Summary: The employee theft and forgery policy is a slimmed down version of the commercial crime coverage form in that the former offers only two insuring agreements — employee theft and forgery or alteration — as opposed to the seven coverages in the commercial crime form. This article analyzes the employee theft and forgery policy, but will only reproduce those clauses that differ from the commercial crime coverage form; for information on the commercial crime form, see Commercial Crime Coverage Form.
The employee theft and forgery policy has two versions, the discovery version and the loss sustained version—CR 00 28 03 00 and CR 00 29 03 00 respectively.
Topics covered:
Insuring agreements
Exclusions
Conditions
Insuring Agreements
The insuring agreements on CR 00 28 deal with employee theft and loss resulting directly from forgery or alteration of checks, drafts, notes, and similar written promises to pay; the wording of these coverages is the same as that on CR 00 20 03 00, the commercial crime coverage form. The most the insurer will pay for loss in any one occurrence is the applicable limit of insurance shown on the declarations page for the respective coverages. The insuring agreements on CR 00 28 and CR 00 29 read the same.
Exclusions
The exclusions section of CR 00 28 is formatted differently from that of CR 00 20, and is shorter. CR 00 20 has twenty exclusions, some applying to all the insuring agreements and some applying to only certain of the agreements. CR 00 28 (and CR 00 29) has eight exclusions, with three applying to both insuring agreements, four applying only to the employee theft coverage, and one applying to the forgery coverage. CR 00 28 does not have the following exclusions that appear on CR 00 20: governmental action, nuclear, war, accounting errors, exchanges or purchases, fire, money operated devices, motor vehicles, transfer or surrender of property, vandalism, and the voluntary parting of title to property. Presumably, such exclusions are not necessary for the coverages offered by CR 00 28 and CR 00 29.
The following exclusion on CR 00 28 applies only to insuring agreement A.2.
3. Insuring Agreement A.2. does not apply to:
Acts Of Employees, Managers, Directors, Trustees, Or Representatives
Loss resulting from “theft” or any other dishonest act committed by any of your “employees”, “managers”, directors, trustees, or authorized representatives:
a. Whether acting alone or in collusion with other persons; or
b. While performing services for you or otherwise.
Analysis
This exclusion does appear on CR 00 20 but in a different format. CR 00 28 directly declares that insuring agreement A.2.—forgery or alteration—is not applicable to dishonest acts of employees, managers, directors, trustees, or representatives. CR 00 20 declares that the insurance offered by CR 00 20 as a whole does not apply to such acts, except when covered by the employee theft insuring agreement. However, the bottom line is that, unless the insured has purchased employee theft coverage, insurers are not going to cover losses resulting from theft or dishonest acts by any those who are part and parcel of the named insured's business operations. Employees, managers, directors, and trustees are seen as extensions of the named insured and, just as dishonest acts by the named insured would not be insurable, so too are dishonest acts by those “extensions” not insurable. The crime policies will cover theft by an employee, but that is the extent of it.
Conditions
b. Cancellation Of Policy
(1) The first Named Insured shown in the Declarations may cancel this policy by mailing or delivering to us advance written notice of cancellation.
(2) We may cancel this policy by mailing or delivering to the first Named Insured written notice of cancellation at least:
(a) ten days before the effective date of cancellation if we cancel for nonpayment of premium; or
(b) thirty days before the effective date of cancellation if we cancel for any other reason.
(3) We will mail or deliver our notice to the first Named Insured's last mailing address known to us.
(4) Notice of cancellation will state the effective date of cancellation. The policy period will end on that date.
(5) If this policy is cancelled, we will send the first Named Insured any premium refund due. If we cancel, the refund will be pro rata. If the first Named Insured cancels, the refund may be less than pro rata. The cancellation will be effective even if we have not made or offered a refund.
(6) If notice is mailed, proof of mailing will be sufficient proof of notice.
c. Changes
This policy contains all the agreements between you and us concerning the insurance afforded. The first Named Insured shown in the Declarations is authorized to make changes in the terms of this policy with our consent. This policy's terms can be amended or waived only by endorsement issued by us and made a part of this policy.
