Commercial Crime Insurance The webinar will begin shortly. There is no audio at this time. This presentation is

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Commercial Crime Insurance

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Good things you should know…


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Polling

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DisclaimerInsurance forms and endorsements vary based on insurance

company; changes in edition dates; regulations; court decisions; and state jurisdiction. This instructional material

provided by Insight Insurance Consulting and the Insurance Community Center is intended as a general guideline and

any interpretations provided by Insight, Insurance Community or presenters do not modify or revise insurance

policy language. When ISO language is included in the materials, all ISO content is protected by the ISO copyright.

All parties to this presentation and creation of materials assume neither liability nor responsibility to any person or

business with respect to any loss that is alleged to be caused directly or indirectly as a result of the instructional

materials provided.

Copyright 2010 – 2013 All Rights Reserved

www.insurancecommunitycenter.com

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Your Instructor Today

Al Parizo AFIS ACSR

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Looking For Coverage!


What this course will cover Identifying the need for crime insurance

and the purpose of the crime coverage forms.

Ways to Write Crime Insurance The Policy Format The difference between the Discovery and

Loss Sustained Forms. The endorsements available in the Crime

Series will be reviewed in detail in terms of applicability and coverage language.

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Need for Crime Insurance

Money and securities are excluded from coverage in standard commercial property forms.

Theft coverage on business property is usually available only when coverage is written on a risk of direct physical loss form, such as the ISO Causes of Loss-Special Form.

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Crime Background

Who done it?If an “employee”… who covers it?

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Need for Crime Insurance

Only a limited amount of coverage is provided on other categories of personal property insured against theft, such as: jewelry, precious metals, furs, stamps, letters of credit, patterns, dies, etc.

Dishonest or criminal acts committed by employees or others involved in the insured business are excluded from standard property coverage.

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Ways to write Crime Insurance

Always make an offer!

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“I made him an offer he couldn’t refuse”Vito Corleone (1885-1948)

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Polling Question #1

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Ways to write crime insuranceMonoline Higher limits needed than the package

u/w can provide. Different named insured than the CP or

CGL. Crime underwriters understand the

exposures and needs of the insured.

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Ways to write crime insurance Crime underwriters may be willing and

able to modify policy language to fit those needs.

The client may need to have coverages that are not standard in the industry.

E.g.: Product Extortion, Kidnap And Ransom, Wire Transfer Coverage.

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Ways to write crime insurancePart of a Package Policy The crime coverage may be offered as an

automatic coverage if the insured is unwilling to accept the necessity of the coverage as a separate premium charge

The coverage response might be better than that offered on a separate policy (the BOP may be an example

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Coverage Format

The contract and how to read it

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Coverage Format

Coverage may be provided as a Coverage Part on a Package Policy or as a mono-line policy

Forms Common Policy Declarations (IL DS 00) Common Policy Conditions (IL 00 17) Crime & Fidelity Coverage Part

Declarations (CR DS 01)

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Coverage Format

Commercial Crime Policy Declarations (CR DS 02)

Commercial Crime Coverage Forms Discovery Form (CR 00 20) Loss Sustained Form (CR 00 21) Endorsements

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Commercial Crime Coverage Part Declarations (CR DS 01)

Each coverage selected must have a limit and deductible shown on the Declarations Page

Insurance company issuing the policy should show “Not Covered” in each section where coverage has not been selected

Employee Benefit Plans are provided coverage only when the name of the Plan is shown in the Declarations Page

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Selected Commercial Crime Coverage Form Definitions:

Words mean what they say?

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Employee

1.A person the insured directs, controls and compensates directly by salary, wages or commissions. Considered an employee for 30 days after termination.

2.A person employed by an employment contractor while performing service for the insured under the insured's direction and control.* This does not include such a person having care and custody of property off premises.

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Employee

An employee does not mean:

a.Agent, broker, independent contractor, etc.

b.Director or trustee except while in the scope of the usual duties of an employee

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Polling Question #2

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Leased Employees*

Risk management tip. Is the Labor Contractor obligated to indemnify for employee theft?

If so, inform the underwriter with the application and “head count”.

Get a Certificate from the contractor and be sure it includes endorsement for “client’s property” CR 04-01.

