Commercial Crime Insurance Good things you should know

Commercial Crime Insurance Good things you should know… • The webinar will begin shortly. • There is no audio at this time. • This presentation is being recorded for your viewing pleasure at a future date. • The attendance and proctor forms are available under ‘Materials’ in the Webinar’s Console to the right. • The Power. Point presentation is also available under ‘Materials’. • You will receive the course number for your state near the end of class. • Use the ‘chat’ window for questions on the content. www. Insurance. Community. University. com.

Your Instructor Today Marjorie L. Segale, AFIS, CISC, RPLU, CIC, CRIS, ACSR, CISR Insurance Community Center, LLC Director of Education marjorie@insurancecommunitycenter. com 714. 206. 9583 www. Insurance. Community. University. com. 2

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. www. Insurance. Community. University. com. 3

Crime Background www. Insurance. Community. University. com. 4

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. www. Insurance. Community. University. com. 5

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. www. Insurance. Community. University. com. 6

Ways to write Crime Insurance www. Insurance. Community. University. com. 7

Ways to write crime insurance Monoline § 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. www. Insurance. Community. University. com. 8

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. www. Insurance. Community. University. com. 9

Ways to write crime insurance Part 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 www. Insurance. Community. University. com. 10

Coverage Format www. Insurance. Community. University. com. 11

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) www. Insurance. Community. University. com. 12

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 www. Insurance. Community. University. com. 13

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 www. Insurance. Community. University. com. 14

Selected Commercial Crime Coverage Form Definitions: 15 www. Insurance. Community. University. com.

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. 3. 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 www. Insurance. Community. University. com. 16

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 www. Insurance. Community. University. com. 17

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 ACV, cost to repair or cost to 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 www. Insurance. Community. University. com. 18

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". www. Insurance. Community. University. com. 19

Theft • The unlawful taking of property to the deprivation of the Insured www. Insurance. Community. University. com. 20

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 www. Insurance. Community. University. com. 21

Commercial Crime Coverage Forms Discovery Form (CR 00 20) Coverage for loss occurring at any time This form is more and discovered by the commonly issued than named insured during the Loss Sustained the policy period or the Form CR 00 21 Extended Period to Discover Loss www. Insurance. Community. University. com. 22

Commercial Crime Coverage Forms 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 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. : www. Insurance. Community. University. com. 23

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 The Loss Sustained during Prior Insurance Condition allows the current policy to cover a loss occurring prior to the policy period under certain circumstances. www. Insurance. Community. University. com. 24

Commercial Crime Coverage Forms 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. : www. Insurance. Community. University. com. 25

Commercial Crime Insuring Agreements 26 www. Insurance. Community. University. com.

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. www. Insurance. Community. University. com. 27

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. For the purposes of this Insuring Agreement, a substitute check as defined in the Check Clearing for the 21 st 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. www. Insurance. Community. University. com. 28

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. www. Insurance. Community. University. com. 29

Commercial Crime Insuring Agreements 30 www. Insurance. Community. University. com.

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". www. Insurance. Community. University. com. 31

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". www. Insurance. Community. University. com. 32

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". www. Insurance. Community. University. com. 33

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 www. Insurance. Community. University. com. 34

Exclusions That Apply to All Insuring Agreements § § § Indirect Loss Legal Fees, Costs and Expenses Nuclear Hazard Pollution War and Military Actions www. Insurance. Community. University. com. 35

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 § Warehouse Receipts § Inside and Outside Premises Exclusions § Accounting Or Arithmetical Errors Or Omissions www. Insurance. Community. University. com 36. § Exchanges Or Purchases

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 www. Insurance. Community. University. com. 37

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 www. Insurance. Community. University. com. 38

Conditions Applicable to All Insuring Agreements 39 www. Insurance. Community. University. com.

Additional Premises or Employees § Automatically covered for policy period § Does not apply if acquired through consolidation, merger or acquisition of assets or liabilities www. Insurance. Community. University. com. 40

§ 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 www. Insurance. Community. University. com. 41

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 www. Insurance. Community. University. com. 42

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 www. Insurance. Community. University. com. 43

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 www. Insurance. Community. University. com. 44

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 www. Insurance. Community. University. com. 45

§ Legal Action Against Us § Liberalization § Broadened coverage applies if no additional premium if expanded within 45 days of inception or during the policy period www. Insurance. Community. University. com. 46

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 www. Insurance. Community. University. com. 47

§ 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 www. Insurance. Community. University. com. 48

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 www. Insurance. Community. University. com. 49

§ 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 www. Insurance. Community. University. com. 50

§ Territory § USA, including territories and possessions § Puerto Rico § Canada § Transfer Of Your Rights Of Recovery Against Others To Us § No waiver of subrogation allowed www. Insurance. Community. University. com. 51

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 www. Insurance. Community. University. com. 52

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 www. Insurance. Community. University. com. 53

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 www. Insurance. Community. University. com. 54

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 www. Insurance. Community. University. com. 55

Common Endorsements 56 www. Insurance. Community. University. com.

Name: Add Credit, Debit or Number: CR 25 Charge Card Forgery 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 forgery of the defined documents www. Insurance. Community. University. com. 57

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 www. Insurance. Community. University. com. 58

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 forgery and not theft (this other endorsement has a lower premium charge) www. Insurance. Community. University. com. 59

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 www. Insurance. Community. University. com. 60

Name: Employee Theft Name Number: CR 04 or Position Schedule 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 www. Insurance. Community. University. com. 61

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 www. Insurance. Community. University. com. 62

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 www. Insurance. Community. University. com. 63

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 www. Insurance. Community. University. com. 64

Name: Include Specified Non- Number: CR 25 Compensated Officers as 08 Employees 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 www. Insurance. Community. University. com. 65

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 www. Insurance. Community. University. com. 66

Name: Include Volunteer Number: CR 25 09 Workers as Employees 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 www. Insurance. Community. University. com. 67

NAME: Include Volunteer Number: CR 25 10 Workers Other Than Fund Solicitors As Employees 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 www. Insurance. Community. University. com. 68

Background on Surety Bonds www. Insurance. Community. University. com. 69

Background § Suretyship has existed in various forms for thousands of years. § References appear in the Old Testament to bonding. § Personal suretyship, the testimony of one individual on behalf of another, was a prevailing form of bonding for many years. § Corporate fidelity bonds were provided in England circa 1720 to masters against dishonesty of their servants. www. Insurance. Community. University. com. 70

Disclaimer • Insurance forms and endorsements vary based on insurance company; changes in edition dates; regulations; court decisions; and state jurisdiction. The instructional materials provided by The Insurance Community Center and its authors is intended as a general guideline and any interpretations provided by The Community do not modify or revise insurance policy language. • Information which is copyrighted and proprietary to Insurance Services Office, Inc. (“ISO Material”) is included in this publication. Use of the ISO Material is limited to ISO Participating Insurers and their Authorized Representatives. Use by ISO Participating Insurers is limited to use in those jurisdictions for which the insurer has an appropriate participation with ISO. Use of the ISO Material by Authorized Representatives is limited to use solely on behalf of one or more ISO Participating Insurers. • The authors of these materials, Insight Insurance Consulting and The Insurance Community Center assumes 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. Insight Insurance Consulting 714 803 -5830 laurie@insightinsuranceconsulting. com www. insurancecommunity. com Copyright 2010 All Rights Reserved www. Insurance. Community. University. com. 71