Government Crime Policy
Discovery and Loss Sustained Forms
March 2008
Summary: The government crime policies have been updated in 2006 as has the commercial crime policy. As with the prior policies, they are almost identical to the commercial crime policy. This treatment discusses the differences in the 2006 revisions. Since the differences between the discovery and loss sustained forms are discussed in the commercial crime policy those differences will not be discussed here. See Commercial Crime Policy The only policy language reproduced is where the government policies differ from the commercial policy.
Topics covered: Definitions Insuring agreement 1—employee theft Exclusions Conditions
As with the commercial crime policy, the definitions are discussed here first. Only those definitions that differ from the commercial crime policy are highlighted. The following terms that are defined in the commercial crime policy and are not included in the government crime policy are manager and member. Even though the government policy, like the commercial policy, defines an employee as one associated with or handling the funds of an employee benefit plan, only the commercial crime policy defines employee benefit plan.
The omission of the definition of “employee benefit plan” may be significant. If money is missing from an “employee benefit plan” there may be some question of coverage if “employee benefit plan” is not defined.
The government policy defines employee in a slightly different fashion. In the definition of employee the government policy has removed employees of an entity merged with the organization prior to the effective date of the policy and any managers, directors or trustees while performing the usual duties of an employee or acting as a member of a board of directors. These changes are directly related to the difference between government entities and private industry. While private industry may merge or consolidate companies, and have governing boards of directors, government entities do not. In the section on what does not constitute an employee the commercial policy says that employee does not include “any agent, broker, person leased to you by a labor leasing firm, factor, commission merchant, consignee, independent contractor, or representative of the same general character.” The government policy eliminates from the exception: “broker,” “factor,” “commission merchant,” and “consignee.”
The government policy removes the following from the definition of “messenger”: “relative” of the named insured and “partners” or “members.” The government policy also adds a section to the definition of “occurrence” to accommodate the “per employee” insuring agreement for employee theft (discussed later).
Insuring Agreement 1-Employee Theft
1.Employee Theft-Per Loss Coverage
We will pay for loss of or damage to “money”, “securities” and “other property” resulting directly from “theft” committed by an “employee”, whether identified or not, acting alone or in collusion with other persons.
For the purposes of this Insuring Agreement, “theft” shall also include forgery.
2.Employee Theft – Per Employee Coverage
We will pay for loss of or damage to “money”, “securities” and “other property” resulting directly from “theft” committed by each “employee”, whether identified or not, acting alone or in collusion with other persons.
For the purposes of this Insuring Agreement, “theft” shall also include forgery.
Analysis
With these two agreements, the government policy promises to pay for loss of covered property due to theft by an employee (per loss) or by each employee (per employee). The crime policy does not make this differentiation.
D.Exclusions
1.This policy does not cover:
a.Acts Committed By You
Loss resulting from “theft” or any other dishonest act committed by you, whether acting alone or in collusion with other persons.
b.Acts Of Employees Learned Of By You Prior To The Policy Period
Loss caused by an “employee” if the “employee” had also committed “theft” or any other dishonest act prior to the effective date of this policy and you or any of your officials, not in collusion with the “employee”, learned of that “theft” or dishonest act prior to the Policy Period shown in the Declarations.
Analysis
Exclusion 1a., Acts Committed by You is different from the crime policy in that reference to partners or members has been removed. Since this policy is for government entities, partners or members are not applicable. Exclusion 1b., Acts of Employees Learned of by You Prior to the Policy Period varies in the same way; reference to managers, members, partners, and officers is replaced with you or your officials.
2.Insuring Agreements A.1. and A.2. do not cover:
a.Bonded Employees
Loss caused by any “employee” required by law to be individually bonded.
b.Inventory Shortages
Loss, or that part of any loss, the proof of which as to its existence or amount is dependent upon:
(1)An inventory computation; or
(2)A profit and loss computation.
However, where you establish wholly apart from such computations that you have sustained a loss, then you may offer your inventory records and actual physical count of inventory in support of the amount of loss claimed.
c.Trading
Loss resulting from trading, whether in your name or in a genuine or fictitious account.
d.Treasurers or Tax Collectors
Loss caused by any treasurer or tax collector by whatever name known.