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Employee benefit plan

• Any welfare or pension benefit plan shown in the Declarations that you sponsor and subject to the Employee Retirement Income Security Act of 1974 (ERISA)

Money

• Currency, coins, bank notes, travelers checks, money orders, etc.

• Valued at face value or at the U.S. dollar equivalent determined by the rate of exchange on the day the loss was discovered

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Bond or Insurance?

The Federal Code refers to the necessity of a bond It is Employee Dishonesty Insurance

that has been provided to insure against theft loss of employee’s money or other assets

Do not confuse this with EBLI or EPLI.


ERISA Obligations

Federal law requires the Plan Sponsor to carry employee dishonesty coverage that extends to protect the plan assets from any person handling the plan assets A TPA providing employee dishonesty

coverage for their employees is fulfilling a contractual obligation and does not satisfy the law


ERISA Requirements

If the client has a retirement plan governed by ERISA Federal statute requires 10% of plan

assets, subject to a minimum of $1,000 limit and stops the requirement at $500,000 (note, these are minimums!) If the plan contains stock of the Plan

Sponsor, that maximum increases to $1,000,000

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ERISA Coverage

Include in the Employee Dishonesty coverage The plan(s) must be named on the

Declarations page with a limit of insurance

It can also be provided by an ERISA bond, separate from the Employee Dishonesty coverage


Other Property• Any tangible property other than money

and securities. Does not include property excluded in the Commercial Crime Coverage Form. Valued at the lesser of RC or cost to repair or replace.

Robbery

• The taking of property from a person by bodily harm, the threat of bodily harm, or an obviously unlawful act witnessed by that person

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Other Property

This is an important point – the employee steals data, such as customer lists, formulas, etc. Your insured is out a significant amount

of assets The coverage under Employee

Dishonesty will not pay Seek Intellectual Property Coverage.

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Securities

• Negotiable and nonnegotiable instruments or contracts representing either "money" or property and includes:• Tokens, tickets, revenue and other

stamps (actual or meter value) in current use; and

• Evidences of debt issued in connection with credit or charge cards, which cards are not issued by you; but does not include "money".

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Theft

• The unlawful taking of property to the deprivation of the Insured

• Older forms referred to “employee dishonesty”.

• “Theft” is deemed a broader definition since no or motive needs to be demonstrated.

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Commercial Crime Insuring Agreements

Employee Theft Forgery or Alteration Inside the Premises – Theft of Money and Securities Inside the Premises – Robbery or Safe Burglary of

Other Property Outside the Premises Computer Fraud Funds Transfer Fraud Money Orders and Counterfeit Money

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Polling Question #3

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Commercial Crime Coverage Forms

Discovery Form (CR 00 20)

Coverage for loss occurring at any time and discovered by the named insured during the policy period or the

Extended Period to Discover Loss (60 days)

This form is more commonly issued than

the Loss Sustained Form CR 00 21

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Discovery Form Insurance Agreement

A. Insuring Agreement

Coverage is provided under the following Insuring Agreements for which a Limit of Insurance is shown in the Declarations and applies to loss that you sustain resulting directly from an "occurrence" taking place at any time which is "discovered" by you during the Policy Period shown in the Declarations or during the period of time provided in the Extended Period To Discover Loss Condition E.1.g.:

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Commercial Crime Coverage Forms

Loss Sustained Form (CR 00 21)

Coverage for loss that occurs during the policy period and discovered by the

named insured during the policy period or the

Extended Period to Discover Loss (1 yr.)

The Loss Sustained during Prior Insurance Condition allows the

current policy to cover a loss occurring prior to

the policy period under certain circumstances.

