Form CR 00 25: Government Crime Coverage Form (Loss Sustained Form)
1. What the form is
The CR 00 25, Government Crime Coverage Form (Loss Sustained Form), is an insurance policy form designed specifically for governmental entities. Its primary purpose is to provide coverage for financial losses resulting from various criminal acts. This form operates on a "loss sustained" basis. This means it covers losses that were both sustained (occurred) and discovered during the policy period. It can also cover losses that occurred during the policy period but are discovered within a specified timeframe after the policy expires, typically one year. Furthermore, it may cover losses that occurred during a prior policy period, provided there has been continuous crime insurance coverage in place since the time of the loss and the loss would have been covered by both the prior and current policies. The form includes several insuring agreements tailored to the unique exposures of public entities. Coverage is activated for specific insuring agreements only if a limit of insurance is shown for them in the policy declarations.
2. Classes of business it applies to
This form is exclusively for governmental entities. This can include a wide range of public organizations, such as:
- State agencies and departments (e.g., Department of Motor Vehicles, State Treasury).
- Local governments (e.g., cities, counties, townships).
- Public school districts and universities.
- Special purpose districts (e.g., water districts, park districts).
- Courts and law enforcement agencies.
For example, if a county treasurer's office discovers that an employee has been embezzling funds over the past two years, and the CR 00 25 was in place during that time, this form would respond to the loss, subject to its terms and conditions. Similarly, if a public university discovers that an employee colluded with an outside vendor to submit fraudulent invoices, this form could provide coverage.
3. Special considerations
Several important points differentiate this form and require careful consideration:
- Loss Sustained Basis: Understanding the "loss sustained" trigger is crucial. Unlike "discovery" forms which cover losses discovered during the policy period regardless of when they occurred, the CR 00 25 requires the loss to be sustained during the policy period (or a prior policy period with continuous coverage) and discovered during the policy period or the extended discovery period (typically one year after expiration). This makes maintaining continuous coverage essential to avoid gaps. Switching between loss sustained and discovery forms should be avoided if possible.
- Governmental Focus: The definitions and insuring agreements are tailored for public entities. For instance, the definition of "employee" includes "officials" and may differ from commercial crime forms. It also offers options like Employee Theft coverage on a "per employee" basis in addition to a "per loss" basis, which is unique to government forms. The "per employee" option means the full limit is available for each employee involved in a collusive dishonest act.
- Prior Insurance: The form contains provisions (Conditions E.1.k. and E.1.l. in some versions) that address how losses sustained during prior insurance periods are handled, reinforcing the occurrence-like nature of the coverage when continuous insurance has been maintained.
- Exclusions: Standard crime policy exclusions will apply, such as losses resulting from acts committed by the insured entity itself (including its partners or members), acts of employees known by the insured to have a history of dishonesty before the policy was obtained (unless covered under Employee Theft), and losses from governmental actions like property seizure. Losses that are an indirect result of an occurrence, such as inability to realize income, are also typically excluded. The form also generally excludes coverage for loss caused by bonded employees, treasurers, or tax collectors, though endorsements may be available to modify this.
- Territory: Government crime forms typically limit the coverage territory to the United States and may not automatically include Canada, unlike some commercial forms.
- ERISA Considerations: Provisions related to employee benefit plans may differ from commercial forms due to the ERISA exemption for governmental agencies. However, if a governmental entity has plans subject to ERISA, specific endorsements or coverage elections might be necessary.
- Faithful Performance of Duty: Endorsements can be added to provide coverage for losses arising from an employee's failure to faithfully perform their duties as prescribed by law, which is a common exposure for public officials.
Real-world example: A city discovers a long-term embezzlement scheme by a payroll clerk that spanned three years. If the city had CR 00 25 in effect for all three years, the policy in effect when the loss is discovered would typically respond, provided the loss was also sustained during those policy periods. However, if there was a gap in coverage, or a switch from a discovery form without proper prior acts consideration, there could be a denial of coverage for parts of the loss.
4. Key information for agents and underwriters
Agents and underwriters should focus on the following when dealing with CR 00 25:
- Continuity of Coverage: Emphasize to clients the critical importance of maintaining continuous crime coverage to benefit from the "loss sustained during prior insurance" provisions. Any lapse can create significant uninsured exposures.
- Limits and Deductibles: Assess appropriate limits for each insuring agreement based on the governmental entity's specific exposures (e.g., cash handling, number of employees, fund transfer activities). The choice between "per loss" and "per employee" for Employee Theft coverage significantly impacts how limits apply in collusion scenarios.
- Internal Controls: Underwriters will heavily scrutinize the applicant's internal controls. Strong controls over cash, accounting, and fund transfers are paramount. Weak controls will likely lead to higher premiums, higher deductibles, or declination.
- Employee Definition: Ensure clarity on who qualifies as an "employee" or "official" under the form, as this can differ from commercial crime policies. Endorsements may be needed to include specific roles like treasurers or tax collectors if they are otherwise excluded.
- Prior Loss History: A thorough review of any prior crime losses is essential for underwriting. Understanding the nature of past losses helps assess current vulnerabilities.
- Specific Insuring Agreements: Governmental entities may have unique needs. For example, coverage for Forgery or Alteration, Inside the Premises (Theft of Money and Securities, Robbery or Safe Burglary of Other Property), Outside the Premises, Computer Fraud, and Funds Transfer Fraud are common needs. The policy provides coverage only for those insuring agreements for which a limit is shown in the declarations.
- Endorsements: Be aware of available endorsements that can tailor the coverage, such as adding Faithful Performance of Duty coverage, including treasurers or tax collectors as employees, or modifying the extended period to discover loss. Endorsements for social engineering fraud or third-party employee dishonesty might also be relevant.
- Discovery Period: The standard extended period to discover loss after policy termination is typically one year (60 days for discovery forms). This can sometimes be modified by endorsement.
- Valuation: Government crime forms may differ in how certain property is valued; for example, precious metals and similar items might not be subject to the same sublimits as in commercial forms.
- Recent Form Changes: Be aware that ISO periodically updates its crime forms. For example, 2022 editions introduced changes to the coverage trigger, defining loss discovery by a "designated person" rather than just "you" (the named insured). The definition of "designated person" in government forms differs slightly from commercial forms.
Real-world example for underwriters: When underwriting a CR 00 25 for a large municipality, an underwriter would examine the segregation of duties in the finance department, audit procedures, controls over electronic fund transfers, and employee background check processes. If internal controls are found to be lax, such as a single employee having authority to both approve payments and reconcile bank accounts, this would be a significant red flag requiring corrective action or potentially leading to a declination or restrictive terms.