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The Rough Notes Company Inc.



July 23
09:39 2018

The finance manager at First United Methodist Church started embezzling in 2008 but the crime wasn’t discovered until December 2012. Philadelphia Indemnity was notified in January that a total of $200,000 had been taken. The church requested coverage under the 2011 and the 2012 policy terms for a total of $100,000 but Philadelphia offered only $50,000.

See how much the church received.

Philadelphia Indemnity Insurance Company (Philadelphia) provided four separate crime policies from 1/01/2010 through 1/10/2014 to First United Methodist Church (First). Initially, due to a financial audit, it was discovered that First’s finance manager was embezzling church funds for a total amount of $200,000. The embezzlements occurred beginning in 2008. First discovered the embezzling in December, 2012 and reported the loss in January, 2013. Philadelphia paid its policy limit of $50,000 for the policy period beginning in 2013. The parties disagreed that the policy limits were also due for the policies beginning in 2011 and 2012. Both parties filed for summary judgment. When the lower court found in favor of First, resulting in a $100,000 award plus pre-judgment interest and court costs, Philadelphia appealed.

Philadelphia, upon appeal, argued that their policy language with regard to the non-cumulation of separate policy limits, their wording of “occurrence” with regard to employee dishonesty,” the separate policy numbers provided for the crime policies issued to First all justified their limiting their obligation to paying the policy limit just for the last loss discovered. Philadelphia’s position was that it was the only act of embezzlement that was eligible for coverage under the series of crime policies.

First reasserted its argument that the policy wording permitted several policies to respond to the ongoing acts of embezzlement and that the timing of their discovery allowed reimbursement from two, earlier policies. It also asserted that Philadelphia’s policy wording was subject to different interpretation and the resulting ambiguity should favor coverage from several policies.

The higher court reviewed several cases that were presented by both parties as relevant to the matter along with several portions of relevant policy language. After examination of several cases the higher court decided that Philadelphia’s policy language was subject to more than one meaning and that the insurer’s argument that its policy language restricted recovery from previous policies was not supported. Specifically, the court viewed the acts of embezzlement as being separate occurrences covered by separate policies. The lower court decision in favor of First was affirmed.

First United Methodist Church of Stillwater, Inc. Plaintiff-Appellee, v. Philadelphia Indemnity Insurance Company, a foreign corporation d/b/a Philadelphia Insurance Companies, Defendant-Appellant. No. 114396. Court of Appeals of Oklahoma, Division II. Filed August 26, 2016. Affirmed. VersusLaw 2016.OK.0000141

Limiting the payout

Employee theft once started often seems to become habitual. A small amount is taken and then, when the employee is not caught or stopped, an additional amount is taken. The taking continues until the employee is caught or leaves the company. The insurance company understands this and therefore attempts to limit its loss through conditions and definitions.

Read the PF&M analysis of some of the limiting conditions and definitions within the crime coverage forms.


The limit on the declarations is the most paid for all loss that result from a single occurrence. If a loss is covered under more than one insuring agreement, the company pays ONLY the largest limit of insurance available, not the sum of each available limit.

 Example: Acme Company sustains a loss that involves both employees and non-employees. It is determined that it is one occurrence and that Insuring Agreements 1, 3, and 7 provide coverage. The available limits of insurance are:

  • Insuring Agreement 1 – $300,000
  • Insuring Agreement 3 – $100,000
  • Insuring Agreement 7 – $250,000.

The total loss is $500,000.

The maximum recovery is $300,000, the highest limit available.

 Note: A situation like this could have claimants and their attorneys seeking ways to utilize the different definitions of occurrence within the insuring agreements so that what might appear to be a single occurrence could be separated into multiple occurrences.


These conditions apply in addition to the Common Policy Conditions.

  1. Conditions Applicable to All Insuring Agreements
  2. Extended Period to Discover Loss

Losses must occur prior to the cancellation date of coverage but may be discovered at either of the following:

  • Within one year from the date that coverage is cancelled. However, this extended period to discover loss ends immediately on the date that the named insured obtains other coverage.
Example: Peggy did not know that her employees were skimming money from the cash registers. Her crime coverage expired on 01/01 2017and was not renewed. She discovered the loss on 06/10/2017. The loss is covered if the employees began stealing the money from the cash registers before 01/01/2017. Any money stolen after 1/1/2017 is not covered.


