1. Forms
2. CR
3. CR-50-08

What the form is

The CR 50 08 endorsement, titled "Include Retroactive Date For An Entity Acquired Through Consolidation Or Merger," is an endorsement to a Commercial Crime insurance policy. Its primary function is to address coverage for losses originating from an entity that the named insured has acquired through a consolidation or merger. Specifically, it allows for the inclusion of a retroactive date for such acquired entities. This means that losses that occurred at the acquired entity before the acquisition date but are discovered by the named insured after the acquisition and during the policy period (or extended reporting period) can be covered, subject to the specified retroactive date and other policy terms. This endorsement is particularly crucial when the Commercial Crime policy is written on a "Discovery Form" basis, as it helps to bridge potential coverage gaps for the prior acts of the newly acquired entity.

Classes of business it applies to

This endorsement is applicable to any commercial entity that:

• Carries Commercial Crime insurance.
• Engages in mergers or acquisitions where it acquires another entity through consolidation or merger.
• Wishes to ensure that employee dishonesty or other insured crime perils that may have occurred at the acquired entity prior to the acquisition are covered under their existing crime policy.

Real-world examples:

• A large manufacturing company acquires a smaller competitor and wants to ensure that if an embezzlement scheme that started at the acquired company before the merger is discovered after the merger, it will be covered under the acquiring company's crime policy.
• A regional bank merges with another financial institution and needs to establish a retroactive date for potential prior undiscovered losses from the merged entity.
• A technology firm buys out a startup and wants to protect itself from losses due to fraudulent acts committed by employees of the startup before the acquisition was finalized.

Special considerations

• Discovery vs. Loss Sustained Forms: The utility of this endorsement is most significant with Commercial Crime policies written on a Discovery basis (e.g., CR 00 20, CR 00 22). On a Discovery Form, coverage is triggered when a loss is discovered during the policy period, regardless of when it was sustained, provided it was sustained after any applicable retroactive date. For Loss Sustained Forms (e.g., CR 00 21, CR 00 23), coverage is for losses sustained during the policy period and discovered during the policy period or an extended discovery period; the retroactive date concept for prior acts of an acquired entity is handled differently, often by addressing prior insurance.
• Importance of the Retroactive Date: The specific date entered on this endorsement is critical. It defines the earliest point in time from which a loss at the acquired entity could have occurred and still be potentially covered. This date is often negotiated and should ideally align with the closing date of the acquisition or an earlier date based on due diligence.
• Due Diligence: Insurers may require significant due diligence information about the acquired entity's financial controls and loss history before agreeing to add this endorsement or to a specific retroactive date.
• Continuity of Coverage: This endorsement helps in providing seamless coverage continuity for newly acquired operations, preventing unexpected gaps.

Key information for agents and underwriters

• Risk Assessment: Underwriters must carefully evaluate the risk presented by the acquired entity. This includes reviewing its prior loss history, the nature of its operations, the strength of its internal controls, and the results of any pre-acquisition audits or due diligence. The potential for undisclosed or undiscovered losses from the acquired entity is a key concern.
• Pricing/Premium Impact: Adding this endorsement and setting a retroactive date can increase the insurer's exposure, as it potentially brings in past liabilities from the acquired entity. This may result in an additional premium.
• Defining the Acquired Entity: Ensure the endorsement clearly and accurately describes the entity acquired through consolidation or merger to avoid ambiguity.
• Interaction with other policy terms: The coverage provided by this endorsement is still subject to all other terms, conditions, and exclusions of the Commercial Crime policy, including the limit of insurance, deductible, and conditions related to loss discovery and reporting.
• Alternative Solutions: In some M&A scenarios, other solutions like purchasing a separate runoff policy for the acquired entity or negotiating specific indemnifications in the merger/acquisition agreement might also be considered in conjunction with or as an alternative to this endorsement.