1. Forms
2. CR
3. CR-20-05

Form CR 20 05: Include Retroactive Date Endorsement

1. What the Form Is

The CR 20 05, Include Retroactive Date Endorsement, is a crucial modification for Commercial Crime insurance policies that are written on a "discovery" basis. Its primary purpose is to establish a specific retroactive date. This means that for a loss to be covered, the wrongful act that caused the loss must have occurred on or after this designated retroactive date AND the loss must be discovered during the policy period (or extended reporting period, if applicable). Essentially, this endorsement curtails the indefinite historical coverage that a pure discovery form might otherwise provide, limiting the insurer's exposure to unknown losses that occurred prior to the agreed-upon retroactive date.

2. Classes of Business It Applies To

This endorsement is not specific to particular industries but rather to specific underwriting situations across various classes of business purchasing discovery-based crime coverage. It is commonly used in scenarios such as:

• New Insureds or New Discovery Policies: When an insured is new to the carrier or is purchasing a discovery-based crime policy for the first time, the CR 20 05 can be used to prevent coverage for losses that occurred long before the insurer came on risk. For example, a manufacturing company purchasing its first discovery crime policy might have this endorsement attached with a retroactive date set to the policy inception or a mutually agreed-upon date.
• Insureds with Gaps in Prior Coverage: If a business has had periods without crime insurance, this endorsement protects the new insurer from claims originating during those uninsured periods.
• Following a Merger or Acquisition: When a company acquires another, the CR 20 05 can set a retroactive date for the acquired entity, limiting exposure from the acquired company's prior operations. For instance, if a retail chain acquires a smaller competitor, the insurer might add this endorsement to the retail chain's policy, with the retroactive date for acts related to the acquired competitor being the date of acquisition.
• Transitioning from "Loss Sustained" Coverage: When an insured switches from a "loss sustained" crime policy to a "discovery" policy, this endorsement helps define the new coverage territory by establishing a clear start date for occurrences covered under the discovery form.
• Concerns about Prior Undiscovered Losses: If there's a reason to believe there might be undisclosed or undiscovered losses from prior periods (e.g., due to poor internal controls in the past), underwriters will likely use this endorsement.

3. Special Considerations

Several important factors must be considered when using the CR 20 05:

• Continuity of Coverage: The selection of the retroactive date is critical. It should be carefully coordinated with any prior crime coverage to avoid unintended coverage gaps. If replacing another discovery policy, the retroactive date should ideally match the date on the expiring policy. If replacing a loss-sustained policy, the retroactive date effectively marks the point from which the discovery coverage will look back for occurrences.
• Negotiation of the Retroactive Date: The actual date used can vary. It might be the current policy's effective date, the effective date of the first policy issued by the current insurer for that insured, or an earlier date if the underwriter is comfortable with the risk. This date is a point of negotiation and due diligence.
• Impact on Insured: The insured must fully understand that this endorsement limits coverage for past events. Losses occurring before the retroactive date are not covered, even if discovered during the current policy period. For example, if a retroactive date is set to January 1, 2023, and in June 2024 (during the policy period) an employee theft that occurred in 2022 is discovered, the claim would not be covered.
• Discovery Tail: While a discovery policy provides a "tail" for discovering losses after the policy period (if an Extended Period to Discover Loss is purchased or included), the CR 20 05 still means that the occurrence itself must have happened on or after the retroactive date.

4. Key Information for Agents and Underwriters

• Risk Assessment: Underwriters use the CR 20 05 as a key tool to manage exposure, particularly for accounts with limited loss history information, previous coverage gaps, or known changes in management or internal controls. A thorough review of the applicant's history, including prior coverage and loss experience, is essential before determining the appropriate retroactive date.
• Pricing Implications: The inclusion of a retroactive date, and the specific date chosen, can impact the premium. A more recent retroactive date (offering less coverage for past acts) generally presents a lower risk to the insurer and may result in a more favorable premium compared to a policy with a distant retroactive date or no retroactive date.
• Addressing Coverage Gaps: Agents must clearly explain the function of the retroactive date to clients to prevent misunderstandings about the scope of coverage. It's vital to ensure the client understands that losses occurring before this date are excluded. Proactive discussion about prior acts coverage or the lack thereof is crucial.
• Underwriting Guidelines: Insurers typically have specific guidelines dictating when the CR 20 05 is mandatory. For instance, it's often required for new ventures, businesses with a history of frequent or severe crime losses, or when there's uncertainty about the prior operational environment. The rationale for the selected retroactive date should always be documented in the underwriting file.
• Alternatives: If an underwriter is uncomfortable with the risk even with a retroactive date, they might consider declining coverage or offering a "loss sustained" form instead, if available and appropriate, which only covers losses sustained and discovered during the policy period (or within a limited time after expiration).