Mind the Gap
COMMERCIAL CRIME COVERAGE—PART ONE
A look at the coverages on the ACORD 141 Crime Section application
Not only are there a lot of
coverages from which to choose, … the terminology
may not be consistent across your carrier lineup.
By Marc McNulty, CIC, CRM
If you’re new to the insurance business, you may find yourself relying on ACORD applications to assist you with offering certain types of coverage for your prospects and clients. While this isn’t a bad strategy, you can’t solely rely on applications to paint a complete picture of available coverage offerings.
Nowhere is this more apparent than on the ACORD 141 Crime Section application.
The 2016/03 version of the ACORD 141 lists 10 coverage sections and then has an extra blank section where agents can add a coverage, limit, and deductible for any coverage that isn’t already listed. Based on what I’ve seen in the marketplace, the form needs several extra spaces if you want to offer a complete suite of crime coverage.
The point of this two-part series is to assist you with understanding the various options that are available. Not only are there a lot of coverages from which to choose, you’ll need to understand that the coverage is offered through various means and that the terminology may not be consistent across your carrier lineup.
We will start off by examining each coverage in the order by which they are listed on the ACORD 141.
Employee Theft. This common coverage is one that you will often see included with property policies via endorsement or as part of a small business package (such as a business owners policy). The premise is straightforward—it protects against losses stemming from theft of money, securities, or other property when the theft is committed by an employee.
You’ll see that the ACORD 141 has check boxes for “blanket” and “schedule.” When blanket coverage is chosen, coverage will apply to all employees rather than specific positions or employees. The “schedule” option is for—you guessed it—specific positions or employees.
ERISA. The Employee Retirement Income Security Act of 1974 (ERISA) pertains to employee benefit plans such as 401(k) plans and profit-sharing/pension plans. It requires that 10% of the plan funds (up to a maximum limit of $500,000) be covered by an ERISA bond or ERISA endorsement to employee theft crime coverage. In other words, this provides protection against employee theft of employee benefit plans.
Note that ERISA compliance requires only that employee theft be addressed as an exposure, so while your insured may technically be in compliance with ERISA laws, they could leave themselves exposed if they don’t round out their crime coverage with some of the other lines of coverage we will explore throughout this series.
Employee Theft Governmental Crime. While governmental entities can purchase the same types of crime coverage that privately owned businesses can, there is an area of distinction for governments as it pertains to employee theft. Unlike commercial entities, governmental entities have two employee theft insuring agreements, so limits can apply per employee or per loss.
Forgery or Alteration. As the title suggests, this coverage protects against losses stemming from forged signatures or alterations to checks, bank drafts, and other financial instruments. However, it does not cover forged invoices, fraudulent emails with bank transfer instructions, or other methods used to trick an insured into transferring funds into the wrong hands. These types of situations will be addressed by coverage we will explore in part two of this series.
[Y]ou can’t solely rely on
applications to paint a complete picture of
available coverage offerings.
Inside the Premises – Theft of Money and Securities. Also referred to as “Coverage C” or “Form C” in some instances, this line of coverage protects an insured against theft, disappearance, or destruction of money and securities located inside an insured premises or a financial institution premises.
Like Employee Theft, you’ll notice that the ACORD 141 lists options for “Blanket” and “Schedule” under this coverage. Rather than coverage applying to all employees on a blanket or scheduled basis, this option is for the insuring agreement to apply to all insured premises (as defined in the coverage form) or for specific scheduled premises, which is done via an endorsement to the policy.
Inside the Premises – Robbery or Burglary of Other Property. This insuring agreement picks up where the last one left off, as it addresses the loss of or damage to “other property” inside the premises. However, it provides coverage under multiple scenarios. For starters, it covers losses resulting from an actual or attempted robbery of a “custodian,” meaning the insured, the insured’s partners or members, or the insured’s employees while having custody of property while in the covered premises.
It also covers loss or damage to property stemming from a safe burglary while the property is in a safe or vault at a covered premises.
Loss from damage to the premises (including its exterior) is also included, provided the loss occurs from an actual or attempted robbery or safe burglary of “other property.” The term “other property” is defined in the Commercial Crime Coverage Form (Discovery Form) CR 00 20 11 15 and CR 00 21 11 15 (Loss Sustained Form) as:
[A]ny tangible property other than “money” and “securities” that has intrinsic value. “Other property” does not include “computer programs,” “electronic data” or any property specifically excluded under this insurance.
Finally, this coverage extends to losses of locked safes or vaults located inside an insured premises. Like the previous insuring agreement, coverage can be provided on a blanket or scheduled premises basis.
Outside the Premises. This coverage part takes exposures from the previous two insuring agreements—money and securities, as well as “other property”—and provides coverage for losses outside the insured premises. Coverage is provided for actual or attempted robberies and also extends to theft, disappearance, or destruction losses to property in the care and custody of a messenger or an armored vehicle company.
Computer Fraud and Funds Transfer Fraud. Although these two coverages occupy separate rows on the ACORD 141, they are combined into one insuring agreement on the most current versions of the ISO commercial crime coverage forms and policies.
The coverage applies whenever money, securities, or other property is transferred, paid, or delivered due to fraudulent entry of—or change within—electronic data or a computer program on an insured’s computer system. Coverage also applies if the fraudulent entry or change causes an insured’s financial account to be debited or deleted.
Finally, coverage is extended to situations where employees in good faith act upon fraudulent instructions from a software contractor with whom the insured has a written agreement to design, implement, or service computer programs for the insured’s computer systems.
We have one more coverage from the ACORD 141 to explore—Money Orders and Counterfeit Paper Currency—before we dive into the additional coverages that ISO has incorporated into its versions of the commercial crime forms and policies. These “new” coverages address the various forms of social engineering exposures that have developed in recent years, so be sure to read part two of this mini-series to learn all about them.
Marc McNulty, CIC, CRM, is a principal at The Uhl Agency in Dayton, Ohio, and has been with the agency since 2001. He divides his time among sales, marketing, technology and operational duties. You can reach Marc at firstname.lastname@example.org