1. Forms
2. CR
3. CR-04-16

What the Form Is

The CR 04 16 Telephone Toll Fraud endorsement is an optional endorsement to the ISO Commercial Crime or Government Crime Coverage Forms and Policies. Its purpose is to provide insurance coverage for direct financial loss resulting from charges for long-distance telephone calls that the insured did not authorize. This loss must be a direct result of fraudulent use of an account code or system password by an unauthorized party to gain access to the named insured's voice computer system.

Classes of Business It Applies To

This endorsement is designed for a wide range of commercial entities and government entities that utilize telephone systems susceptible to hacking or unauthorized access, potentially leading to significant toll fraud losses. It is generally available for any commercial insured other than financial institutions. Real-world examples include:

• Businesses with remote employees or sales representatives who access the company phone system.
• Organizations with complex phone systems (PBX or VoIP) that could be targeted by hackers.
• Public entities like school districts or municipalities that manage their own phone networks.

Special Considerations

There are important prerequisites and limitations for coverage under this endorsement:

• Protective Measures Required: The insured must have specific security measures in place for the voice computer system. These typically include a call disconnect feature that terminates a caller's access after a predetermined number of unsuccessful attempts to enter an account code (e.g., three attempts), and a requirement that system passwords are changed regularly. The endorsement schedule will specify the maximum number of days permitted between password changes.
• 30-Day Time Limitation: A condition is added that limits coverage to losses incurred within 30 days starting from the first fraudulent call made through the compromised system. This limitation applies to all telephone lines controlled by the same voice computer system through which the initial fraudulent call was made.
• Fraudulent Access: The access to the phone system must be obtained through the fraudulent acquisition or manipulation of an account code or system password.

Key Information for Agents and Underwriters

Agents and underwriters should pay close attention to the following:

• Verification of Security Protocols: It is crucial to confirm that the insured has the required protective measures (call disconnect, regular password changes) implemented and actively maintained. Failure to do so could jeopardize coverage.
• Schedule Accuracy: Ensure the schedule on the endorsement correctly reflects the agreed-upon maximum number of days for password changes.
• Defining System Access: The endorsement defines terms like "Account Code," "System Administration," and "System Maintenance." Understanding these definitions is key to determining coverage applicability. For instance, "System Administration" includes security functions and defining authorized access, while "System Maintenance" refers to normal activities by the system vendor.
• Risk Assessment: Businesses with extensive remote access, high volumes of long-distance calls, or outdated phone system security are at higher risk. The underwriter should assess these exposures.
• Limit Adequacy: Discuss appropriate limits of insurance with the insured, considering their potential exposure to toll fraud, which can sometimes result in very large unauthorized charges.
• Exclusions: Be aware that this endorsement is subject to the conditions, definitions, and exclusions of the underlying Crime Coverage Form or Policy, except as specifically modified by this endorsement.