A commercial crime insurance policy offers comprehensive cover and protection against employees’ theft and any losses from forgery, computer fraud, etc. In the event of any commercial crime, it becomes the duty of the insurance company to safeguard the policyholder against various losses or damages.
Why is commercial crime insurance coverage a must-have?
Undeniably, you can’t ignore white-collar crime which is rising at an alarming rate. Many times, companies don’t think of purchasing the cover against fraud. However, the reality is that it’s more the senior staff and trusted employees that commit fraudulent activities. And when they strike, they do it not for once but again and again over a period of time.
As a company, it becomes necessary for you to have viable financial coverage instead of wishful thinking. It is essential to get protection against such fraudulent activities. Here, a commercial crime insurance policy can play an important role.
A commercial crime insurance policy provides the following coverages :
Employee theft Cover
Employee theft coverage is a protection plan for loss of securities, money or other property by theft or forgery by the employee of the company.
Premise Cover
It includes losses from destruction, wrongful abstraction, and theft of securities or money from the policyholder’s premises by third parties.
Transit Cover
Transit cover provides protection for losses from disappearance, destruction of money or security outside the policyholder’s premise by a third party.
Depositors Forgery Coverage
It provides financial protection to the insured for losses from instruments like cheques which a third party has fraudulently drawn on account of the policyholder.
Computer Fraud Coverage
Computer fraud protection covers losses which a policyholder has to endure due to computer fraud made by third-party. It also covers the expenses which the policyholder has to incur due to a violation of the computer.
In most cases, a commercial crime insurance policy comes with a deductible clause which states that at the time of loss, the policyholder will have to pay a part of the claim. The insurance company would pay the remaining amount. Further, most insurance companies allow customizing commercial crime insurance policies to cover various fraud-related losses as per the company’s specific requirements.
What are additional costs covered in a commercial crime insurance policy?
The insurance policy also helps by covering the additional costs which a policyholder incurs at the time of loss or damage. For instance, after the commercial crime, the policyholder may require a temporary replacement of equipment or temporary workforce or office space. In this case, the insured may incur additional expenses on transporting of documents or equipment. Here, the insurance company may pay the additional cost along with the cost incurred in bringing the external workforce on board.
Case Study – Benefit of having a Commercial Crime Insurance Policy
K.S Automobile Spare Parts is situated in Pune. Backed with over 100 employees, the company had a huge clientele base both in India and abroad. Last year, the company got a big contract of exporting spare parts worth Rs 2 crore to a Dubai-based buyer. Considering the quantum of the order, employees were working double shifts.
One day, a worker named Kishore was working in night shift. During the break when a few employees were outside the site. Kishore took undue advantage and stole ten packets of spare parts which were part of an export order.
However, CCTV had captured Kishore’s crime. Though the company recovered the packets of spare parts; they were in bad condition.
Read more: What Is the Application of Commercial Crime Insurance?
The act of Kishore caused heavy losses to K.S Automobile. The company had to employ extra employees to manufacture the remaining spare parts. It was an additional cost that the company had incurred. The entire incident made the management of K.S Automobile think about what could have been done to avoid the situation.
Solution
The situation would have been different if K.S Automobile had commercial crime insurance. The insurer would have come forward to cover the losses which the company had to incur due to theft committed by its employee. Further, as K.S Automobile had to pay extra to get an additional workforce, the cost associated with it would have been covered by the insurance company as well.
| | CRIME 2000 Revisions and additions to government and commercial crime insurance program By Christopher Ketcham, CPCU, CFP |
The Insurance Services Office has developed an entirely new commercial and government crime insurance program. The program change has been filed with most states with a July 1, 2000, effective date. Please consult the PF&M Companion in each issue of Rough Notes to learn which states have approved the new program. As always, even when approved by the states, individual companies may either choose not to adopt the changes or to use a different date than the ISO filing.
Coverage grants have changed, and individual coverage grants from more than one form have been combined into an entirely new coverage. For example, the new Outside the Premises coverage grant is composed of elements from Form C--Theft Disappearance and Destruction, Form D--Robbery and Safe Burglary-Property Other Than Money and Securities and Form H--Premises Theft and Robbery Outside the Premises. The intent of most of the recombination is simplification. Outside the Premises coverage was designed to cover money, securities and other property in one form rather than two or even three. Coverage grants have been renumbered. Gone are the alphabetical references to forms.