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Loss Sustained Insuring Agreement

A.Insuring Agreements

Coverage is provided under the following Insuring Agreements for which a Limit of Insurance is shown in the Declarations and applies to loss that you sustain resulting directly from an "occurrence" taking place during the Policy Period shown in the Declarations, except as provided in Condition E.1.k. or E.1.l., which is "discovered" by you during the Policy Period shown in the Declarations or during the period of time provided in the Extended Period To Discover Loss Condition E.1.g.:

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Form Differences

Discovery Form Pays all loss as of the date the loss is

discovered Easier to explain to the client

Whatever loss you have, such as an Employee Dishonesty loss, is covered up to the limit of insurance on the policy you have in place at the time of discover

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Form Differences

Loss Sustained Form Pays FIRST all loss that occurs during

the policy period and then any other loss that occurred prior to the policy period under certain conditions Client must demonstrate that they

had uninterrupted coverage during the “occurrence”

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Policy Bridge – Discovery Replacing Loss Sustained This language is included in the coverage

form If the current policy replaces insurance

that contained a discovery period, no coverage unless loss exceeds prior policy limit

Deductible applies

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Commercial Crime Insuring Agreements

Any number need apply

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Employee Theft

We will pay for loss of or damage to "money", "securities" and "other property" resulting directly from "theft" committed by an "employee", whether identified or not, acting alone or in collusion with other persons. For the purposes of this Insuring Agreement, "theft" shall also include forgery.

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Forgery Or Alteration

a.We will pay for loss resulting directly from "forgery" or alteration of checks, drafts, promissory notes, or similar written promises, orders or directions to pay a sum certain in "money" that are:

(1) Made or drawn by or drawn upon you; or

(2) Made or drawn by one acting as your agent;

or that are purported to have been so made or drawn.

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Forgery Or AlterationFor the purposes of this Insuring Agreement, a

substitute check as defined in the Check Clearing for the 21st Century Act shall be treated the same as the original it replaced.

b. If you are sued for refusing to pay any instrument covered in Paragraph 2.a., on the basis that it has been forged or altered, and you have our written consent to defend against the suit, we will pay for any reasonable legal expenses that you incur and pay in that defense. The amount that we will pay is in addition to the Limit of Insurance applicable to this Insuring Agreement.

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Inside The Premises – Theft Of Money And Securities

a. We will pay for loss of "money" and "securities" inside the "premises" or "banking premises": (1)Resulting directly from "theft" committed by a person present inside

such "premises" or "banking premises"; or

(2)Resulting directly from disappearance or destruction.

b. We will pay for loss from damage to the "premises" or its exterior resulting directly from an actual or attempted "theft" of "money" and "securities", if you are the owner of the "premises" or are liable for damage to it.

c. We will pay for loss of or damage to a locked safe, vault, cash register, cash box or cash drawer located inside the "premises" resulting directly from an actual or attempted "theft" of or unlawful entry into those containers.

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Outside The Premises

a. We will pay for loss of "money" and "securities" outside the "premises" in the care and custody of a "messenger" or an armored motor vehicle company resulting directly from "theft", disappearance or destruction.

b. We will pay for loss of or damage to "other property" outside the "premises" in the care and custody of a "messenger" or an armored motor vehicle company* resulting directly from an actual or attempted "robbery".

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Armored Vehicle Condition

Loss Outside Premises A.5 pays only excess over armored vehicle’s contract of indemnity and:

From any insurance or indemnity carried by or for the benefit of armored carrier’s customers.

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Computer Fraud

We will pay for loss of or damage to "money", "securities" and "other property" resulting directly from the use of any computer to fraudulently cause a transfer of that property from inside the "premises" or "banking premises":

a. To a person (other than a "messenger") outside those "premises"; or

b. To a place outside those "premises".

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Funds Transfer Fraud

We will pay for loss of "funds" resulting directly from a "fraudulent instruction" directing a financial institution to transfer, pay or deliver "funds" from your "transfer account".

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Exclusions That Apply to All Insuring Agreements

Dishonest or criminal acts committed by the insured or any partner

Acts of employees you learn of prior to the beginning of the policy

Acts of employees, managers, directors, trustees, or representatives except when covered under “Employee Theft” insuring agreement

Confidential Information Governmental Action

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Exclusions That Apply to All Insuring Agreements

Indirect Loss Legal Fees, Costs and Expenses Nuclear Hazard Pollution War and Military Actions

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Exclusions That Apply Only to Specific Insuring Agreements

Employee Dishonesty Exclusions Inventory Shortages An exception applies if loss can be

established independently of the inventory shortage

Trading

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Exclusions (cont.)