  • Not more than one year from the date that cancellation is effective with respect to employee benefit plans. There is no exception.
  1. Loss Sustained During Prior Insurance Issued by Us or Any Affiliate

A person or persons may engage in numerous dishonest acts over a period of years before being caught. However, all such acts are considered one occurrence. If the named insured maintains continuous coverage with the same insurance company or group of insurance companies, coverage applies back to the date that the continuous insurance began. However, the limits of insurance do not accumulate because of the multiple years. Instead, the highest limit available during the total period is available to settle the total loss over the years when they occurred. This condition now has three parts and includes three examples because of some confusion and court cases such as Auto Lenders Acc Ace. Corp.v Gentilini Ford, Inc., 181 N.J. 245, 854 A.2d 378 2004.

Example: Alice stole $50,000 two years ago, $20,000 last year, and $30,000 this year, for a total of $100,000. Alice’s employer carried a $50,000 limit of insurance each of these three years. These limits cannot be added together even though the dishonest acts took place during each of these years because this provision treats the series of thefts as a single occurrence. $50,000 is the maximum limit available for this single occurrence.

 (1) Loss Sustained Partly during this Insurance and Partly during Prior Insurance

If a loss is sustained in part during the current insurance and in part during prior policies and there was no break in coverage, the loss in the current policy period is settled first. The losses in the prior periods are then settled.

(2) Loss Sustained Entirely during Prior Insurance

If a loss is sustained entirely during a previous policy period and there was no break in coverage between the date of loss and the current policy and the current policy covers the loss, the insurance company settles the loss under the most recent previous insurance first. It then settles the remaining amounts during previous insurance.

(3) When the insurance company settles losses under k. (1). And k. (2) above:

  • The highest single limit of insurance available during any policy period when the loss occurred is available for the loss.
  • No settlement is paid until the deductible that applies under the current policy is satisfied. That deductible is the only one applied to the entire loss settlement, regardless of the number of policy periods involved.


Low down Bob has been stealing from Below Ground Enterprises for three years. Below Ground discovers the loss this year and calculates that the amount of loss is $100,000.

Scenario 1: The limit of insurance on the current policy is $100,000. However, it was only $25,000 three years ago. The insurance company pays $100,000.

Scenario 2: The limit was reduced from $100,000 to $25,000 two years ago. The insurance company still pays Below Ground $100,000 because the limit of insurance was $100,000 at the time of the occurrence.

 1. Loss Sustained During Prior Insurance Not Issued by Us or Any Affiliate

(1) This condition applies only if there was no lapse in coverage between the current coverage and the previous coverage. Even a one-day lapse in coverage nullifies this important benefit. If a loss sustained in a previous policy term is discovered after the end of that policy’s discovery period, coverage applies under the current policy if both the old and new policy have the same coverage and one immediately replaces the other. The limit of insurance available is the lesser of the two policy limits.

Example: Number One, Inc. moved its coverage from STU Accident and Casualty Insurance Company to ABC Indemnity Company. It had been with STU for five years. Number One discovered a loss that occurred during the STU policy but after the discovery period expired. ABC Indemnity covers the loss for either the limit of insurance under the STU policy or the limit under its policy, whichever is less.

 The coverage available under this condition cannot be combined with the coverage available under Condition k. to increase the insurance limits. The limits under Condition k. are taken into consideration with the limits of the previous company and the lesser is the one chosen.

Note: The important distinction is that the highest limit is used to settle claims if coverage is continuously with one company or group. If coverage moves between companies, the lowest limit is used to settle claims. This creates a significant gap in coverage if coverage moves from one insurance company to another.


These definitions apply to all insuring agreements. There are 25 definitions.

  1. Occurrence

This term has different meanings under different Insuring Agreements.

  1. When used in Insuring Agreement A. 1., occurrence is one act, the total of multiple acts, or a series of acts an employee commits during the policy period. The acts are not required to be related but they may be. The employee may commit them alone or in collusion with others.


Five employees work together to skim money from their company’s accounts at different times and in different ways. This is treated as a single occurrence.

Five employees who do not know of each other’s plans or what they are doing skim money from their company’s accounts at different times and in different ways. This is treated as five different occurrences.