This change in format has been a long time coming. Even after the 1985 simplification, crime coverages retained their ancestral alphabet monikers. Each coverage was a separate form that could be issued as a separate policy or added as a section to the Commercial Package Policy (CPP). Coverage combinations were confusing, often requiring two or more forms to provide full coverage for money, securities and other property located on or off the insured premises.
In 1999, ISO filed a parallel discovery general conditions form along with the original general conditions form. The latter is now called a loss sustained form. An analysis of this change can be found in the August 1998 issue of Rough Notes. The article is titled "1998 ISO Commercial Crime Revisions, ISO introduces discovery-based crime policy," written by Diana Kowatch, CPCU, AU, AAM, CPIW. The article is also available at the Rough Notes' Web site (www.roughnotes.com).
New coverage form combines multiple forms into one
To aid in simplification and paper reduction, seven of the most popular commercial crime coverages have been combined into one primary coverage (CR 00) form. The CR 00 form is the foundation upon which other coverage grants are added.
One or more of these seven coverage grants may be selected, for none of the options is mandatory. Coverage is activated by inserting a limit on the declarations page.
Government crime coverage has an eighth section. Government crime has a per-occurrence limit for employee theft and a per-employee limit for employee theft, whereas the commercial crime employee theft is per-occurrence like the Form A employee dishonesty coverage.
The new coverage sections included on the primary coverage (CR 00) forms are:
Employee theft per occurrence
This new ISO coverage includes employee theft in a manner similar to an employee dishonesty form. As a new feature, the form includes fidelity insurance for specifically described employee benefits plans.
Employee theft covers the unlawful taking of covered property, which is defined as money, securities and other property. Coverage applies whether one or more than one employee is involved in the loss. Important to note, however, is that as in previous forms, the limit of insurance applies to each act, not to each employee.
The employee benefits plan coverage is a new feature. Covered employee benefits plans must be listed on the policy, and they must be subject to ERISA (Employee Retirement Income Security Act). Pension, 401(k), health and other welfare plans generally qualify. Employee benefits plan coverage under employee theft is NOT employee practices legal liability coverage. Employee benefits plan coverage is for fidelity losses only (e.g., the employee steals money earmarked for the 401(k) plan).
Employee theft per employee
This coverage grant applies only to government crime. Like the employee dishonesty forms, employee theft covers the unlawful taking of covered insured property which includes money, securities and other property. The limit of insurance for this government crime only coverage applies to each identified employee. For example, the per-employee limit of insurance is $10,000. Ten employees work together and each steals $5,000. Each is identified in the claim, and a total of $50,000 is paid.
Forgery or alteration
This form also is new and pays for losses caused by outside parties who forge or alter the named insured's checks. Forgery or alterations of checks performed by you, employees, managers, directors, trustees or representatives are excluded. Coverage includes checks drawn upon your accounts or the accounts of anyone while acting as your agent. Checks include drafts, promissory notes, order or directions to pay money.
One of the unusual features of this coverage is that defense may be provided if you are sued for refusing to pay an instrument you believe is forged. The insurance company must give its written consent to your defense of the suit and if it does, it will pay any reasonable legal expenses relating to that defense. There is no limit to the defense coverage, and the defense coverage is in addition to the limit of liability for forgery and alteration.
Inside the premises--theft of money and securities
There are three basic coverages:
a. Pays for theft of money and securities from within your premises or banking premises. No merchandise or stock is covered. It is important to know that premises is defined as the interior of the building you occupy in conducting your business or a banking premises. Not covered would be the theft of money from a cash register located temporarily outside during a sidewalk sale.
b. Inside the premises losses also covers damage done to the exterior of your building during the actual or attempted theft. So if burglars break down the door, the door is covered. You must be the owner or liable for damages (i.e., because of your negligence or because of lease obligation).
c. Covers locked safes, vaults, cash registers, cash boxes and cash drawers that are inside the premises that are damaged during a theft or a theft attempt.
Inside the premises--robbery or safe burglary of other property
Coverage applies to robbery of a custodian and to safe burglary. Either must take place within the premises--inside the building itself. Robbery isn't theft. Robbery involves the threat of or actual bodily harm or is an obvious unlawful act witnessed by another person. A custodian is you or your members, partners or employees but is NOT a watchperson or janitor. Robberies during normal business hours are covered as well as robberies after hours that do not involve a watchperson or janitor. A person who normally works late and turns on the alarm before he/she leaves isn't a watchperson unless he/she was hired specifically to have custody of the property and has no other duties. A watchperson is the security guard who is hired to watch the inside of your premises.
Outside the premises
Under item a. above, theft disappearance and destruction of money and securities is covered while outside the premises and in the custody of a messenger or armored car company. Coverage includes theft or robbery. Also covered is the suitcase full of cash that bounces out of the back of the pickup truck, falls 120 feet into the river below and is never seen again.
On the other hand, item b. covers only the robbery of a messenger or other property while outside the premises and in the custody of a messenger or armored car company. Other property is property other than money or securities (i.e., stock and other personal property). Robbery requires the threat of bodily harm, or the messenger must actually witness an unlawful act. The crate of rare vases that bounces out of the truck and falls to the river below never to be seen again is not covered. If the vehicle is car-jacked and the crate is thrown into the river by the robber, there is coverage for the crate and its contents under item b. of this coverage.
In either case, a messenger is you, members, partners and employees. Employees do not include independent contractors (other than the armored car company), or leased employees or any agent or broker.
Computer fraud coverage
Computer fraud covers money, securities and other property. Computer fraud involves the use of any computer to fraudulently transfer covered property from your premises or a banking premises to somewhere else outside of your premises or a bank's. Coverage is worldwide, so fraudulent transfer of funds from your Swiss bank account (banking premises) to someone in the United States would be covered as would the person who breaks into your office (your premises) and uses your computer to transfer funds from your account into his/her Swiss bank account. Coverage applies when someone hacks into your computer from home (not your premises) and bypasses your firewall in order to tell your computer (your premises) to send money to the thief's personal bank account (not your banking premises).
Coverage applies to premises outside the United States. If your top sales person was in a hotel in Peking (where the employee was conducting business from a hotel room) and someone broke in and used the salesperson's laptop to transfer funds to his/her account, that too would be covered.
Money orders and counterfeit paper currency
Coverages have been broadened to include any currency--not just United States and Canadian. The money must have been accepted in good faith in exchange for goods, money or services. Also included are money orders that are not accepted upon presentation. While worldwide currency is covered, territory is not worldwide--only the United States, its territories, Puerto Rico and Canada are included.
Eight primary coverage forms and policy forms
While seven coverage grants (eight for government crime) have been combined into a primary form, the number of primary (CR 00) forms has proliferated. There are now four primary coverage (CR 00) forms for commercial crime and four for government crime. Commercial and government crime each have a discovery and a loss sustained form and a discovery and loss sustained policy. Forms are designed for inclusion into a CPP. Policies include the conditions sections necessary for a stand-alone policy. The eight primary (CR 00) forms are as follows:
* CR 00 20 Crime Coverage Form (Discovery Form)
* CR 00 21 Commercial Crime Coverage Form (Loss Sustained Form)
* CR 00 22 Commercial Crime Policy (Discovery Form)
* CR 00 23 Commercial Crime Policy (Loss Sustained Form)
* CR 00 24 Government Crime Coverage Form (Discovery Form)
* CR 00 25 Government Crime Coverage Form (Loss Sustained Form)
* CR 00 26 Government Crime Policy (Discovery Form)
* CR 00 27 Government Crime Policy (Loss Sustained Form)
A company also can purchase a stand-alone employee theft and forgery policy which includes only the employee theft and forgery and alteration coverages.
* CR 00 28 Employee Theft and Forgery Policy (Discovery Form)
* CR 00 29 Employee Theft and Forgery Policy (Loss Sustained Form)
Additional crime insurance agreements
Another change in the crime program is the ability to add additional crime insurance agreements to the primary crime
(CR 00) form. To get
extortion, you no longer need to issue a separate policy or section. Simply endorse the extortion insuring agreement to the policy. The following additional insuring agreements are available:
CR 04 01 Clients' Property. This coverage was previously not available on an ISO form. Clients' Property provides coverage against dishonest acts of employees while they are working at a client's premises. Candidates for coverage include janitorial services, millwrights, contractors, and home service or business service companies that send employees to clients' premises.
CR 04 02 Funds Transfer Fraud. This coverage also was previously not available on an ISO form. It pays for losses resulting from fraudulent instructions received by a financial institution to pay money from your transfer account to someone else.
CR 04 03 Extortion--Commercial Entities. Covers payments made in response to threats of bodily harm directed against you, employees, directors and these persons' relatives who are captured or allegedly captured. Threatened damage to your premises or property in your premises is also covered (e.g., we will shoot Mr. Jones if you don't pay us a cool million, or we will blow up your building unless you agree to charter a jet to get my family out of the country).
CR 04 04 Extortion--Government Entities. Covers payments made in response to threats of bodily harm directed against your officials, employees, or those persons' relatives who are captured or allegedly captured. Threatened damage to your premises or property in your premises is also covered (e.g., we will shoot Mayor Jones if you don't pay us a cool million, or we will blow up your state capitol building unless you agree to free prisoner Joe Smith and give him $2,000,000).
CR 04 05 Inside the Premises--Theft of Other Property. This coverage provides theft of other property from within your premises.
CR 04 06 Inside the Premises--Robbery or Burglary of Other Property. This coverage provides robbery of a watchperson and burglary of other property from within your premises.
CR 04 07 Inside the Premises--Robbery or Safe Burglary of Money and Securities. This covers the loss of money or securities, which is the result of robbery of a custodian or burglary of money and securities from within the premises or banking premises in a safe or vault as a result of safe burglary.
CR 04 08 Employee Theft--Name or Position Schedule. This coverage changes the commercial crime employee theft coverage to insure the employee theft losses of specific named individuals or specific positions or jobs. This coverage is similar to Employee Dishonesty Form B Name or Position coverage.
CR 04 09 Lessees of Safe Deposit Boxes. This coverage insures your (the insured's) property that is stored in a safe deposit box or vault inside a depository premises. The covered causes of loss are theft, burglary, robbery and vandalism.
CR 04 10 Securities Deposited With Others. Covers securities you own or for which you are legally liable while in transit to and from the custodian's premises, inside the custodian's premises and on deposit at the custodian's premises.
CR 04 11 Guests' Property. This coverage was previously not available on an ISO form. This coverage is designed for hotels and similar businesses. Coverage is for legal liability losses involving damage to guests' property and/or customer property while in safe deposit boxes, or inside the premises.
CR 04 12 Safe Depository. This coverage was also previously not available on an ISO form. This form can provide either or both of the following coverages:
1. Your legal liability if you are the safe depository.
2. Losses to customer property by robbery, burglary, destruction or damage.
New endorsements
All of the existing crime endorsements have new numbers. There are also a few new endorsements that include:
CR 20 04 Change Extended Period to Discover Loss. This increases the time period to discover the loss condition from 60 days to some new number. The change under this endorsement does not increase the one-year discovery period for employee benefit plan(s).
CR 25 04 Include Members of A Limited Liability Company as Employees. This endorsement includes members of an L.L.C. as employees and covers for theft. However, the insurance is limited. The loss caused by the insured member-employee must exceed the sum of any amounts you owe the member, the value of the member's interest on the day the loss is discovered and the deductible. In other words, a member who takes what he/she is entitled to from the L.L.C. is not considered a thief. However, if the member steals items that belong to other members and that value is greater than the deductible, the loss is paid.
CR 25 40 Include Expenses Incurred to Establish Amount of Covered Loss. This applies to either or both the employee theft and computer fraud insuring agreements. The computer fraud coverage in this endorsement does not apply when this agreement is attached to the employee theft and forgery policy. Coverage in this endorsement is for the payment of an accountant (or other person) to determine the amount of loss. Unlike other crime coverages and endorsements, this endorsement will pay the smaller of the limit of insurance shown on the schedule or the percent of loss shown on the schedule. Example: The limit is $30,000. The percentage of loss is 50%. The cost to hire accountants and forensic auditors is $15,000. This policy will pay 50% of the loss or $7,500. *
Crime Conversion Chart
| New Coverage | In Primary CR 00 Form or by endorsement | Commercial entities | Government entities | Replaces * | Covers | Changes in this edition |
| Employee theft per occurrence | Primary CR 00 Form or employee theft and forgery policy | Yes | Yes | Form A | Employee theft of money, securities and other property | Covers specifically described employee benefit plans |
| Employee theft per employee | Primary CR 00 Form | No | Yes | Employee dishonesty (B) position or schedule | Employee theft of money, securities and other property | Covers specifically described employee benefit plans |
| Forgery or alteration | Primary CR 00 Form | Yes | Yes | Form B | Forgery or alteration of checks cannot be by you, employees, managers, directors, trustees or representatives | No substantial changes |
| Inside the premises--theft of money and securities | Primary CR 00 Form | Yes | Yes | Section 1, Form C | Theft of money and securities from within premises | No substantial changes |
| Inside the premises--robbery or safe burglary of other property | Primary CR 00 Form | Yes | Yes | Section 1, Form D | Robbery of a custodian on premises or on-premises safe burglary--of other property only | No substantial changes to the coverages carved out |
| Outside the premises | Primary CR 00 Form | Yes | Yes | Section 2, Form C; Section 2, Form D; and Section 2, Form H | Theft, disappearance or destruction of money and securities outside the premises in custody of messenger; robbery of a messenger for other property | No substantial changes to the coverages carved out |
| Computer fraud | Primary CR 00 Form | Yes | Yes | Form F | Fraudulent transfer of money, securities and other property from inside premises to outside premises | Coverage is now worldwide |
| Money orders and counterfeit paper currency | Primary CR 00 Form | Yes | Yes | Form R | Accepting counterfeit currency | Covers any currency, but territory not worldwide |
| Client's property | By endorsement CR 04 01 | Yes | No | New | Coverage against dishonest acts of employees while they are working on a client's premises | N/A |
| Funds transfer fraud | By endorsement CR 04 02 | Yes | Yes | New | Pays for losses resulting from fraudulent instructions received by a financial institution to pay money from your transfer account to someone else | N/A |
| Extortion--commercial entities | By endorsement CR 04 03 | Yes | No | Form G | Extortion by injury threats to people and threats to damage property | * Extortion threats against property * Notification of FBI not required * Can expand territory beyond USA and Canada |
| Extortion--government entities | By endorsement CR 04 04 | No | Yes | Form G | Extortion by injury threats to people and threats to damage property | * Extortion threats against property * Notification of FBI not required * Can expand territory beyond USA and Canada |
| Inside the premises--theft of other property | By endorsement CR 04 05 | Yes | Yes | Section 1, Form H | Theft of other property from within premises | No substantial changes to the coverage carved out |
| Inside the premises--robbery or burglary of other property | By endorsement CR 04 06 | Yes | Yes | Elements of Form E | Robbery of a watchperson and burglary of other property from within the premises | No substantial changes to the coverage carved out |
| Inside the premises--robbery or safe burglary of money and securities | By endorsement CR 04 07 | Yes | Yes | Section 1, Form Q | Robbery of a custodian or burglary of money and securities within a vault or the premises | No substantial changes to the coverage carved out |
| Employee theft--name or position schedule | By endorsement CR 04 08 (or add to an employee theft and forgery policy) | Yes | No | Schedule or specific (B) employee dishonesty (Form B) | Employee theft on a named individual or position basis | Coverage concept is the same |
| Lessees of safe deposit boxes | By endorsement CR 04 09 | Yes | No | Elements of Form I | Property stored in a safe deposit box for theft, burglary, robbery and vandalism | No substantial changes to the coverages carved out |
| Securities deposited with others | By endorsement CR 04 10 | Yes | Yes | Form J | Owned securities and in your custody while in transit or inside custodian premises | No substantial changes |
| CR O4 11 | By endorsement CR 04 11 | Yes | No | New form but contains elements of forms K and L | Legal liability of guest property on premises | N/A |
| Safe depository | By endorsement CR 04 12 | Yes | No | New form but contains elements of forms M and N | Legal liability if you are the safe depository for customer property by burglary, robbery, destruction or damage | N/A |
The conversion chart shown above is designed to help you translate your existing customer crime programs using the "A-B-C" forms to the new ISO crime 2000 program. As no conversion chart can be complete, please review and compare your customer coverages as policies begin to renew into the new program.
*Previous crime program form names:
| A -- Employee Dishonesty B -- Forgery Or Alteration C -- Theft, Disappearance, Destruction D -- Robbery And Safe Burglary--Property Other Than Money And Securities E -- Premises Burglary F -- Computer Fraud G -- Extortion H -- Premises Theft And Robbery Outside The Premises I -- Lessees Of Safe Deposit Boxes | J -- Securities Deposited With Others K -- Liability For Guest Property--Safe Deposit Box Coverage Form L -- Liability For Guest Property--Premises Coverage Form M -- Safe Depository Liability N -- Safe Depository Direct Loss Coverage O -- Public Employee Dishonesty Per Loss P -- Public Employee Dishonesty Per Employee Q -- Robbery And Safe Burglary, Money And Securities R -- Money Orders And Counterfeit Currency |