1. Forms
2. CR
3. CR-00-03

What the Form Is

The CR 00 03, often referred to as Forgery or Alteration Form B, is an insuring agreement within commercial crime insurance policies. Its primary purpose is to indemnify the insured business for financial losses resulting directly from the forgery or alteration of the insured's outgoing financial instruments. These instruments typically include checks, drafts, promissory notes, or similar written promises, orders, or directions to pay a specified sum of money. The coverage applies to instruments that are made or drawn by the insured, drawn upon the insured's accounts, or made or drawn by an individual acting as the insured's agent. A key feature of this coverage is that it may also pay for reasonable legal expenses incurred by the insured if they are sued for refusing to honor a financial instrument believed to be forged or altered, provided the insurance company gives prior written consent to defend against the suit. These legal expenses are typically covered in addition to the limit of insurance.

Classes of Business It Applies To

Forgery or Alteration coverage is relevant and beneficial for a wide array of commercial entities, regardless of industry, that issue checks or other negotiable instruments as part of their operations. Any business that maintains checking or savings accounts and makes payments via such instruments is exposed to the risk of external forgery or alteration. Examples include:

• Retail businesses
• Manufacturing companies
• Wholesalers and distributors
• Service-based industries (e.g., consulting firms, repair services)
• Healthcare providers
• Non-profit organizations
• Restaurants and hospitality businesses

Essentially, any organization that could suffer financial loss if its checks or other payment orders were forged or altered by a third party should consider this coverage.

Special Considerations

• Third-Party Acts: This coverage is specifically designed for forgery or alteration committed by external third parties. Losses arising from forgery or alteration committed by the insured's own employees, managers, directors, trustees, or representatives are typically excluded under this insuring agreement, as such acts are intended to be covered under an Employee Theft or Employee Dishonesty insuring agreement.
• Outgoing Instruments: The focus is on instruments issued by the insured. It generally does not cover losses from accepting forged or altered instruments from customers or other external parties (e.g., a customer paying with a forged check).
• Check 21 Compliance: The form typically acknowledges and provides coverage for "substitute checks" as defined in the Check Clearing for the 21st Century Act (Check 21 Act), treating them the same as the original checks they replace.
• Deductible and Limits: Losses are subject to a deductible, and the policy will have a specific limit of insurance for Forgery or Alteration coverage. The limit is usually on a per-occurrence basis.
• Notice Requirements: The insured is generally required to provide prompt notice to the insurer upon discovery of any loss, or situation that could lead to a loss, even if the amount is below the deductible.
• Part of a Larger Policy: CR 00 03 is an insuring agreement that is typically included in a broader Commercial Crime Coverage Form (e.g., CR 00 21, CR 00 22) or a specialized policy like an Employee Theft and Forgery Policy (e.g., CR 00 28).

Key Information for Agents and Underwriters

• Risk Assessment: Underwriters should evaluate the applicant's internal controls related to check issuance, storage of blank check stock, access to check-signing machines or software, and bank account reconciliation procedures. The volume of checks issued and the average and maximum check amounts can also be relevant.
• Pricing Factors: Premiums are influenced by the selected limit of insurance, the deductible amount, the nature of the insured's business, and potentially their loss history and strength of internal controls.
• Coverage Gaps Awareness: Agents should ensure clients understand that CR 00 03 does not cover employee acts of forgery (which requires Employee Theft coverage) or losses from counterfeit currency or money orders (which would require a separate insuring agreement).
• Underwriting Guidelines: A review of prior forgery-related losses is crucial. Positive underwriting factors include segregation of duties in the accounts payable process, use of positive pay services with banks, secure storage of checks, and regular, independent bank reconciliations.
• Policy Structure: It's important to remember that the terms, conditions, definitions, and exclusions contained within the main Commercial Crime policy document and any general provisions forms will apply to and may modify the coverage provided by the CR 00 03 insuring agreement.
• Legal Defense Provision: The provision for covering legal expenses if the insured is sued for refusing to pay a forged instrument is a valuable part of the coverage, but it is contingent on the insurer's written consent to defend.