Commercial Crime Insurance

Crime policies use standard definitions to describe the types of crime they cover. You’ll see these definitions in both personal and commercial lines contracts. Some of the most common definitions include:

Theft

• A broad term for taking property without the owner’s consent. Theft is an umbrella term that includes many dishonest ways of taking property.

Burglary

• A type of theft involving the illegal taking of property with no person-to-person encounter. To qualify as burglary, there must be signs of forcible entry. Burglaries generally occur when a business is closed.

Robbery

• A type of theft involving the illegal taking of someone’s property through a person-to-person encounter between the robber and the victim.

Extortion

• Taking money or property by threatening someone with an illegal act. If money or property is taken by threatening something that isn’t necessarily illegal, it’s blackmail.

Mysterious Disappearance

• Property is missing, but neither the owner nor the insurer can determine what happened. Coverage for this cause of loss may be available, but it’s commonly excluded by policies that protect against theft.

Custodian

• A person defined in crime insurance policies as someone who has custody of another’s property while at the insured location.

Messenger

• A person who has custody of insured property while outside the covered area.

Commercial crime insurance typically includes:

• A commercial crime declarations page
• A crime general provisions section (which lists definitions like the ones above)
• A crime coverage form

There are fourteen crime coverage forms, identified as Forms A through N. The five most commonly used forms are A, B, C, D, and E.

Form A

Employee Dishonesty

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 employee dishonesty coverage:

1. Name Schedule. Only covers individuals named in the Declarations. If a named employee leaves, the insurer must be notified to remove that employee and add the replacement to keep coverage accurate.
2. Position Schedule. Covers whoever holds the listed position. You don’t need to notify the insurer when one employee leaves and another is hired into the same position.
3. Blanket Coverage. Covers loss caused by any employee. Under 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 against loss caused by forgery or alteration of financial documents. It does not cover employee dishonesty.

Form C

Theft, Disappearance, and Destruction

This 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 loss of money and securities while being transported by an insured or the insured’s employee outside or away from the premises.

Form D

Robbery and Safe Burglary

This form covers property other than money and securities. It’s generally written to protect an insured against three exposures:

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

This form protects an insured against robbery inside or outside the insured premises. It also covers burglary of a safe, including damage burglars cause 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. It also covers damage to the premises and to windows caused by burglars.

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

The Discovery Condition

Burglary and robbery losses are usually discovered right away. Other crime losses - such as extortion and embezzlement - may not be discovered until weeks, months, or even years after they occur.

The Discovery Clause in the Loss Sustained Form states that losses that occur during the policy period, but aren’t discovered until after the policy expires, can still be covered under the expired policy if they’re discovered within one year after expiration.

Other Coverage Forms Available

Additional coverage forms may 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 coverage for professionals such as physicians, attorneys, certified public accountants, insurance producers, and corporate directors or officers. Professional liability refers to liability arising from a failure to use reasonable care (negligence) based on the level of skill expected from that profession.

There are several forms of professional liability insurance.

Malpractice

Medical malpractice insurance is available to physicians, surgeons, dentists, and hospitals. It protects the insured if an injured third party brings legal action due to the insured’s negligence in performing professional duties.

The insured is protected for legal responsibility for bodily injury or property damage to others. Many policies also cover personal injury, such as mental anguish suffered by the injured third party due to the insured’s negligence or non-performance.

Many professional liability policies include a provision requiring the insurer to obtain the insured’s consent before settling a claim. This requirement helps protect the professional’s name and status.

Errors and Omissions

Many professions use errors and omissions (E&O) policies. Examples include accountants, insurance producers or adjusters, architects, attorneys, stockbrokers, real estate brokers, and engineers.

Coverage is tailored to the needs of the profession. It pays for liability arising out of the performance of professional duties due to negligence. For example, if an insurance agent makes an inadequate recommendation that harms a customer, a resulting lawsuit will likely be covered by the agent’s E&O policy.

Directors and Officers

Another type of professional liability contract provides legal liability protection for a corporate director or officer for errors and/or omissions. This type of policy protects corporate leadership from lawsuits by stockholders or others alleging mismanagement.

Other policies are also available and tailored to specific professions, 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

Definitions

Arson

The deliberate setting of a fire.

Burglary

An individual or an intruder who steals property from a premises and leaves evidence or signs of forced entry at the location.

Crime Insurance

Term referring to property coverages for the perils of burglary, theft and robbery, forgery or counterfeiting, fraud, kidnap and ransom, and off-premises exposure.

Custodian

An employee or other person who has possession of an insured’s property on premise.

Embezzlement

A fraudulent act involving taking property or money from the one who has been entrusted with such property.

Employee Dishonesty Coverage

Covers direct losses and damage to businesses resulting from the dishonest acts of employees.

Errors and Omissions Liability

Liability coverage of a professional or quasi-professional insured to persons who have incurred bodily injury or property damage or who have sustained any loss from omissions arising from the performance of services for others, errors in judgment, breaches of duty, or negligent or wrongful acts in business conduct.

Kidnap/Ransom Insurance

Coverage for ransom or extortion costs and related expenses.

Larceny

A theft loss that occurs during a period of time when access was granted to the stolen property.

Malpractice

Alleged misconduct or negligence in a professional act resulting in loss or injury.

Medical Malpractice

Insurance coverage protecting a licensed health care provider or health care facility against legal liability resulting from the death or injury of any person due to the insured’s misconduct, negligence, or incompetence, in rendering or failure to render professional services.

Messenger

A person conveying money, securities, or other property from one location to another on behalf of an insured.

Mysterious Disappearance An article is known to have disappeared, but it is impossible to determine how such a disappearance occurred.

Premises

The particular location of the property or a portion of it as designated in an insurance policy.

Robbery

The dishonest taking or stealing of property from an individual in possession of that property. Involves a face-to-face confrontation.

Theft

The dishonest taking of property without the owner’s consent.

Watchman

One who watches over an insured’s property.