The defined terms come at the end of the policy. They are treated first here because the reader needs an understanding of the terms to better comprehend the policy. In the policy, any word in quotation marks is a defined term.

Analysis

A “banking premises” is just that—a bank or some other place occupied as a depository institution. “Client” refers to a client of the named insured. “Counterfeit” is an imitation, but its intent must be to deceive.

The policy defines “custodian” as the named insured, any of the named insured's partners or “members”, or any “employee”.  The definition excludes any person while acting as a “watchperson” or janitor, meaning that robbery of covered property in the care and custody of a “watchperson” or janitor, even though it occurs inside the premises, is not covered.

“Employee” means any “natural person” (1) while in the insured's service and for thirty days after termination of service, (2) whom the insured compensates directly by salary, wages, or commissions, and (3) whom the insured has the right to direct and control while performing services for the insured. Also considered employees are persons furnished temporarily to the named insured (from a “temp” agency), while those persons are serving in the capacity of an employee of the insured. However, such persons are not treated as employees while having care and custody of insured property outside the premises.

The concept of “employee” for coverage purposes does not encompass agents, brokers, factors, commissions merchants, consignees, independent contractors, or “representatives of the same general character.” The current version adds “leased employees” as another category not meeting the definition. Managers (of an LLP or LLC), directors, or trustees are not considered “employees” except while performing acts coming within the scope of the usual duties of an employee.

“Employee benefit plan(s)” is not just any benefit offered by an employer. Rather, to meet the definition, a plan must be subject to the Employee Retirement Security Act of 1974 (ERISA).

“Funds” is a new definition. It encompasses both money and securities.

“Manager” and “member” have been added, in order to recognize the growing number of businesses organized as limited liability companies (LLC).

A “messenger” is the named insured or any partner or “employee” of the named insured while having care and custody of the money or securities outside the insured's premises. The current edition of the form adds relatives of the named insured as well as “members” of an LLC to the definition of messenger.

“Money” means “currency, coins and bank notes in current use and having a face value; and travelers checks, register checks, and money orders held for sale to the public.” Because bullion does not have a face value it does not come within the scope of the definition of money and is considered to be “other property”.

“Occurrence” is defined in three slightly different ways. The first is for use under the “employee theft” insuring agreement. The form says that for employee theft, occurrence means ”all loss caused by, or involving, one or more employees, whether the result of a single act or series of acts.” This limits recovery to one limit of insurance in the event of employee collusion. For “forgery or alteration” occurrence is all loss caused by one person, regardless of the number of forged or altered instruments involved. For the other insuring agreements, an occurrence is an act or a series of acts.

“Other property” means any tangible property other than money (as defined) and securities (as defined) that has intrinsic value, but does not mean property specifically excluded by the policy.

A “premises” is the interior of the building where the insured conducts business.

“Robbery” is defined as the unlawful taking of property from the care and custody of a person by one who has (a) caused or threatened bodily harm to that person or (b) committed an obviously unlawful act witnessed by that person. By virtue of part (a) of the definition, there has clearly been a robbery in any case that the wrongdoer has harmed—or only threatened to harm—the custodian.

If covered property is stolen from a custodian who has been harmed by some other cause, that is not a robbery in the sense that it is defined in part (a) of the definition. An example is a custodian who has suffered a heart attack or other ailment on the premises and is unconscious during the theft. It is interesting to note that the definition of robbery in previous crime policies specifically included theft from a custodian who had been killed or rendered unconscious through no act of the thief.

As set forth in part 2 of the definition, a robbery need not involve threatened or actual violence against the custodian. If the custodian witnesses a theft of covered property from his or her care and custody, there will have been a robbery. If, for example, a storekeeper sees a customer grab an expensive coat off a rack and run outside with it, there will have been a robbery, even though the thief made no threats.

“Safe burglary” can be one of two things: the unlawful taking of property out of a locked safe or the taking of the safe itself.

