When reviewing the programs that are written to cover the variety of crimes throughout the United States, it becomes evident that there are two ways of providing crime insurance. Many agents are comfortable with custom designing such insurance to fit the needs of each of their insureds. The other approach is to use the identical crime insurance program for each client. Providing crime insurance by using the same coverages for each policyholder is usually accomplished by the use of a crime insurance program called Storekeeper's Burglary and Robbery (SBR). A lesser-used crime insurance program is Broad Form Storekeeper's Burglary and Robbery (BFSBR). This article is based on forms promulgated by the Insurance Services Office, Inc.
SBR is the crime program that provides severely restricted coverages. Very broad crime coverages are included in the BFSBR contracts. Burglary and robbery coverage are included as part of the storekeeper's burglary and robbery forms. On the other hand, the broad form storekeeper's burglary and robbery coverages include embezzlement, forgery, theft, disappearance, destruction and burglary. Several scenarios will be used to illustrate these various crime perils.
Robbery is one of the most limiting perils used in crime insurance. A practical definition of robbery is that something of value is taken from a person by the use of violence or the threat of violence. It also includes taking money or other property from the body of a person killed during the robbery process.
While robbery is a very limited peril, theft is a peril with almost limitless applications. Any act of stealing is the definition often used to describe theft. Theft includes robbery, which was described in the preceding paragraph. It also includes taking something when there is no human interaction involved. Shoplifting is an example of theft. The criminal takes something of value, and no employee of the store is threatened by the criminal.
Robbery versus theft
A fictitious example will be used to demonstrate the difference between robbery and theft. Small Town Store, LLC, sent one of its employees to the bank to make a deposit. On the way, the employee stopped at a restaurant to get a cup of coffee, leaving the envelope with the money on the seat of her four-wheel drive pickup truck. When she returned to the truck, she discovered that the envelope with the money was gone! She had to tell her boss about the loss.
The owner of Small Town Store (STS) was not too upset by the loss. He was sure that his insurance would cover it. After all, his insurance agent had told him that the storekeeper's burglary and robbery policy covered all crime losses because it was the broadest crime coverage that could be purchased. He was quite surprised to learn that he did not have coverage. The adjuster explained that the loss was a theft claim because no human being had been threatened with violence. Without a violence element to the loss, robbery coverage did not apply. The agent told Small Town Store that coverage for this type of loss could not be obtained.
At a businessowners meeting, the owner of Small Town Store told his story to anyone within hearing range, complaining loudly about how bad the insurance companies were because they didn't cover his loss. One person replied that he had been covered for the exact same loss when he left money in an unattended motor vehicle. The owner of STB responded that his agent had told him that coverage was not available for that kind of loss. He was told to talk to a different insurance agent. Upon doing so, he learned about the availability of broad form storekeeper's burglary and robbery coverage. He learned that the theft coverage provided by the BFSBR would have covered his loss.
Here is another fictitious example to illustrate a loss scenario involving the use of robbery coverage. The owners of Hardware, Inc., were preparing their bank deposit for the day. They normally would have made two deposits, one at noon, and the other at the end of the day. However, they had been so busy that they did not have time to make the noon deposit. The office where they were working was next to the room where the water heater and the gas-fired furnace were situated. The water heater exploded and came through the wall. The owner managed to escape from the building with only minor cuts and scrapes and with no burns.
In the ensuing fire, all of the money was destroyed. Hardware presented a claim to their insurer and was informed that their storekeeper's burglary and robbery coverage did not cover loss by fire or explosion. Hardware's insurance agent told them that coverage for fire and explosion was not available.
Some time later, the storeowners sought quotations for business insurance from several agents. When they told about their loss and its not being covered, one agent said that the loss could have been covered! Broad form storekeeper's burglary and robbery includes coverage for destruction. The money had been destroyed and the destruction peril on the BFSBR would have covered the loss. Whether the money had been destroyed by a fire, explosion, earthquake, volcanic eruption or any other peril, the broad form storekeeper's burglary and robbery contract would have covered the loss.
During the mid-1980s, a regional Midwest insurer was presented with an unusual claim for a $3,000 loss. According to the insured, the money had just been counted and placed in a pile on his desk. He left his desk. When he came back, the money was gone. The insured insisted that none of the employees had taken the money. An investigation of the loss was made. Because the loss was not a robbery, there would be no coverage under a storekeeper's burglary and robbery contract.
Had a broad form storekeeper's burglary and robbery policy been used, the coverage issue would have been quite different. As we discussed earlier, the BFSBR does include coverage for theft. Had someone other than an employee walked into that office and stolen the money, the loss would have been considered a theft.
Another possibility was that an employee had caused the loss. If so, the loss would have been considered embezzlement. Storekeeper's burglary and robbery does not cover losses by embezzlement; however, broad form storekeeper's burglary and robbery does.
A third cause of loss was considered but could not be proved. That possibility was that the loss was caused by the insured. The circumstances of the loss, plus the fact that the loss was for the exact amount of coverage, raised legitimate questions. However, there was no proof for this supposition.
Because both embezzlement and theft are covered by the BFSBR, it did not make any difference which way the loss happened. If it was embezzlement, it was covered. If it was theft, it was covered. Hence the broad form storekeeper's burglary and robbery paid for the loss.
Safe burglary
Losses incurred when a criminal takes money or property from a safe are covered by both the storekeeper's burglary and robbery and the broad form storekeeper's burglary and robbery forms. A working definition of safe burglary is that valuables are taken from a safe after it as been opened by methods such as the use of explosives or cutting torches.
An actual loss involving a Class E safe occurred in Indiana during the mid-1960s. A Class E safe has two doors--one door inside the other door. Two keys are needed to unlock each door--a total of four keys. Both doors have bolts larger than a person's thumb that move outward from the door into the wall of the safe. Locking the safe activates those bolts to move outward. Because criminals sometimes will steal an entire safe and take it to a location where they will have the time to open it, a Class E safe is built so that criminals cannot remove it. Steel bars are fastened into the cement floor and go over the top of the safe. To prevent criminals from using cutting torches to sever the bars, the bars are covered with cement. A Class E safe is almost as secure as a bank vault.
The insured went an extra step to prevent the loss of money by safe burglary by placing $10,000 into an envelope and putting the money into a file cabinet next to the safe. Criminal(s) broke into the business and took the $10,000 from the file cabinet. There were no visible signs of damage to the safe.
The insured submitted the loss of money to its insurer. Because the money had not been removed from the safe, this crime was not safe burglary; and because the business had a storekeeper's burglary and robbery contract, there was no coverage for the theft of the money. Broad form storekeeper's burglary and robbery would have covered the loss.
Another actual loss illustrates still another feature of the safe burglary coverage. This loss happened in Milwaukee during the early 1960s. A store's safe, which was located under the counter, was unlocked during store hours. Two people came into the store. One person distracted the clerk by getting the clerk to move to a part of the store where the clerk could not see the safe. Meanwhile, the other person walked behind the counter, removed the money from the safe and walked out.
This store had safe burglary insurance as part of a storekeeper's burglary and robbery contract. No damage had been done to the safe. No coverage was provided by the firm's SBR. Had they used a broad form storekeeper's burglary and robbery policy, this loss would have been an insured claim.
Coverage versus no coverage
From the examples above you can see that the storekeeper's burglary and robbery contract did not cover a number of losses while those same losses would have been covered by the broad form storekeeper's burglary and robbery forms. Many agents and insureds think that the SBR is the best crime form that exists. It is not. SBR provides very little crime protection.
Whether they have it or not, all insureds want to think that they have the broad form storekeeper's burglary and robbery contract. A significant coverage provided by the BFSBR is coverage for the theft of money. We saw several situations where theft of money would have covered a loss. Embezzlement may not be high on a given insured's list of desired coverages. However, we did look at an actual claim where there was no question of coverage due to both embezzlement and theft being in force for the insured. Embezzlement, forgery, theft, destruction and disappearance are covered by the BFSBR. None of those coverages is on the storekeeper's burglary and robbery contract.
One limitation that applies to both the SBR and the BFSBR is that these coverage forms are available in only relatively modest limits. An eligibility restriction is that the broad form storekeeper's burglary and robbery can be written only on accounts with four or fewer employees.
A storekeeper's burglary and robbery contract consists of several separate crime forms being sold together. Each of the forms used to make up a storekeeper's burglary and robbery "package" can be purchased separately. The same feature applies to the broad form storekeeper's burglary and robbery "package." Each of the coverage forms making up the BFSBR contract can be issued as an individual coverage. When purchasing these coverages separately, there is no limit to how much coverage can be bought. An example might be an account with $250,000 embezzlement, $250,000 forgery, $50,000 theft, disappearance and destruction and $200,000 on computer misuse. Giving a client high limits is always a good practice for an insurance agent to follow.
Summary
Some agents don't know much about crime insurance. They don't have the knowledge needed to custom design crime insurance programs for their clientele. The "crime packages" storekeeper's burglary and robbery and broad form storekeeper's burglary and robbery are designed for use by those insurance agents.
My recommendations are:
It is best to custom design crime insurance programs for clients. This enables the client to have meaningful limits. In addition, the custom-designed programs allow choosing coverages from about 18 crime forms. By contrast, the SBR has about three forms and the BFGSBR has about five forms.
Should you not be comfortable with custom designing crime insurance programs, sell the clients the broad form storekeeper's burglary and robbery form wherever possible. If an agent is going to use the "crime packages," my recommendation is to use the BFSBR for every eligible client.
Storekeeper's burglary and robbery coverage is available and can be used. Its coverages are severely restricted. Because it is too limited in the coverages it provides, my recommendation is to document that you have told the client about the restrictive coverages provided by this program. *
©COPYRIGHT: The Rough Notes Magazine, 2000