 The policy period is the period on the declarations but modified in Conditions E. 1. k. and E. 1. l. that explain how losses sustained during prior insurance are handled.

  1. When used in Insuring Agreement A. 2., occurrence is one act, the total of multiple acts or a series of acts an employee commits during the policy period that involve one or more instruments. The acts are not required to be related but they may be. The employee may commit them alone or in collusion with others. The policy period is the period on the declarations but modified in Conditions E. 1. k. and E. 1. l. that explain how losses sustained during prior insurance are handled.
  2. When used in any other Insuring Agreement, occurrence is one act, the total of multiple acts, or a series of acts committed during the policy period. The acts are not required to be related but they may be. The act(s) may be committed by a person who acts alone or in collusion with others. The act(s) are not required to have been committed by a person.
Example:  The individual(s) who were a part of a theft ring have never been identified but there is evidence that an organized ring had stolen hundreds of different products from the insured’s warehouse during the past five month. This is a single occurrence.

The policy period is the period on the declarations but modified in Conditions E. 1. k. and E. 1. l. that explain how losses sustained during prior insurance are handled.

Some small but significant changes

The 11 15 edition of the crime forms was remarkable in the limited number of changes introduced. However, to certain entities, these changes could be very important.

See below to review a discussion of the changes made.

Also below is a PF&M analysis of the changed portions of the coverage.


The 11 15 edition of the Insurance Services Office (ISO) CR 00 21–Commercial Crime Coverage Form (Loss Sustained Form) is unusual because of the few number of changes. The importance of each change will depend on the specific insured and its business operations.

Related Article: Commercial Crime Coverage Analysis


Note: The changes described below apply to CR 00 20, CR 00 21, CR 00 22, CR 00 23, CR 00 24, CR 00 25, CR 00 26 and CR 00 27. All of the changes that are applicable to only the Employee Theft and Forgery insuring agreements also apply to CR 00 28, CR 00 29, CR 00 30 and CR 00 31.

Additions to Exclusions

The following exclusion is added:

  1. Virtual Currency

All coverage for virtual currency is eliminated. The exclusion also provides a definition of virtual currency.

Changes to Exclusions

The following exclusion is amended

  1. d. Confidential or Personal Information

This exclusion was substantially changed in the 08 13 edition and this 11 15 change appears to be more of a consolidation of understanding or correction than an actual change. The exclusion is now divided into two parts. The first part addresses the exclusion as it relates to other persons’ or organizations’ information while the second part addresses the named insured’s information.

The change in this exclusion is in regards to only the named insured’s information. The disclosure of the information remains excluded but a loss resulting from the use of such information is not.

Changes to Conditions

1.h. Joint Insured is changed to add the positions of manager, director or trustee to the list of positions whose knowledge is considered shared knowledge to all within the joint insured.

Changes to Definitions

The 11 15 edition changed the following definitions:

  1. Financial Institution is revised to add an additional paragraph that the definition of financial institution is an open-ended “any” financial institution for all insuring agreements except for A.3. Inside the Premises–Theft of Money and Securities and A.6. Computer and Funds Transfer Fraud.
  2. Financial institutions premises is revised to emphasis that it applies only to insuring agreement A.3.
  3. Transfer account is revised to eliminate telegraphic, cable and teletype of modes of transfer because they are no longer used.


The following endorsements are added:

CR 04 17–Fraudulent Impersonation is a new insuring agreement. It fills a significant coverage gap that is created by the Transfer or Surrender of Property exclusion. Coverage is available when a loss occurs because property is transfer outside the premises based on transfer instructions that were not authorized.

CR 25 45–Include Virtual Currency as Money is a new endorsement that can be used with only the Employee Theft and Computer and Funds Transfer Fraud insuring agreements to cover loss of virtual currency. The endorsement rewrites the virtual currency exclusion, explains how a loss will be valued and revised certain definitions.

CR 25 46–Include Virtual Currency as Money is very similar to CR 25 45 except that it applies to only the Employee Theft insuring agreement.


  2. These exclusions apply to all insuring agreements unless stated otherwise.
  3. Confidential or Personal Information (11 15 changes)

The insurance company does not pay for loss that result from either of the following:

(1) Disclosing another person’s or organization’s confidential or personal information. It also does not pay for loss resulting from any use of such information.