Although the items listed in the definition of “securities” are specifically included in the definition, the term “securities” is not limited to such items. For example, in the Colorado case of Concordia Lutheran Evangelical Church v. United States Casualty Co., 115 A.2d 307 (1955), the meaning of securities (defined in virtually identical language) was held to include signed blank checks that were stolen from the insured before they were completed and successfully negotiated by the thief. (Although this case is over forty years old, it remains valid.)

“Theft” means the unlawful taking of the covered property. The current version adds “unlawful” to emphasize the criminal nature of the activity covered.

A “watchperson” is any person retained by the named insured specifically to have care and custody of property inside the premises and who has no other duties.

Analysis

The first insuring agreement covers money, securities, and other property for theft. The theft must be by an employee of the named insured. The theft is covered whether or not the employee can be identified, and whether or not the employee is acting “alone or in collusion with other[s].” Note that theft as well as the types of covered property are all defined terms which have been discussed previously.

The previous edition of the crime form covered “employee dishonesty” as opposed to “theft.” The previous form covered all dishonest acts committed by an employee that were intended to cause harm to the named insured. The new form covers theft of money, securities, or other property.

In the previous form, the dishonest acts had to have a dual intention: to cause harm to the employer and to result in financial gain for the dishonest employee. In the new form, the act must only result in loss to the “deprivation of the Insured.”

Analysis

The second coverage, forgery or alteration, protects the insured in case someone forges or alters checks, promissory notes, etc. in the insured's name. The offending person does not have to be associated with the insured in any way.

A business may be sued if its checks are forged and it refuses to pay the check. In this event, the policy provides defense coverage for the insured to fight the suit.

Analysis

The causes of loss in agreement 3—theft, disappearance, and destruction—represent an extremely broad scope of coverage, comparable to special causes of loss coverage under commercial property forms.

“Theft” is defined in the form as “unlawful taking” and therefore includes robbery, burglary, sneak theft, etc. Many of the exclusions found in the crime form (and discussed later in these pages) are aimed at defining what kinds of theft losses are not covered—the exclusions of employee dishonesty, extortion, and voluntary parting with property are examples.

Disappearance, undefined in the policy, is also capable of broad application. Note that the policy does not require that the disappearance be “mysterious” or accompanied by a presumption of theft.

Destruction, also undefined in the policy, is a broad term, encompassing loss by any cause of loss that destroys money or securities. Protection against fire loss to money and securities is a principal benefit to the insured. Of course, “destruction” does not include loss by nuclear reaction, war, governmental action, or any other cause of loss excluded in the form.

Section “a”, the inside premises coverage, applies only within the interior of the part of any building that the insured occupies in conducting its business; or within the interior of the part of any building occupied by a bank or similar safe depository. Theft of money from the insured's parking lot, for example, would not be covered under section “a” even though the parking lot is on the insured's grounds. However, for an additional premium, the definition of premises can be amended, by endorsement, to include the entire plot of ground under the insured's control.

Two other coverages apply to inside premises coverage. The first covers damage to the premises or its exterior resulting from an actual or attempted theft of covered property. The named insured must be the owner of the premises or liable for damage to the premises. The second pays for loss of or damage to a locked safe, vault, cash register, cash box, or cash drawer in the premises that results from an actual or attempted theft of or unlawful entry into the container. 

Analysis

Agreement four contains two distinct coverages: one for actual or attempted robbery of a custodian inside the premises; the other for actual or attempted safe burglary inside the premises. In the earlier crime program, each coverage was separately rated and available to be purchased with or without the other. In the current program, they must be bought together under agreement four. As in agreement three, this agreement also covers damage to the premises if the insured owns—or is responsible for—the premises.

Included in the insuring agreement is coverage for damage to covered property, as well as coverage for direct loss of covered property. For example, if the property is damaged but not stolen in an attempted robbery, the damage to the property is covered.

Analysis

This agreement covers theft, disappearance, or destruction of covered property outside the premises. The property must be in the care of a messenger or armored car company.

