annual policies each carrying a $100,000 limit. The policy does not pay $400,000 - it pays a single $100,000 limit, subject to the applicable discovery or loss-sustained terms and any deductible.
Money, Securities, and Other Property Defined
Crime forms draw sharp lines around what is stolen, because limits, locations, and perils differ by category. Money means currency, coins, bank notes, and certain registered checks. Securities are negotiable and non-negotiable instruments - stocks, bonds, tokens, tickets. Other property is tangible property other than money and securities - inventory, equipment, merchandise.
A messenger robbed of a deposit bag off-site triggers Outside the Premises (Coverage E) for money/securities, while a smash-and-grab of jewelry from a display case is other property under a different agreement. Matching the type of property to the correct insuring agreement is a frequent exam task.
Fidelity Bonds vs. Crime Coverage
Fidelity bonds guarantee employee honesty and overlap heavily with Coverage A employee theft; they may be written as bonds or as crime insuring agreements. Specialized variants include public-employee bonds and the Financial Institution Bond (Form 24) for banks. The distinction the exam wants: a fidelity bond protects the employer against its own dishonest employees, unlike a surety bond that guarantees a principal's performance to a third-party obligee.
Common Exam Traps
- Discovery vs. loss sustained - read the stem for "discovered" vs. "occurred."
- Robbery requires a person present; burglary requires visible marks of forced entry.
- Inventory shortage alone is not proof of covered theft.
- Non-cumulation caps a multi-year scheme at one limit.
A controller diverts company funds over four years and is discovered this month. The business carries a crime policy written on a Discovery form. How does the policy respond?
Overnight, a thief pries open a locked rear door, leaving visible tool marks, and removes cash from an unattended office. In crime-insurance terms, this is best classified as: