In order for a commercial crime loss to be covered under a discovery form, the loss must:

Q: What is a loss discovered form?

• Under a loss discovered” form, coverage applies to loss that is discovered during the policy period regardless of when the act/ loss took place, which makes these forms preferable. • Under a loss sustained” form, coverage applies when a loss is actually sustained.

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Crime Insurance: Discovery or Loss Sustained?
1998 ISO COMMERCIAL CRIME REVISIONS
By Diana Kowatch, CPCU, AU, AAM, CPIW
Which of the following losses will be covered by commercial crime policy?
Which Cause of Loss form is used by the commercial crime policy?
What is a loss discovered form?
What is Commercial crime Coverage form?
What is a discovery form in insurance?
Which of the following losses could be covered by the inside the premises theft of money and securities insuring agreement under a commercial crime policy?

Crime Insurance: Discovery or Loss Sustained?

Protect Yourself Against Illegal Acts with Crime Insurance

While standard property and inland marine insurance policies provide some protection from criminal acts, oftentimes they do not cover losses resulting from employee dishonesty. Crime insurance was developed to deal with the limitations of other policies and extend protection to include the fraudulent activities of employees. Standard policies cover such employee actions as:

• Theft

• Safe burglaries

• Embezzlement

• Forgery

• Computer fraud

• Credit card fraud

• Counterfeiting

Discovery or Loss Sustained
Crime insurance can be written as one of two forms: discovery or loss sustained. While the loss-sustained form was the popular choice in the past, ISO restructuring of the commercial crime program has made discovery more appealing.

Using the loss sustained form, losses occurring during the policy period that are discovered during the period or within one year of its expiration are covered. Normally claims are covered by the policy in force when the loss occurred. However, if the policy in force when the loss occurred has expired and coverage has been continuously maintained since then, the current policy can be used to pay out at a reduced amount.

In basic terms, the discovery form covers losses upon discovery. The loss itself could happen at any time, but as long as it is first discovered during the active policy period it is covered. If coverage is not renewed it has a 60-day tail. When considering the discovery form, look for policies without a retroactive date endorsement. Some discovery policies use such endorsements to eliminate responsibilities for losses that occurred before a certain date, even if they are first discovered during the policy period.

You may feel that your employees would never steal from you or that your business would never be the victim of theft, but the harsh reality is that nearly every business is eventually victimized by fraud or theft. In this day and age, thieves (including your employees) do not need direct access to cash to steal from you; merchandise, supplies and securities are all fair game. You may also be susceptible to losses in the event that finished products or even raw materials are stolen right from under your nose. Essentially, any product can be a target for thieves if there is an opportunity to make a resale profit.

1998 ISO COMMERCIAL CRIME REVISIONS

ISO introduces discovery-based crime policy

By Diana Kowatch, CPCU, AU, AAM, CPIW

During the past few years, the Surety Association of America (SAA), has been developing alternative approaches to the claims handling of crime losses. This has resulted in the filing of discovery-based forms in addition to the existing loss sustained forms.

Because the SAA fidelity forms are the basis for the Employee Dishonesty and Forgery coverages found in the current ISO Commercial Crime Program, ISO had to work out revisions to the Commercial Crime Program in order to be compatible.

As a result, ISO's Commercial Crime Program now offers options for the treatment of loss on both a discovery basis or a loss sustained basis in its Commercial Crime Program.

These changes show an April 1997 edition date on the Crime forms; but state approvals have only recently been received, with the first group of states approving with a May 1, 1998, date.

Discovery basis

By way of explanation, the discovery basis approach provides for payment of losses that have been discovered during the policy period but that were not necessarily sustained during that particular policy period (an approach similar to claims-made liability).

A retroactive date is necessary to avoid overlap with previous loss sustained coverage. Working the same as its general liability counterpart, the retroactive date is the cut-off date for discovery basis losses. No losses that actually occurred prior to the retroactive date are covered by the existing policy, regardless of when they are reported. If no retroactive date has been shown in the Declarations, the policy effective date becomes the retroactive date by default.

The discovery version of the Crime General Provisions form contains the following important clause:

"Discovery of Loss:Discovery of loss occurs when you first become aware of facts which would cause a reasonable person to assume that a loss covered by this insurance has been or will be incurred, even though the exact amount or details of loss may not then be known."

What this means is that if any circumstance arises or information comes to light that may eventually result in a claim, the insured must contact the insurer with as much information as has been discovered. Even if that information is not complete, whether or not an actual claim has been filed, the insured must notify the insurer of the potential loss.

The insured has up to 60 days from the end of the policy period or termination of coverage to discover a loss that was sustained during the coverage period. If coverage is replaced by similar insurance any time during the extension period, the 60-day extension ends.

Loss sustained basis

The loss sustained policy basis simply covers only those losses that were both sustained and discovered within the policy period or that are sustained during the policy period and are discovered within one year of the end of that policy period. It works in a manner very similar to the occurrence-based general liability form and is the coverage basis that has previously been provided by ISO Commercial Crime forms up to this point.

