1. Forms
2. CR
3. CR-25-03

What the form is

The CR 25 03 endorsement, titled "Include Partners as Employees," is designed to amend the definition of an "employee" within a commercial crime insurance policy. Standard crime policies often exclude coverage for dishonest acts committed by the named insured or its partners. This endorsement specifically modifies the Employee Theft insuring agreement to include partners as employees, thereby providing a pathway for coverage if a partner commits theft against the partnership.

Classes of business it applies to

This endorsement is primarily applicable to businesses structured as partnerships that wish to obtain crime coverage for potential theft committed by one or more of their partners. Examples include:

• Law firms
• Accounting firms
• Medical practices
• Consulting firms
• Other professional service firms organized as partnerships

For instance, if a partner in an architectural firm embezzles funds from the company, this endorsement, if attached to their crime policy, could allow the firm to claim for the loss, subject to the policy's terms and the endorsement's specific limitations.

Special considerations

It's crucial to understand that coverage provided by this endorsement for theft by a partner is often limited. The policy may state that any loss caused by a partner-employee will be reduced by certain amounts, such as:

• Any outstanding amounts the named insured (the partnership) owes to the dishonest partner.
• The value of the dishonest partner's capital account or other financial interest in the partnership.

This means the policy might only pay for the portion of the loss that exceeds the dishonest partner's financial stake in the firm and any debts owed to them by the firm. The endorsement typically applies only to the Employee Theft insuring agreement and does not extend to other coverage parts of the crime policy.

Key information for agents and underwriters

For Agents:

• It is essential to discuss this endorsement with clients operating as partnerships to address the potential coverage gap for internal theft by partners.
• Clearly explain the limitations of the coverage, particularly how the loss payment might be reduced by the dishonest partner's financial interest in the firm.
• Ensure clients understand that without this endorsement, theft by a partner is generally not covered under the standard definition of "employee."

For Underwriters:

• When considering this endorsement, underwriters should carefully assess the partnership's internal financial controls, oversight procedures, and the overall financial stability of the partners.
• The number of partners and the nature of the business may influence the risk assessment.
• Pricing for this endorsement should reflect the increased moral hazard associated with covering theft by individuals who have a significant ownership stake and control within the insured entity.
• Review the main crime policy's definitions of "theft" and "discovery" as they will continue to apply to losses covered under this endorsement.