Warehouse Receipts Inside and Outside Premises

Exclusions Accounting Or Arithmetical Errors Or

Omissions Exchanges Or Purchases

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Exclusions That Apply Only to Specific Insuring Agreements Fire

An exception applies for damage to money, securities, from damage to safe or vault

Money Operated Devices Motor Vehicles Or Equipment And Accessories Transfer Or Surrender Of Property Exception applies for loss outside premises Vandalism Voluntary Parting Of Title To Or Possession Of

Property

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Exclusions That Apply Only to Specific Insuring Agreements

Computer Fraud Exclusions Credit Card Transactions Funds Transfer Fraud Inventory Shortages

Fund Transfer Fraud Exclusions Computer Fraud

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Conditions Applicable to All Insuring Agreements

Every contract has conditions

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Additional Premises or Employees

Automatically covered for policy period Does not apply if acquired through

consolidation, merger or acquisition of assets or liabilities. See elsewhere.

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Conditions

Concealment, Misrepresentation Or Fraud Consolidation – Merger Or Acquisition

90 days automatic coverage for occurrences after acquisition date

Written notice required and written consent from insurance company

Cooperation with company following loss.

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Duties In The Event Of Loss

Notify as soon as possible Notify policy of violation of law Submit to examination under oath Produce all pertinent records Sworn proof of loss within 120 days

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Employee Benefit Plans

Must be shown in the Declarations for coverage to apply.

If more than one, the Limit must be sufficient to cover each plan

No deductible applies to this coverage One year discovery period. Think twice before adding plan and diluting

limit. May be better off with separate ERISA policy.

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Extended Period to Discover Loss

Loss Sustained Form - Limited to one year from the date of cancellation if coverage is not replaced

Discovery Form - 60 days after the date of cancellation if coverage not replaced

Under both forms, coverage for Employee Benefit Plan(s) continues for one year after cancellation (it’s the law!)

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Joint Insured

First Named Insured acts for all others An employee of one is an employee of all Loss covered only if discovered within 60

days after the end of the policy period This extension terminates at end of policy

period upon effective date of new coverage Loss amount is paid to all insureds at the

same amount if sustained by one insured

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Conditions

Legal Action Against Us Liberalization

Broadened coverage applies if no additional premium if expanded within 45 days of inception or during the policy period

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Loss Sustained During Prior Insurance Not Issued by Your Insurance Company or One of Their Affiliates

Loss Sustained Form Covered if policy became effective at expiration

of prior policy and if it would have been covered under prior policy and limited to lesser of current limit or prior limit

Discovery Form Not in this form

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Conditions

Other Insurance Share with other primary coverage Excess if coverage is written as layered

coverage Ownership Of Property; Interests Covered

Owned, leased or property of others held by the named insured, whether or not legally liable

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Policy Bridge – Discovery Replacing Loss Sustained

If the current policy replaces insurance that contained a discovery period, no coverage unless loss exceeds prior policy limit

Deductible applies

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Conditions Records

Named insured records must be maintained Recoveries

Order of repayment applies first to insured for loss in excess of limit second to insurance company for loss

payment amount last to insured for Deductible

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Conditions

Territory USA, including territories and

possessions Puerto Rico Canada

Transfer Of Your Rights Of Recovery Against Others To Us (unlike CGL and Property forms) No waiver of subrogation allowed

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Valuation – Settlement

Money up to face value (other country’s currency paid at face value or USA equivalent

Securities up to market value at close of business on day loss was discovered at market value or cost of bond

Other property at RCV . Note: “Selling Price” not available nor is “consequential” loss.

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Conditions/Territory

Employee Dishonesty Conditions Termination As To Any Employee Immediately upon discovery of theft act,

before or after becoming an employee of the Named Insured or date specified in notice to the Named Insured (at least 30 days)

Territory Employee outside of territory up to 90 days

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Conditions That Apply Only to Specific Insuring Agreements

Forgery or Alteration Conditions Deductible does not apply to legal expenses Electronic signatures same as handwritten Proof of loss must include the instrument involved

in the loss or affidavit Worldwide territory

Outside Premises Conditions Excess of Armored Motor Vehicle insurance or

contractual obligation

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Conditions That Apply Only to Specific Insuring Agreements