Analysis
Note that this set of exclusions applies to insuring agreement A.1. and A.2., employee theft coverage. The 2006 forms added an exclusion for bonded employees. Any loss caused by an employee that is required to be bonded by law is excluded. The exclusion for treasurers or tax collectors does not appear in the crime policy. Regardless of the title, loss by anyone performing these functions is excluded under the employee theft agreement. The exclusion for warehouse receipts that appears in the crime policy does not appear in the government policy.
E.Conditions
1.Conditions Applicable To All Insuring Agreements
a.Additional Premises Or Employees
If, while this insurance is in force, you establish any additional “premises” or hire additional “employees”, such “premises” and “employees” shall automatically be covered under this policy. Notice to us of an increase in the number of “premises” or “employees” need not be given and no additional premium need be paid for the remainder of the Policy Period shown in the Declarations.
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) 10 days before the effective date of cancellation if we cancel for nonpayment of premium; or
(b) 30 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.
d.Concealment, Misrepresentation Or Fraud
This insurance is void in any case of fraud by you as it relates to this insurance at any time. It is also void if you or any other Insured, at any time, intentionally conceal or misrepresent a material fact concerning:
(1)This insurance;
(2)The property covered under this insurance;
(3)Your interest in the property covered under this insurance; or
(4)A claim under this insurance.
e.Cooperation
You must cooperate with us in all matters pertaining to this policy as stated in its terms and conditions.
f.Duties In The Event Of Loss
After you “discover” a loss or a situation that may result in loss of or damage to “money”, “securities” or “other property” you must:
(1)Notify us as soon as possible. If you have reason to believe that any loss (except for loss covered under Insuring Agreement A.1., A.2. or A.3.) involves a violation of law, you must also notify the local law enforcement authorities.
(2)Submit to examination under oath at our request and give us a signed statement of your answers.
(3)Produce for our examination all pertinent records.
(4)Give us a detailed, sworn proof of loss within 120 days.
(5)Cooperate with us in the investigation and settlement of any claim.
Analysis
The consolidation-merger condition does not appear in the government crime policy conditions. Again, this is because mergers/consolidations live in the realm of private, not government, enterprise.
g.Employee Benefit Plans
(1)The “employee benefit plans” shown in the Declarations (hereafter referred to as Plan) are included as Insureds under Insuring Agreement A.1. or A.2.
(2)Any payment we make fro loss sustained by any Plan will be made to the Plan sustaining the loss.
(3)The Deductible Amount applicable to Insuring Agreement A.1. or A.2. does not apply to loss sustained by any Plan.
h.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 shown in the Declarations and up to 3 years afterward.
i.Extended Period To Discover Loss
We will pay for loss that you sustained prior to the effective date of cancellation of this insurance, which is “discovered” by you no later than 60 days from the date of that cancellation.
However, this extended period to “discover” loss terminates immediately upon the effective date of any other insurance obtained by you, whether from us or another insurer, replacing in whole or in part the coverage afforded under this policy, whether or not such other insurance provides coverage for loss sustained prior to its effective date.
j.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 k.(1) and k.(2) apply not only to us, but also to any rating, advisory, rate service or similar organization which makes insurance inspections, surveys, reports or recommendations.
k.Joint Insured
(1)If more than one Insured is named in the Declarations, the first Named Insured will act for itself and for every other Insured for all purposes of this insurance. If the first Named Insured ceases to be covered, then the next Named Insured will become the first Named Insured.
(2)If any Insured, or partner, “member” or officer of that Insured has knowledge of any information relevant to this insurance, that knowledge is considered knowledge of every Insured.
(3)An “employee” of any Insured is considered to be an “employee” of every Insured.
(4)If this insurance or any of its coverages is cancelled as to any Insured, loss sustained by that Insured is covered only if it is “discovered” by you:
(a)No later than 60 days from the date of that cancellation. However, this extended period to “discover” loss terminates immediately upon the effective date of any other insurance obtained by that Insured, whether from us or another insurer, replacing in whole or in part the coverage afforded under this insurance, whether or not such other insurance provides coverage for loss sustained prior to its effective date.
(b)No later than 1 year from the date of that cancellation with regard to any “employee benefit plans”.