TIME LINE FOR COVERAGE TRIGGER ON A LOSS SUSTAINED POLICY

Example 1

Policy Inception 1-1-1998

Policy Expiration 1-1-1999

Claim Filed 9-1-1999

Date of Loss 8-1-1998

The claim filed on 9-1-1999 for the injury that occurred on 8-1-1998, is covered by a loss sustained policy effective 1-1-1998 to 1-1-1999.

The date of loss must be within the policy period, and the claim must be filed within one year of policy expiration to be covered. Had the claim been filed on 9-1-2000 (over a year from policy expiration), there would have been no coverage.

TIME LINE FOR COVERAGE TRIGGER ON DISCOVERY BASIS POLICY

Example 2

Retroactive Date 1-1-1997

Policy Inception 1-1-1998

Policy Expiration 1-1-1999

Claim Filed 9-1-1999

Date of Loss 8-1-1998

However, in the same example, there is no coverage in the discovery basis policy as the claim must be after the retroactive date, and the claim must be filed during the policy period or within 60 days after expiration.

Example 3

Retroactive Date 1-1-1997

Policy Inception 1-1-1998

Policy Expiration 1-1-1999

Claim Filed 2-1-1999

Date of Loss 8-1-1998

Coverage would apply in this case under a discovery basis policy. The loss occurred after the retroactive date, and the claim was filed within 60 days of the covered policy period.

New and changed forms

Let's take a quick look at the changes in forms in the program revisions.

The title of existing Form CR 10 00--Crime General Provisions has been changed to Crime General Provisions (Loss Sustained Form). There have been other changes in the loss sustained form, such as the time given for automatic coverage on newly acquired entities obtained through consolidation or merger. This has been increased to 60 days. However, the insured must notify the insurer in writing within 60 days, as well as pay additional premium for the cover to extend to the new entity past 60 days.

In another change, the provision for the Discovery Period for Loss has been renamed to Extended Period to Discover Loss. Finally, the definition of employee in the general Definitions section of the policy has been revised to include employees used as short-term substitutes for other employees on leave to meet seasonal or short-term workload condition; but leased employees are not included.

A new form has been developed, CR 11 00--Crime General Provisions (Discovery Form), to provide the discovery basis coverage and include all of the above mentioned revisions.

Similarly, the title of existing Form CR 50 01--Policy Change has been changed to Policy Change (Loss Sustained Form). A new form has been developed, CR 50 09--Policy Change (Discovery Form).

In another change, a new endorsement has been developed (CR 50 10--Include Leased Workers As Employees) to treat leased workers as covered employees. It is designed for those employees insured by labor leasing firms other than persons hired only to meet seasonal or short-term workload conditions.

Other new endorsements that have been developed include:

CR 50 05--Policy Bridge; Discovery Replacing Loss Sustained, a new endorsement designed to bridge the coverage gap that may occur when a loss sustained policy is replaced by a discovery policy.

CR 50 06--Include Retroactive Date For Named Insured allows for a different retroactive date to be set for the named insured only.

CR 50 07--Include Retroactive Date For Specified Joint Insured allows for a different retroactive date to be set for a specified joint insured.

CR 50 08--Include Retroactive Date For An Entity Acquired through Consolidation Or Merger allows for a different retroactive date to be set for an acquired entity. *

The author

Diana Kowatch, CPCU, AU, AAM, CPIW, with over 20 years' experience in the insurance industry, is editor in chief of Rough Notes' Technical & Educational Products.

Which of the following losses will be covered by commercial crime policy?

Commercial crime insurance provides protection from financial losses related to business-related crime, including theft by employees, forgery, robbery, and electronic crime.

Which Cause of Loss form is used by the commercial crime policy?

Historically, commercial crime insurance was written on a loss sustained basis and not until the late 1990's did the Surety Association/ISO provide an alternative with the discovery basis form that historically was used to provide crime insurance for financial institutions.

What is a loss discovered form?

• Under a “loss discovered” form, coverage applies to loss that is discovered during the policy period regardless of when the act/ loss took place, which makes these forms preferable. • Under a “loss sustained” form, coverage applies when a loss is actually sustained.

What is Commercial crime Coverage form?

Definition of commercial crime coverage form. type of commercial insurance that provides coverage for the business under the following policy forms: Form A-employee dishonesty involving money, securities, and other properties and may be written on a blanket insurance or scheduled policy basis.

What is a discovery form in insurance?

In basic terms, the discovery form covers losses upon discovery. The loss itself could happen at any time, but as long as it is first discovered during the active policy period it is covered. If coverage is not renewed it has a 60-day tail.

Which of the following losses could be covered by the inside the premises theft of money and securities insuring agreement under a commercial crime policy?

The Inside The Premises Theft of Money and Securities insuring agreement provides coverage for theft, disappearance, or destruction of money and securities inside the insured's premises, damage to the insured's premises when caused by an attempted or actual theft, and loss or damage to a locked safe, vault, cash ...