Analysis

Agreement six covers “money,” “securities,” and “other property”.

In the previous crime program, only theft was covered as a result of computer fraud. In the new program, loss of or damage to the covered property is insured as a result of computer fraud.

“Computer Fraud” means “the use of any computer to fraudulently cause a transfer of that property from inside the 'premises' or 'banking premises' to a person (other than a 'messenger') outside those 'premises' or to a place outside those 'premises.'”

Thus, the loss or damage must be accomplished through the use of a computer. This may be a computer on the premises that the perpetrator gains access to, or it may be a computer located outside the premises. The controlling factor here is that the computer was used to fraudulently cause a transfer of property from inside the premises to someone, or somewhere, outside the premises.

For example, a person might use his own computer to “break into” the computer of a business and issue instructions to pay a certain amount of money to a fictitious payee at a particular location. If the perpetrator succeeded in cashing the check made out to the fictitious payee, he would have caused a loss payable under agreement six.

Computer fraud includes transfer of property from inside a “banking premises” to someone or someplace outside those premises. For example, if someone illegally gains access to the bank's computer and instructs it to transfer funds from the insured's account to the wrongdoer, the loss will be covered. “Banking premises” are defined as “the interior of that portion of any building occupied by a banking institution or similar safe depository.”

The definition of computer fraud states that transfer of covered property to a “messenger” is not covered. A “messenger” is the named insured, any of the named insured's partners or relatives, or any “member” or “employee” while having care and custody of the property outside the “premises.” “Premises” is defined as the interior of that portion of any building the named insured occupies in conducting its business.

Analysis

Insuring agreement seven provides coverage for acceptance in good faith of counterfeit money orders and paper currency.

Note that a money order need not be counterfeit in order to be worthless. The money order may appear valid, but upon presentation it is not honored, perhaps because it was stolen, or an incorrect issuing signature used. The difference becomes apparent when reviewing the definition of “counterfeit”: “made in imitation of something else with intent to deceive” (Webster's Collegiate Dictionary, Tenth Edition). In other words, a money order may prove to be invalid without necessarily being counterfeit. Obviously, this distinction cannot apply to paper currency, so that only counterfeit currency is covered.

The previous form limited coverage to currency from only the United States and Canada. The current edition covers any counterfeit currency.

The money order or currency must be accepted in good faith, and must be in exchange for goods, money or services. Black's Law Dictionary, Sixth Edition, defines “good faith” as “an intangible and abstract quality with no technical meaning or statutory definition, and it encompasses, among other things, an honest belief, the absence of malice and the absence of design to defraud…”. The person or persons accepting the money order or currency must genuinely believe the money order or currency to be valid, and must accept them in the normal course of business. Note that this form makes no reference to “premises.” It is only important that the act take place during the regular course of business.

Analysis

The form provides coverage for loss in any one occurrence. The most the insurer is obligated to pay for loss in any one occurrence is the applicable limit of insurance shown in the crime policy declarations. There are three definitions of “occurrence” in the form. The first applies to employee theft coverage: “all loss caused by, or involving, one or more employees, whether the result of a single act or series of acts.” This limits recovery to one limit of insurance in the event of employee collusion.

For example, assume three employees discover they can steal cash at the end of each shift, and with each other's assistance, are able to cover the theft for several months. This would be one occurrence. However, if these employees are involved in theft from their employer independently and without knowledge of each other's actions, there would be three occurrences.

The second definition of occurrence applies to forgery or alteration coverage. It is based on a person's involvement. No matter how many instruments one person forges or alters, the policy considers it to be one occurrence.

For all other insuring agreements, an occurrence is an act or event or a series of acts or events.

Analysis

The deductible clause states that the insurer is liable in excess of the deductible up to the limit of coverage for an insured occurrence. Though the insurer incurs no liability for loss up to the deductible amount, a provision requires the insured to report all losses caused by employee dishonesty and, if requested, to provide a statement describing the loss. Such a report causes the “cancellation as to any employee” provision to come into effect (see below).