Commercial Crime Insurance

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

Theft

• Theft is a broad term for taking property without the owner’s consent. It’s an umbrella term that includes many dishonest acts involving property.

Burglary

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

Robbery

• Robbery is theft committed by using force or the threat of force. Unlike burglary, robbery involves a face-to-face encounter between the robber and the victim.

Extortion

• Extortion is obtaining money or property through threats or coercion. Blackmail is a form of extortion that typically involves threats to reveal information.

Mysterious Disappearance

• Property is missing, but neither the owner nor the insurer can determine what happened. Coverage for mysterious disappearance may be available, but it’s commonly excluded under policies that protect against theft.

Custodian

• A custodian is the insured or an employee who has care and custody of insured property while inside the premises. A custodian does not include a watchperson or janitor.

Messenger

• A messenger is 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 includes definitions like those listed 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 committed by employees. It covers loss of the insured’s property, including money and securities.

There are three 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 so the former employee can be removed and the new employee added.
2. Position Schedule. Covers whoever holds the listed position. You don’t need to notify the insurer when an employee leaves and a replacement is hired.
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 the insured for 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 the insured or an 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 the insured against three exposures:

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

This form covers robbery inside or outside the insured premises. It also covers burglary of a safe, including damage done to the safe by burglars.

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.

Premises burglary coverage applies to theft of covered property from inside the insured premises. It also applies if property is taken from a guard who is inside the premises at the time of the loss. Money and securities are not covered under this form.

The Discovery Condition

Burglary and robbery losses are often 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 are not discovered for up to one year after the policy expires, can still be covered under the expired policy.

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 or robbery occurring on the insured’s premises or at certain designated locations outside the building

Boiler and Machinery

This coverage part may also be added to the CPP. It provides property and liability protection resulting from an accident to an insured object.

Coverage applies to:

• Damage to the insured’s property
• Liability arising out of damage to property of others in the care, custody, or control of the insured, if the loss is caused by a covered peril

The definition of an “object” is the equipment described in the declarations. Insurers may use different categories of objects, including:

• Pressure and refrigeration objects
• Mechanical objects
• Electrical objects
• Turbine objects

The covered cause of loss is an accident to an insured object listed in the declarations. The definition of accident does not include corrosion, erosion, wear and tear, deterioration, or depletion.

Standard exclusions in this form include ordinance or law, war, and nuclear hazard. Accidents to objects while being tested are also not covered.

There are four available extensions of coverage:

1. Expediting expenses provides payment for the reasonable cost of temporary repairs and expediting permanent repairs. Standard coverage is $5,000 but may be increased for an additional premium

2. Automatic coverage provides protection for newly acquired objects of the type insured for up to 90 days

3. Defense costs are paid if the insurer defends the insured in a legal suit

4. Supplementary payments are provided similar to that of other liability policies, but the included amount is $250 per day for loss of earnings

Sidenote

Know this...

These extensions typically appear automatically in many equipment breakdown policies, but availability may vary by insurer.

Any of three endorsements may be added to the boiler and machinery coverage part, including:

1. Business interruption provides coverage for loss due to a total or partial interruption of business as a result of an accident to an insured object

2. Extra expense coverage functions just as it does under commercial property insurance

3. Consequential damage provides indemnity for the actual loss of insured property due to spoilage resulting from lack of power, light, heat, and refrigeration at described premises caused by an accident to an insured object

Farm Property Coverage

This coverage part is available to be added to the CPP to cover an insured’s farm exposures. It includes its own declarations page. Either a standard or special form may be added to provide coverage.

Ten coverage sections are included in either form, providing a combination of property and liability protection. The ten sections are:

1) Coverage A Dwelling

• This section covers the dwelling and any attached structures. It also covers materials used to maintain the farm. Coverage is allocated on a replacement cost basis.

2) Coverage B Other Private Structures

• This section covers unattached structures up to specified limits.

3) Coverage C Household Personal Property

• This coverage is the equivalent of personal property coverage under a homeowners policy.

4) Coverage D Loss of Use

• This section covers additional living expenses similar to the homeowners policy.

5) Coverage E Scheduled Farm Personal Property

• This section covers all of the farmer’s itemized personal property used for farming purposes.

6) Coverage F Unscheduled Farm Personal Property

• Coverage is provided for all unscheduled items of farm personal property on the premises.

7) Coverage G Other Farm Structures

• Coverage is provided by this section for structures on the farm not used for dwelling purposes such as fences and grain silos.

8) Coverage H Bodily Injury and Property Damage Liability

• Custom farming operations are excluded when receipts exceed the limit shown in the policy. Many policies use a low threshold (such as $2,000), but the exact amount varies by insurer.

9) Coverage I Personal and Advertising Injury Liability

• Coverage provided by this section is almost identical to Coverage B in a CGL policy.

10) Coverage J Medical Payments

• Applicable payments are covered as long as they are reported within 3 years of occurrence.

Additional forms may be added to the Farm Coverage Part, including the mobile agricultural machinery and equipment form and the livestock form (when livestock are the only property owned).

The insured may select a cause of loss form to attach to the Farm Property Coverage Part. The form specifies the perils insured against. These forms are similar in scope to the cause of loss forms available under the Commercial Property Coverage Part (basic, broad, and special).

The conditions, definitions, and exclusions of the Farm Property Coverage Part are similar to the corresponding sections of the Commercial Property Coverage Part.

Professional Liability

Professional liability insurance is a specialized type of liability coverage 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) at the level of skill expected from the professional.

Several forms of professional liability insurance are common.

Malpractice

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

Coverage applies to the insured’s 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 malpractice policies include a “consent to settle” clause. This requires the insurer to obtain the insured’s permission before settling a claim, which helps protect the professional’s reputation.

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 profession. It pays for liability arising out of the performance of professional duties when the insured is alleged to have been negligent.

For example, if an insurance agent makes an inadequate recommendation that causes a customer financial harm, 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 to 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 profession-specific policies are also available, 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.

Boiler and Machinery Coverage provides property and liability protection for accidents to insured objects, with standard exclusions.

Farm Property Coverage under CPP covers farm exposures with sections for dwelling, structures, personal property, and liability.

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.

Boiler & Machinery or Equipment Breakdown

Coverage for the failure of boilers, machinery, and other electrical equipment. Benefits include (1) property of the insured, which has been directly damaged by the accident; (2) costs of temporary repairs and expediting expenses; and (3) liability for damage to the property of others. Coverage also includes inspection of the equipment.

Burglary

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

Commercial Farm and Ranch

A commercial package policy for farming and ranching risks that includes both property and liability coverage. Coverage includes barns, stables, other farm structures, and farm inland marine, such as mobile equipment and livestock.

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.

Crop Insurance

Protection against damage to growing crops from hail, fire, or lightning provided by the private market. By contrast, multiple peril crop insurance covers a wider range of yield-reducing conditions, such as drought and insect infestation, and is subsidized by the federal government.

Custodian

An employee or other person who has possession of an insured’s property inside the premises, but does not include a watchperson or janitor.

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.

Farmowners Insurance

Farmowners insurance sold for personal, family, or household purposes. This package policy is similar to a homeowners policy in that it has been developed for farms and ranches and includes both property and liability coverage for personal and business losses. Coverage includes farm dwellings and their contents, barns, stables, other farm structures, and farm inland marine, such as mobile equipment and livestock.

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 who has custody of insured property while outside the premises.

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.