Specified Property Limits $5,000 for any one “occurrence” for precious

metals, stones, pearls, furs, manuscripts, drawings or records

Special Limit Of Insurance For Specified Property Computer Fraud Conditions

Specified Property Limits $5,000 for any one “occurrence” for manuscripts,

drawings or records Worldwide Territory

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Common Endorsements

Modify or eliminates exclusions

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Name: Add Credit, Debit or Charge Card Forgery

Number: CR 25 20

Issues: Insured has persons with credit, debit or charge cards

within the organization Insured could incur loss as a result of forgery or

misuse by a third party

Solution: This endorsement creates coverage for forgery of the

defined documents


Name: Add Trading Coverage Number: CR 25 16

Issues: Insured has employees involved in trading

Solution: This endorsement removes the exclusion contained in

the policy


Name: Add Warehouse Receipts Coverage

Number: CR 25 17

Issues: Insured has “employees” in a warehouse Exposure to loss by “employees” of property in the

insured’s warehouse

Solution: This endorsement removes the exclusion for loss of

warehouse receipts and covers both theft and forgery

There is a second endorsement that provides coverage only for forgery and not theft (this other endorsement has a lower premium charge)


Name: Add Client’s Property Number: CR 04 01

Issues: Insured has “employees” work on client’s premises Exposure to loss by “employees” taking customer’s

property.

Solution: This endorsement modifies coverage to include

client’s property as well as their own.


Name: Include Designated Agents as Employees

Number: CR 25 02

Issues: Insured uses outside persons or organizations to

handle money, such as payroll services

Solution: Provides “theft” coverage and includes a

described person as an “employee” The capacity of the party being included should be

carefully and fully described


Name: Employee Theft Name or Position Schedule

Number: CR 04 08

Issues: Insured wants to cover only specifically described

person by name or by their position in the company rather than all “employees”

Solution: This endorsement can lead to adverse selection

and caution should be used Should a non-scheduled person collude with a

scheduled person, the policy will not respond correctly to the loss


Name: Include Designated Persons or Classes of Persons as Employees

Number: CR 25 41

Issues: Insured has a group of persons for which an

appropriate specific endorsement is not available

Solution: This endorsement allows the insured and the

insurance company to clarify and provide coverage for unusual situations


Name: Include Chairpersons and Members of Specified Committees as Employees

Number: CR 25 06

Issues: The insured has non-compensated chairpersons or

committee members

Solution:The endorsement changes the definition of “employee” to include these categories


Name: Include Members of a Limited Liability Company as Employees

Number: CR 25 04

Issues: The Named Insured includes an LLC Members of an LLC are not covered in any of the

coverage forms

Solution: This endorsement removes the exclusion and

redefines the “messenger” definition as needed


Name: Include Specified Non-Compensated Officers as Employees

Number: CR 25 08

Issues: The insured has officers of their corporation (or

association) that are unpaid

Solution: The Crime Coverage Forms require that

“employees” are paid directly by the Named Insured

This endorsement changes the policy language to provide coverage, but only for the officers that are specifically shown in the endorsement


Name: Include Partners as Employees

Number: CR 25 03

Issues: The Named Insured includes a partnership

Solution: This endorsement removes the exclusion for

partners of a partnership and redefines “employees’ to include partners but only as specifically scheduled partners


Name: Include Volunteer Workers as Employees

Number: CR 25 09

Issues: The insured has unpaid workers

Solution: This endorsement revises the “employee” definition

to include volunteers This endorsement includes those volunteers that

are soliciting funds


NAME: Include Volunteer Workers Other Than Fund Solicitors As Employees

Number: CR 25 10

Issues: The insured has unpaid workers

Solution: This endorsement revises the “employee” definition

to include volunteers This endorsement does NOT include those

volunteers that are soliciting funds The charge for this endorsement is less than CR 25

09 for that reason


Summary

Crime is a critical coverage component and should NEVER be left off of the producer/client discussion list

The “gift” of various crime coverages in package policies may not be adequate coverage

Be sure that the client really understands that the limit purchased this year covers all loss caused by an employee(s)

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Commercial Crime Insurance The webinar will begin shortly. There is no audio at this time. This presentation is