Analysis
These conditions offer nothing out of the ordinary for the average insured. The cancellation condition notes that the first named insured can cancel the policy by sending notice to the insurer with no time restraints. The insurer can cancel the policy but must give the insured at least ten days notice before cancellation takes effect if the cancellation is for nonpayment of premium; thirty days notice is required if the cancellation is for any other reason. The first named insured not only gets the notice of cancellation, but also gets the return premium if there is any. This premium refund is on a pro rata basis if the insurer cancels the policy. The insurer states that if the insured cancels the policy, the refund may be less than pro rata. This is meant to cover certain administrative costs expended by the insurer in the writing and canceling of the policy; however, some states are now forbidding this type of cancellation and are requiring a pro rata cancellation even if the insured cancels the policy. Finally, this cancellation clause states that if notice of cancellation is mailed, proof of mailing is sufficient proof of notice. This means the insured or the insurer, if canceling a policy, should mail the notice on a certified, return receipt requested basis.
The changes condition notes that the policy's terms can be amended or waived only by endorsement that is made a part of the policy. A verbal acquiescence by the agent or a company representative will not do if the insured wants some changes to the policy. The first named insured is the one recognized by the insurer as the spokesman for the insureds in making changes in the terms of the policy.
i. Examination Of Your Books And Records
We may examine and audit your books and records as they relate to this policy at any time during the policy period and up to three years afterward.
Analysis
The insured should take note of the fact that this clause allows the insurer to audit the books and records of the insured for up to three years after the policy period ends. Chances are the insurer would not wait such a long period to audit the insured's books, especially if premium dollars are involved; however, the insured should know that the insurer has this option.
k. Inspections And Surveys
(1) We have the right to:
(a) Make inspections and surveys at any time;
(b) Give you reports on the conditions we find; and
(c) Recommend changes.
(2) We are not obligated to make any inspections, surveys, reports or recommendations and any such actions we do undertake relate only to insurability and the premiums to be charged. We do not make safety inspections. We do not undertake to perform the duty of any person or organization to provide for the health or safety of workers or the public. And we do not warrant that conditions:
(a) Are safe or healthful; or
(b) Comply with laws, regulations, codes or standards.
(3) Paragraphs (1) and (2) above apply not only to us, but also to any rating, advisory, rate service or similar organization which makes insurance inspections, surveys, reports or recommendations.
Analysis
The conditions give the insurer the right to make inspections of the insured's premises at any time. The purpose of the inspections is to make the insurer aware of the exposures that the insured faces and to arrive at a proper premium. The insurer makes the point that the inspections are not safety inspections and that it has not assumed the role of OSHA or any other inspection service that has the responsibility of making sure the insured complies with safety and health regulations. With this wording, the insurer hopes to insulate itself from those who would claim that since the insurer is taking upon itself the task of inspecting the premises, it has assumed the responsibility (and thus, the liability) of making the premises healthy and safe for all.
s. Premiums
The first Named Insured shown in the Declarations:
(1) Is responsible for the payment of all premiums; and
(2) Will be the payee for any return premiums we pay.
Analysis
A policy may have many insureds. In order to bring some order and line of responsibility to the business relationship between the insureds and the insurer, some entity has to be named as the connecting link. The first named insured is chosen as that link. The first named insured can request changes in the policy's terms, gets the cancellation notice, and is now made responsible for the payment of the premium. Should the policy get cancelled, the first named insured receives any return premium from the insurer and then, it is left to the insureds to settle among themselves the proper distribution of that premium.
w. Transfer Of Your Rights And Duties Under This Policy
Your rights and duties under this policy may not be transferred without our written consent except in the case of death of an individual Named Insured.
If you die, your rights and duties will be transferred to your legal representative but only while acting within the scope of duties as your legal representative. Until your legal representative is appointed, anyone having proper temporary custody of your property will have your rights and duties but only with respect to that property.
Analysis
This condition is an attempt by the insurer to exert a bit of risk management over the exposures it has insured. The insurer has the insurance application and most probably a loss history for the insured; it knows the insured. If that insured were to change, the knowledge of the exposures would change. The insured may be replaced by a person with a criminal history or one who has money problems, and this would represent an unacceptable increase in the risk of loss to the insurer. Therefore, it requires any transfer of rights and duties under the terms of the policy to be subject to the insurer's written consent. The death of the individual named insured is an exception to the rule.
Definitions
The definitions section of CR 00 28 and CR 00 29 contains thirteen definitions while CR 00 20 has twenty of them. The difference is, of course, in the fact that CR 00 20 has seven insuring agreements and CR 00 28 has only the two agreements. The definitions reflect this situation. The definitions that are on CR 00 28 and CR 00 29 are worded the same as on CR 00 20; see Commercial Crime Coverage Form for an analysis of the definitions.