1. Forms
2. CR
3. CR-25-08

Form CR 25 08: Add Faithful Performance Of Duty Coverage

1. What the Form Is

The CR 25 08 "Add Faithful Performance Of Duty Coverage" endorsement modifies a Commercial Crime policy to broaden the scope of coverage beyond typical employee theft or dishonesty. Its primary purpose is to protect the insured organization from financial losses resulting from an employee's failure to faithfully perform their designated duties, as prescribed by law, company bylaws, or specific job requirements. This is distinct from coverage that only triggers upon a clear act of theft or other dishonest acts committed with manifest intent; faithful performance coverage can respond to losses caused by an employee's negligence, dereliction of duty, or failure to adhere to established procedures in the execution of their responsibilities.

2. Classes of Business It Applies To

This endorsement is particularly relevant and often required for:

• Public Entities: Municipalities, state agencies, and other governmental bodies frequently require this coverage for public officials and employees, such as treasurers, tax collectors, and other fiduciaries who handle public funds or have duties mandated by statute. For example, if a municipal treasurer, through serious neglect of prescribed fund management protocols (even without personal gain), causes a financial loss to the municipality, this coverage could respond.
• Private Companies with Fiduciary Roles: Businesses where employees have significant fiduciary responsibilities or handle substantial assets may also utilize this coverage. This could include non-profit organizations, large corporations with dedicated treasury departments, or businesses where employees are responsible for critical regulatory compliance. For instance, an employee of a financial institution whose failure to adhere to specific regulatory duties leads to fines or direct financial loss for the institution could trigger this coverage.
• Positions of Trust: Any organization where specific employees are entrusted with duties whose improper performance (not necessarily involving theft) could lead to direct financial loss.

3. Special Considerations

Several important factors should be considered when evaluating or recommending this endorsement:

• Broader Than Employee Theft: Unlike standard employee theft coverage that typically requires proving "manifest intent" by an employee to cause loss to the insured or to obtain a financial benefit for themselves, faithful performance coverage can apply to losses arising from an employee's failure to perform their duties as required, which may include acts of negligence or willful misconduct not amounting to theft.
• Statutory Requirements: For many public officials, providing proof of faithful performance bonding or insurance is a legal prerequisite to holding office. This endorsement can help fulfill such requirements.
• Relationship to Surety Bonds: Faithful performance coverage in an insurance policy can sometimes serve as an alternative to or supplement traditional surety bonds. While a surety bond is a three-party agreement (principal, surety, obligee), this endorsement is part of a two-party insurance contract between the insured organization and the insurer.
• Definition of "Faithful Performance": The scope of what constitutes "faithful performance" is critical and is often tied to specific statutes, regulations, internal bylaws, or formally documented job duties that outline the expected conduct and responsibilities of the employee.
• Direct Loss Requirement: Coverage typically applies to direct financial losses sustained by the insured organization. Indirect or consequential losses, such as damage to reputation or loss of future income, are generally not covered.

4. Key Information for Agents and Underwriters

Agents and underwriters should focus on the following when dealing with this coverage:

• Risk Assessment:
  • Evaluate the specific roles and responsibilities of the employees for whom this coverage is sought. Pay close attention to those with fiduciary duties, access to significant assets, or responsibilities for adhering to legal or regulatory mandates.
  • For public entities, understand the relevant statutory requirements for faithful performance.
  • Assess the clarity of documented job descriptions, procedural manuals, and internal controls within the insured organization. Ambiguity in duties can complicate claim adjustments.
  • Review the insured's loss history, particularly any incidents related to employee negligence, errors in following procedures, or dereliction of duty.
• Underwriting Guidelines:
  • Obtain detailed information about the internal controls, audit procedures, and oversight mechanisms the insured has in place to ensure employees faithfully perform their duties.
  • The financial stability and operational integrity of the insured organization are important considerations.
  • Consider the number of employees to be covered and the limits of liability requested in relation to the potential exposure.
• Pricing: Premiums for this endorsement will generally be higher than for standard employee theft coverage due to the expanded scope of covered acts (i.e., not requiring theft or manifest intent). Pricing will depend on the limit of liability, the nature of the insured's operations, the roles of the covered employees, and the strength of internal controls.
• Coverage Gaps and Distinctions:
  • Clearly differentiate this coverage from Errors & Omissions (E&O) liability. Faithful performance typically relates to the failure to perform duties as prescribed, often leading to direct loss of the insured's own money, securities, or property, rather than liability to a third party for professional negligence.
  • Emphasize that this is not a guarantee of an employee’s overall job performance or competence but is specific to the faithful execution of prescribed duties, particularly those of a fiduciary or statutory nature.
  • Ensure the policy language clearly defines what constitutes a "failure to faithfully perform duties" to avoid ambiguity during a claim.