Commercial property forms exclude dishonesty by employees and do not cover money and securities, so businesses buy commercial crime coverage for theft, fraud and forgery. Exams follow ISO's 2015 crime program: the Commercial Crime Coverage Form on a loss sustained basis (CR 00 21) or discovery basis (CR 00 20), the matching policy forms (CR 00 23, CR 00 22) and the Government Crime forms for public entities. This guide covers the insuring agreements, the definitions exams like to test, the conditions, and the fidelity bonds that sit alongside crime insurance.

Loss sustained vs. discovery

• Loss sustained form: covers loss that occurs during the policy period and is discovered no later than one year after the policy ends.
• Discovery form: covers loss discovered during the policy period (or within 60 days after cancellation or expiration), no matter when it happened, subject to any retroactive date.
• The difference matters when a business changes insurers: a long-running embezzlement found next year falls under the old loss sustained policy only if discovered within that year, and under a new discovery policy if found during its term.

The seven insuring agreements

1. Employee Theft: loss of money, securities and other property from theft by an employee, alone or in collusion with others. This is the most important and most commonly bought agreement.
2. Forgery or Alteration: forged or altered checks, drafts, promissory notes and similar instruments drawn by or on the insured's accounts.
3. Inside the Premises - Theft of Money and Securities: theft, disappearance or destruction of money and securities inside the premises or a banking premises, plus damage to the premises, safes and vaults from an actual or attempted theft.
4. Inside the Premises - Robbery or Safe Burglary of Other Property: other property (not money or securities) inside the premises, but only for actual or attempted robbery of a custodian or safe burglary. Ordinary shoplifting is not covered.
5. Outside the Premises: money, securities and other property outside the premises while in the care of a messenger or an armored motor vehicle company.
6. Computer and Funds Transfer Fraud:
   • Computer fraud: use of a computer to fraudulently transfer money, securities or other property from the premises or banking premises to someone outside.
   • Funds transfer fraud: a fraudulent instruction (electronic, telegraphic or written, other than forgery) directing a financial institution to pay from the insured's account without the insured's knowledge.
7. Money Orders and Counterfeit Money: money orders that are not paid and counterfeit currency accepted in good faith in exchange for goods or services.

Optional coverages include Clients' Property (theft by the insured's employee of a client's property).

Definitions to know

Exam tips: a clerk threatened at gunpoint is robbery; a safe pried open overnight is safe burglary; property simply missing with no explanation is not robbery or burglary.

Exclusions

• Acts committed by you, your partners or your members, alone or in collusion. Crime insurance protects the business against others' dishonesty, not its owners'.
• Employee Theft: loss proved solely by inventory computations or a profit and loss comparison (inventory shortages); the records can support the amount once a loss is otherwise proved. Also excluded: theft by an employee the insured already knew was dishonest before the policy, trading losses and warehouse receipts in some cases.
• Inside and Outside the Premises: voluntary parting with title or possession because of a fraudulent scheme or trick (for example, an employee tricked by a fake vendor into handing over cash). Coverage for this social engineering exposure is sold by endorsement.
• Indirect loss (lost income, interest), legal fees and expenses, governmental action, nuclear hazard and war.

Key conditions

• Termination as to any employee: coverage for an employee ends as soon as the insured (or a partner, officer or member not in collusion) learns of any theft or dishonest act by that employee, whether before or during the policy.
• Territory: losses within the U.S., its territories and possessions, Puerto Rico and Canada; Employee Theft also covers an employee temporarily outside that territory for up to 90 consecutive days.
• Valuation: money at face value; securities at their value at the close of business on the day the loss is discovered (or the cost to replace them); other property at replacement cost, subject to conditions.
• Joint insured: the first named insured acts for all insureds; knowledge of one insured's partner or officer is knowledge of all.
• Employee benefit plans: a plan included as an insured under Employee Theft to meet ERISA bonding has no deductible applied to its losses.

Fidelity and ERISA bonds

• A fidelity bond is the bond equivalent of employee theft coverage. A name schedule bond lists individuals with an amount for each; a position schedule bond covers whoever holds listed positions (cashier, treasurer); a blanket bond covers all officers and employees without a list. A commercial blanket bond has one aggregate penalty per loss; a blanket position bond applies a uniform amount to each person involved (29 CFR 2580.412-10).
• ERISA section 412 (29 U.S.C. 1112) requires every fiduciary and person who handles funds of an employee benefit plan to be bonded for at least 10% of the funds handled, minimum $1,000, maximum $500,000 ($1,000,000 for plans holding employer securities).
• Government Crime forms (such as CR 00 26) serve public entities and can include faithful performance of duty by employees.

Common traps

• Robbery needs a person (custodian or messenger) and force, threat or a witnessed unlawful act; safe burglary needs marks of forcible entry.
• Money and securities are covered "inside" for theft, disappearance and destruction; other property inside only for robbery or safe burglary.
• Inventory shortages alone do not prove employee theft.
• Discovery form = when found; loss sustained form = when it happened (and found within a year).
• Theft by the owner or a partner is never covered.
• Voluntary parting (social engineering) is excluded unless endorsed.