CHAPTER 9: COMMERCIAL CRIME INSURANCE Let’s Begin… Crime Insurance Crime insurance provides a vital form of protection for business organizations—and individuals. Modern society suffers from a serious crime rate, and many felonious acts involve the theft of money, securities, or other property. While insurance cannot eliminate the problem—and may, in some instances, even contribute to it—coverage can protect policyholders against financial losses resulting from the dishonest acts of others. Criminals have grown more sophisticated and there is no way to fully safeguard property from thieves. Before accepting a risk, underwriters may require the installation of new locks, alarms, and other security devices. But not all theft losses involve breaking and entering, or confrontations with armed criminals. Some losses are more difficult to control. Certain crimes are not easily detected when they occur—particularly when committed by someone having access to a premises or charged with handling money. Commercial crime coverages may be written as a monoline policy or as part of a commercial package policy. One of the unique things about the commercial crime program is that jurisdiction is jointly shared by ISO and the Surety Association of America (SAA). Four of the coverages are written on SAA forms rather than ISO forms, but SAA and ISO forms may be attached to the same policy. 9-1 Most of the different crime coverage forms must be accompanied by a Crime General Provisions Form; this is the document that contains the general crime policy exclusions, conditions, and definitions. Each specific Crime Coverage Form contains additional exclusions, conditions, and definitions as well as other coverage specific information. There are 17 major coverage forms in the program, which may be combined in different ways under any of 10 coverage plans which are currently available. Each of the coverage forms in the program is designated by a letter. The names of the available coverage forms are: Form A—Employee dishonesty (blanket or schedule options), Form B—Forgery or alteration, Form C—Theft, disappearance and destruction, Form D—Robbery and safe burglary (property other than money and securities), Form E—Premises burglary, Form F—Computer fraud, Form G—Extortion, Form H—Premises theft and robbery outside premises (property other than money and securities), Form I—Lessees of safe deposit boxes, Form J—Securities deposited with others, Form K—Liability for guests’ property—safe deposit box, Form L—Liability for guests’ property—premises, Form M—Safe depository liability, Form N—Safe depository direct loss, Form O—Public employees dishonesty—per loss, Form P—Public employees dishonesty—per employee, and Form Q—Robbery and safe burglary—money and securities. After looking at the main policy conditions, provisions and endorsements, we will consider Forms C and A, respectively. Forms D and E—which we won’t consider in depth here—are also applicable to almost any business. The other forms are for more specialized uses. Any combination of the available crime forms included in the same policy completes what is known as a Commercial Crime Coverage Part. The same coverage forms are used to construct monoline policies (consisting only of crime coverages) and package policies (consisting of crime coverages combined with other commercial coverages). 9-2 Conditions The Crime General Provisions are attached to every policy that includes crime coverages, regardless of whether it is a monoline or package policy. These provisions apply to all crime coverages which are part of the policy, and apply only to the crime coverage part. Having a separate form for general provisions reduces redundancy by eliminating the need to attach the same provisions to each coverage form. Many conditions applicable to crime forms are similar to those found on other commercial forms. Various conditions describe the policy period, policy territory, your duty to keep records, terms for legal actions against the insurance company, treatment of loss when other insurance applies (commercial crime coverage will apply as excess), and the insurance company’s subrogation rights when losses are paid. Key provisions which have a more specific application to the crime coverages are reviewed below. Discovery Period Crime coverages are subject to a “discovery period,” because losses are not always immediately apparent, but a limitation applies. In order for a loss to be covered, it must be discovered no later than one year after the end of the policy period. Example: An employee embezzles funds during the policy period, which ends on December 31, 1994. If the employer has employee dishonesty insurance, the loss will be covered if discovered before the end of 1995. There is no coverage if discovered at a later date. Synopsis Discovery Period for Loss: We will pay only for covered loss discovered no later than one year from the end of the policy period. Insured’s Duties After Loss In the event of loss, your duties include notifying the insurance company as soon as possible, submitting to an examination under oath and signing a statement of the answers given, providing a sworn proof of loss within 120 days, and cooperating with the investigation and settlement of claims. Combined with the one-year discovery period, the 120-day reporting period gives you up to sixteen months from the time of loss to provide official notification that a crime has occurred. Of course, the insurance company would prefer to know a crime loss has occurred immediately. In many cases, the company will want to know a crime loss has occurred even if you don’t intend to file a claim. Although the general provisions do not say so, most of the individual forms add a requirement that you also notify the police. Synopsis Duties in the Event of Loss: After you discover a loss or a situation that may result in loss of, or loss from damage to, Covered Property you must: a. Notify us as soon as possible. b. Submit to examination under oath at our request and give us a signed statement of your answers. c. Give us a detailed, sworn proof of loss within 120 days. d. Cooperate with us in the investigation and settlement of any claim. 9-3 More Than One Insured This section clarifies the intent of the policy when there are multiple “insureds.” The policy refers to the “first named insured” because commercial policies frequently have more than one named insured, due to subsidiary and affiliated companies being covered. Under the policy, the first named insured acts for all insured parties. For the purposes of the insurance, knowledge of any insured person (or partner or officer) is treated as knowledge by all insured parties, and an employee of any insured is treated as an employee of every insured person. Cancellation of coverage for any insured establishes a loss discovery period of one year from the date of cancellation. Losses suffered by multiple insured parties do not increase the amount of insurance. The most the insurance company will pay is the amount that it would pay if all losses were suffered by one insured. Synopsis Joint Insured a. If more than one Insured is named in the DECLARATIONS, the first named Insured will act for itself and for every other Insured for all purposes of this insurance. If the first named Insured ceases to be covered, then the next named Insured will become the first named Insured. b. If any Insured or partner or officer of that Insured has knowledge of any information relevant to this insurance, that knowledge is considered knowledge of every Insured. c. An “employee” of any Insured is considered to be an “employee” of every Insured. d. If this insurance or any of its coverages is cancelled or terminated as to any Insured, loss sustained by that Insured is covered only if discovered no later than one year from the date of that cancellation or termination. e. We will not pay more for loss sustained by more than one Insured than the amount we would pay if all the loss had been sustained by one Insured. 9-4 Legal Action Against the Company You may not sue the insurance company to recover for a loss unless all policy provisions have been satisfied and proof of loss has been filed for at least 90 days. No suit may be brought more than two years after a loss is discovered. Synopsis Legal Action Against Us: You may not bring any legal action against us involving loss: a. Unless you have complied with all the terms of this insurance; and b. Until 90 days after you have filed proof of loss with us; and c. Unless brought within 2 years from the date you discover the loss. Two or More Coverages If two or more coverages apply to the same loss, the insurance company will pay the lesser of the actual amount of loss or the total of the applicable limits of coverages. Synopsis Loss Covered Under More Than One Coverage of This Insurance: If two or more coverages of this insurance apply to the same loss, we will pay the lesser of: a. The actual amount of loss; or b. The sum of the limits of insurance applicable to those coverages. 9-5 Prior Insurance Under certain conditions, the insurance company will pay under the current policy for a loss that occurred under prior insurance when the loss could have been recovered except for expiration of the discovery period under the prior insurance. This applies only when the current policy took effect on the date the prior policy terminated and the same type of loss is covered by the current policy. This feature provides seamless coverage across time, as long a crime policy is renewed immediately upon expiration.