 Example: Marguerite works in Acme College’s Record’s Department. Her boyfriend, Phillip, asks for some information about his roommate, Paul, and uses it to steal Paul’s identity. Paul discovers the identity theft when he attempts to secure a student loan. The police track the release of information to Phillip and Marguerite, both of whom have left town. Paul demands that Acme compensate him for the monetary loss due to Marguerite’s actions. One reason the crime coverage written on Acme College does not respond is because of this exclusion.

 (2) Disclosing the named insured’s confidential or personal information.  However, this exclusion does not apply to coverage that is available in certain insuring agreement when such information is used for dishonest acts.

Examples of such confidential or personal information mentioned in this exclusion are patents, trade secrets, customer lists, processing methods, credit card information, financial information, health information, or any other kind of information that is generally not available to the public. These are only examples and are not meant to restrict the term confidential or personal information.

Note: This exclusion was rewritten to clarify that only loss due to the disclosure of the named insured’s personal and confidential information is not covered. Coverage provided in an insuring agreement that is due to the use of the named insured’s personal or confidential information could still be covered.

  1. Virtual Currency (11 15 addition)

Any loss that involves virtual currency is excluded. Virtual currency is any type of electronic currency such as digital or crypto currency. The name of the currency and whether it is actual or fictitious is irrelevant to this exclusion.

Note: Coverage is available for this type of currency through CR 25 45–Include Virtual Currency as Money.

 Example: Justine sells products only online and accepts many forms of payment, including bitcoin. A recent audit reveals that Chris, one of her employees, has been siphoning the bitcoin payments to his personal bitcoin account. Justine submits an Employee Theft claim that is denied because the loss is entirely in virtual currency.


These definitions apply to all insuring agreements. There are 25 definitions.

  1. Financial institution (11 15 change)

When used in Insuring Agreement A. 3., a financial institution is a bank, savings bank, savings and loan association, credit union, or similar depository institution. It is also an insurance company.

When used in Insuring Agreement A. 6., financial institution is a bank, savings bank, savings and loan association, credit union, or similar depository institution. It is also an insurance company, an investment company, or a stock brokerage firm.

When used in any other Insuring Agreement financial institution is any financial institution.

  1. Financial institution premises (11 15 change)

The definition of premises differ from the common usage of premises and therefore must be carefully reviewed.

  • It is only the interior. This means that sidewalks and parking lots are not the premises of a financial institution even if the financial institution owns or is responsible for the sidewalk or parking lot.
  • If the financial institution occupies only a part of a building, the premises is only the part of the premises the financial institution occupies. This means that the hallways, elevators, other businesses and lobby of that building are NOT financial institution premises even if the financial institution owns the building but leases space to other occupants. Only the part of the building actually occupied by the financial institution is considered premises.

This definition applies only to Insuring Agreement A.3.

Financial Institution Premises is only that space on the other side of the door. Not a Financial Institution Premises
  1. Transfer account (11 15 change)

An account the named insured maintains at a financial institution from which money and securities may be transferred, paid, or delivered by means of computer telefacsimile, telephone, or other electronic instructions. The funds can also be transferred based on by written instructions that permit certain types of electronic transfers to be completed. However, the written instructions are not those which are covered under Insuring Agreement A.2.

Note: Telegraphic, cable and teletype were removed because they are archaic.

Asking about employee dishonesty exposures

Employee dishonesty losses can devastate a business because often a highly trusted person in the organization is the embezzler. Adequate coverage limits can help your client recover and to move forward. The first step is talking about the real possibility of a loss.

Here is a letter you could send to set up the conversation.

Dear [Name]:

Businesses lose billions of dollars annually because of dishonest acts of their own employees. In practically every case a “trusted employee” was responsible, so don’t discount the risk to you. Often employee dishonesty schemes victimize a business for weeks, months, even years.

Rather than take the chance of escaping employee dishonesty forever, judicious business people can:

  1. Confirm judgment in trusted employees
  2. Exert a restraining influence on those who might possibly be tempted
  3. Be reimbursed when employees do steal

I’d like to call you in a few days for an appointment at your convenience to give you more complete information about this service.


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