Form CR 00 27: Government Crime Policy (Loss Sustained Form)
1. What the form is
The CR 00 27 Government Crime Policy (Loss Sustained Form) is a standalone insurance policy designed specifically for governmental entities. Its primary purpose is to protect these entities from financial losses resulting from various criminal acts. This form is written on a "loss sustained" basis, meaning it covers losses that are both sustained (occurred) during the policy period and discovered during that same policy period, or within a specified time after its expiration (typically one year), provided there has been continuous coverage. If a loss occurred during a prior policy period, it may still be covered if insurance has been continuously maintained and the loss is discovered within the allowed timeframe. The policy includes its own declarations page and conditions, making it a self-contained contract.
Key insuring agreements often included, for which a limit of insurance must be shown in the declarations, are:
- Employee Theft (often with options for per-loss or per-employee coverage)
- 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 Paper Currency
2. Classes of business it applies to
This form is exclusively for governmental entities. Examples of entities that would utilize this form include, but are not limited to:
- State governments and their various departments and agencies
- County governments (e.g., a county treasurer's office discovers an employee has been embezzling funds over several years)
- City and municipal governments (e.g., a town clerk's office experiences a burglary resulting in the theft of cash and checks)
- Public school districts (e.g., a school district discovers that an employee in the business office has forged checks)
- Special purpose districts (e.g., water districts, park districts)
- Public utilities
- Housing authorities
It is not intended for commercial or not-for-profit entities, nor for financial institutions, which have their own dedicated ISO programs.
3. Special considerations
Several important factors distinguish the CR 00 27 and warrant careful consideration:
- Loss Sustained Basis: This is a critical feature. Unlike "discovery" forms which cover losses discovered during the policy period regardless of when they occurred (subject to a retroactive date), the "loss sustained" basis requires the loss to have occurred during the current policy period or a prior policy period if coverage has been continuous and the discovery is timely. This can be crucial for losses that remain undetected for extended periods. For losses spanning multiple policy periods with differing limits, the lowest limit in place during the occurrence of the loss may apply to that portion of the loss.
- Governmental vs. Commercial Forms: Government crime forms have distinct differences from their commercial counterparts. For instance, government forms may offer two employee theft insuring agreement options: per loss and per employee. They also include provisions for indemnifying public officials who are required to furnish individual bonds for losses due to their subordinates' dishonest acts. Certain exclusions common in commercial forms may be modified or absent, and vice-versa. For example, government forms often exclude loss caused by employees who are required by law to be bonded (regardless of whether they actually are) and those with treasurer or tax collector responsibilities. The coverage territory in government forms typically does not include Canada.
- Continuity of Coverage: Maintaining uninterrupted crime insurance is vital when on a loss sustained form. Gaps in coverage can jeopardize the ability to claim for losses that occurred during an uninsured period or that occurred under a prior policy but are discovered later.
- Discovery Period: The policy allows a specific period (usually one year) after policy expiration to discover and report losses that occurred during the policy period. This is shorter than the extended period often found in discovery forms (which might be 60 days, or 1 year for employee benefit plans).
- Exclusions: Standard crime policy exclusions will apply, such as acts committed by the insured entity itself, losses dependent on inventory or profit and loss computations (unless other evidence substantiates the loss), and losses resulting from governmental action or war. Specific exclusions may also apply to certain insuring agreements. For example, losses caused by employees after the insured becomes aware of a prior dishonest act by that employee are typically excluded.
Real-world example: A city discovers that its finance director had been systematically embezzling funds for the past three years. Under CR 00 27, if the city had this policy continuously in force for those three years, the losses from each year would be covered, subject to the policy limits and deductibles applicable in each respective year. If there was a gap in coverage, or if a "discovery" form with a retroactive date after the embezzlement began was in place, some or all of the loss might not be covered.
4. Key information for agents and underwriters
Agents and underwriters should focus on the following when dealing with the CR 00 27:
- Risk Assessment: Governmental entities present unique risk profiles. Underwriters will assess internal controls, segregation of duties (especially in cash handling and financial record-keeping), audit procedures, and oversight of employees. The frequency and quality of independent audits are significant. For example, a small municipality with limited staff where one person handles multiple financial roles might be a higher risk than a large state agency with robust internal audit departments.
- Prior Insurance and Loss History: Given the "loss sustained" nature and the provisions for prior insurance, a thorough review of the applicant's prior crime insurance history is essential. Any gaps in coverage or changes in limits should be noted. A clean loss history is favorable; if losses have occurred, evidence of remedial actions to prevent recurrence is important.
- Selection of Insuring Agreements and Limits: Agents must work with governmental clients to select appropriate insuring agreements and adequate limits. This requires understanding the entity's specific exposures. For example, an entity handling large amounts of cash or with significant electronic fund transfer activity will have different needs than one with minimal cash exposure. The option for "per employee" vs. "per loss" employee theft coverage is a key decision point for governmental entities. The "per employee" option can be beneficial if multiple employees are involved in a single scheme, as the limit applies to each identified employee.
- Deductibles: The chosen deductible will impact the premium and the entity's retained risk. It should be set at a level the entity can comfortably absorb.
- Understanding Exclusions: Both agents and underwriters must have a firm grasp of the policy exclusions, particularly those unique to governmental crime forms, such as the exclusion for losses caused by employees required by law to be bonded or those with treasurer/tax collector duties.
- Comparison with Discovery Forms: Agents should be able to explain the differences between "loss sustained" (CR 00 27) and "discovery" (e.g., CR 00 26) forms, helping the client understand the implications for when losses must occur and be discovered to be covered. While discovery forms might offer broader coverage for past acts (if no restrictive retroactive date applies), loss sustained forms provide a more consistent approach if coverage has been maintained continuously.
- Employee Definition: The definition of "employee" is crucial, especially concerning temporary staff, volunteers, or officials. This should be reviewed to ensure coverage aligns with the entity's staffing structure.
- Notification Requirements: Insureds must understand their duty to notify the insurer promptly upon discovering a loss or circumstances that could lead to a loss, and the timeframe for submitting a proof of loss (typically within 4-6 months after discovery).
By focusing on these specific aspects, insurance professionals can effectively underwrite and place Government Crime Policy (Loss Sustained Form) CR 00 27, ensuring appropriate coverage for the unique risks faced by public entities.