Crime and Professional Liability

Commercial Crime Insurance

Crime policies include generic definitions that identify the types of crime covered. Various forms of crime are defined in personal or commercial lines contracts. Some of the more common definitions include:

Theft

• This is simply a broad term describing the pilfering of property without the owner’s consent. Theft is a wide-encompassing term that includes all forms of dishonestly taking property.

Burglary

• This is a type of theft that involves the illegal taking of property by one party from another, with no person-to-person encounter. It concerns property that has been stolen. To qualify as a burglary, the burglar must leave signs of a forcible entry. Burglaries generally take place when a business is closed.

Robbery

• Another type of theft, robbery involves the illegal taking of someone’s property. However, unlike burglary, robbery involves a person to person encounter between the robber and his/her victim.

Extortion

• If money or property is taken by threatening someone with an illegal act, it is extortion. If money or property is taken by threatening someone with something that is not necessarily illegal, it is blackmail.

Mysterious Disappearance

• Property may be lost or has “disappeared,” but neither its owner nor the insurer is able to determine how it happened. Coverage for this cause of loss is available, but is commonly excluded by policies protecting against theft.

Custodian

• This is a person defined in crime insurance policies as one who has custody of the property of another while in the insured location.

Messenger

• This is a person who possesses custody of the insured property while outside the covered area.

Commercial crime insurance includes a commercial crime declarations page, a crime general provisions section, which lists the aforementioned theft definitions, and a crime coverage form. There are fourteen crime coverage forms identified as forms A through N. Prospective licensees should be familiar with the 5 most commonly utilized crime coverage forms (A, B, C, D, and E).

Form A

Employee Dishonesty

Coverage under this form protects an employer against fraudulent acts by employees. It covers all of an insured’s property, including money and securities.

There are three different formats for dishonest acts of employees:

1. Name Schedule. Only covers individuals named in the Declarations. If a named employee leaves, the insurance company must be notified to delete the former employee’s name and add the new employee to have proper coverage.
2. Position Schedule. Covers the individuals who hold the position. It is not necessary to notify the insurer when an employee leaves and a new employee is hired.
3. Blanket Coverage. Covers loss by any employee. Under the Blanket Coverage, the employer must establish a reasonable case that the employee(s) caused the loss.

Form B

Forgery or Alteration

This form protects an insured if he/she suffers a loss caused by forgery or any alteration of financial documents. It does not cover employee dishonesty.

Form C

Theft, Disappearance, and Destruction

This coverage form may be added to the commercial crime coverage part to provide open-peril coverage for loss of money and securities.

There are two sections of coverage under this form:

1. Coverage A protects against loss of money and securities inside the premises.
2. Coverage B protects against the loss of money and securities while being transported by an insured or her employee outside or away from the premises.

Form D

Robbery and Safe Burglary

This coverage form covers property other than money and securities and is generally written to protect an insured against three exposures, including:

1. On premises robbery
2. Off premises robbery
3. Safe burglary

This form protects an insured against robbery inside or outside the insured premises. The policy also covers burglary of a safe, including any damage done by burglars to the safe.

Form E

Premises Burglary

This form covers loss of merchandise, furniture, fixtures, and equipment within the covered premises as a result of burglary. Damage to the premises and to windows by burglars is covered.

The robbery of security personnel is also covered while the business is not open. This guard must be an exclusive employee of the insured while on duty within the premises.

The Discovery Condition

While burglary and robbery losses are usually discovered immediately, certain crime losses, such as extortion and embezzlement, may not be discovered until weeks, months, or years after they occur.

The Discovery Clause in the Loss Sustained Form states that losses that occur during the policy period but are not discovered for up to one year after the policy has expired can be covered under the expired policy.

Other Coverage Forms Available

Additional coverage forms are available to be attached to the commercial crime coverage part, including:

• Computer fraud
• Safe depository liability
• Lessees of safe deposit boxes
• Liability for guest’s property
• Premises theft and robbery on site but outside the premises

Professional Liability

Professional liability insurance is a specialized type of liability insurance protection for individuals such as physicians, attorneys, certified public accountants, insurance producers, or directors or officers of corporations. Professional liability refers to liability arising from a failure to use care (negligence) according to the degree of skills expected from the professional. There are several forms of professional liability insurance:

Malpractice

Medical malpractice insurance is available to physicians, surgeons, dentists and hospitals for protection in case an injured third party takes legal action as a result of the insured’s negligence in his/her duties.

An insured is protected for his responsibility for bodily injury or property damage to others. Many policies also provide coverage for personal injury as well, such as the mental anguish suffered by the injured third party as a result of the insured’s negligence or non-performance.

Many professional liability policies also include a provision that requires the insurer to secure the insured’s consent before it can settle a claim. The reason for this requirement is to protect the name and status of the professional.

Errors and Omissions

A wide variety of professions use an errors and omissions policies. Accountants, insurance producers or adjusters, architects, attorneys, stockbrokers, real estate brokers, or engineers are examples of those who would purchase E&O coverage.

The coverage provided is tailored to the needs of the profession in question. It pays for liability arising out of the performance of one’s professional duties due to negligence. For example, if an insurance agent makes an inadequate recommendation to a customer that somehow damages the customer, any forthcoming suit will likely be covered by the agent’s E&O policy.

Directors and Officers

Another type of professional liability contract is available to provide legal liability protection to a corporation director or due to an officer’s errors and/or omissions. This type of policy protects the corporate officer from legal suits by stockholders or others arising out of mismanagement.

Other types of policies are available, which are tailored to the individual profession to be insured, including:

• Druggists Liability
• Fiduciary Liability
• Employee Benefit Plan Liability
• Professional Architects Liability

Lesson Summary

Commercial Crime Insurance includes various definitions and coverage forms:

• Theft - a broad term for taking property without consent
• Burglary - theft with no person-to-person encounter
• Robbery - theft involving a person-to-person encounter
• Extortion - taking property by threatening with an illegal act
• Mysterious Disappearance - unexplained loss of property
• Custodian and Messenger definitions

There are 14 crime coverage forms; the most commonly used are:

• Form A - Employee Dishonesty
• Form B - Forgery or Alteration
• Form C - Theft, Disappearance, and Destruction
• Form D - Robbery and Safe Burglary
• Form E - Premises Burglary

Commercial Crime Insurance covers discovery of losses and additional coverage forms like Computer fraud, Safe depository liability, and more.

Professional Liability Insurance includes forms for Malpractice, Errors and Omissions, and Directors and Officers coverage tailored to different professions.

• Malpractice - for physicians, surgeons, dentists, etc.
• Errors and Omissions - for various professions
• Directors and Officers - for legal liability protection

Chapter Vocabulary