(5)We will not pay more for loss sustained by more than one Insured than the amount we would pay if all such loss had been sustained by one Insured.
(6)Payment by us to the first Named Insured for loss sustained by any Insured, other than an “employee benefit plan”, shall fully release us on account of such loss.
l.Legal Action Against Us
You may not bring any legal action against us involving loss:
(1)Unless you have complied with all the terms of this insurance;
(2)Until 90 days after you have filed proof of loss with us; and
(3)Unless brought within 2 years from the date you “discovered” the loss.
If any limitation in this Condition is prohibited by law, such limitation is amended so as to equal the minimum period of limitation provided by such law.
Analysis
This provision recognizes that employee benefit plans differ from other types of insureds. It also recognizes that the employee benefit plans of a government entity differ from those of a private, commercial entity. In both policies, the policy agrees to pay loss to the named insured and requires the named insured to hold such payment for the “use and benefit” of the plan. The government policy does not have provisions if the first named insured is not a benefit plan, or if two or more plans are insured under this policy. Again, this speaks to the difference between government and civil entities.
The extended period to discover loss does not allow for one year of time for an employee benefit plan to discover the loss; if there is an employee benefit plan, the same sixty days to discover the loss applies.
The joint insured clause contains six provisions relating to joint insureds. The extended period of one year to discover loss that applies to employee benefit plans in the commercial crime policy also applies for joint insureds. The only other difference between the two policies is in provision (2). Recognizing the difference in organization between a commercial enterprise and a government entity, the policy removes any reference to “partner, “member, or officer” of an insured and replaces it with “official of that insured.”
u.Transfer Of Your Rights And Duties Under This Policy
Your rights and duties under this policy may not be transferred without our written consent.
v.Transfer Of Your Rights Of Recovery Against Others To Us
You must transfer to us all your rights of recovery against any person or organization for any loss you have sustained and for which we have paid or settled. You must also do everything necessary to secure those rights and do nothing after loss to impair them.
w.Valuation –Settlement
(1)The value of any loss for purposes of coverage under this policy shall be determined as follows:
(a)Loss of “money” but only up to and including its face value.
Analysis
The government policy removes the automatic transfer of the insured's rights to the legal representative of the estate or someone with possession of property until a representative is appointed should the insured die during the policy term. The clause requires that rights and duties may not be transferred without the company's consent. Therefore, upon the death of the insured, the legal representative or person with custody of the property must petition the company for permission to continue the policy.
The valuation clause has removed the option of having losses of money or securities issued in another country paid in that country's currency or the United States Exchange rate as published in the Wall Street Journal as of the date of loss. Again, as this is a government policy, covered currencies will be American.
2.Conditions Applicable To Insuring Agreements A.1. And A.2.
a.Indemnification
We will indemnify any of your officials who are required by law to give individual bonds for the faithful performance of their duties against loss through “theft” committed by “employees” who serve under them, subject to the applicable Limit of Insurance.
Analysis
A new condition was added to the government crime policy, indemnification. This applies to insuring agreements one and two, employee theft. If officials of the government agency are required to provide bonds against loss through theft committed by subordinate employees, coverage is provided up to the limit of insurance. For example, Cash supervises nine employees who handle money. One of Cash's long term employees, Penny, steals a large amount of funds. Because of Cash's position, he was required to provide a bond against such a loss. The policy will pay up to the limit of insurance for this loss.
4.Conditions Applicable To Insuring Agreements A.5. And A.6.
a.Armored Motor Vehicle Companies
Under Insuring Agreement A.6., we will only pay for the amount of loss you cannot recover:
(1)Under your contract with the armored motor vehicle company; and
(2)From any insurance or indemnity carried by, or for the benefit of customers of, the armored motor vehicle company.
b.Special Limit Of Insurance For Specified Property
We will only pay up to $5,000 for any one “occurrence” of loss of or damage to manuscripts, drawings, or records of any kind, or the cost of reconstructing them or reproducing any information contained in them.
Analysis
The government crime policy has removed from the special limits of insurance the limits for precious metals, stones, pearls, furs, or articles containing such materials. Therefore, losses involving these articles will be paid up to the applicable limit.