Financial Institution Crime Policy for Banks and Savings Institutions

Financial Institution Crime Policy for Banks and Savings Institutions(Aggregate And Non-Aggregate Forms)

ISO Forms FI 00 11 09 12 AND FI 00 10 09 12

April 7, 2014

Summary: ISO has updated its Crime Policy for Banks and Saving Institutions. There are some coverage and wording changes. The form is available in an aggregate and non-aggregate form. The policies provide coverage for a variety of perils associated with banking, and are part of ISO's new Financial Institutions Program. Many of the perils deal specifically with fraud and the intent to improperly gain financially or to cause the institution deliberate harm. As the policies are very similar, the aggregate policy, FI 00 11 09 12 will be discussed, and any differences in the non-aggregate policy FI 00 10 09 12 will be noted in the analysis.

Topics covered:

Introduction

This policy contains fourteen insuring agreements, and coverage is provided under these agreements when a limit of insurance is listed in the Declarations. The loss must arise from an occurrence and be discovered by a designated person during the policy period. The terms in quotation marks are defined terms and, as such, are discussed subsequently in this article. See Definitions.

The non-aggregate policy shows a Limit of Insurance in the Declarations, and does not show a Single Loss Limit of Insurance as indicated in the aggregate policy.

Insuring Agreement 1—Fidelity

1.Fidelity

a.We will pay for loss resulting directly from dishonest or fraudulent acts (except for that portion of any loss arising totally or partially from any “loans” or trading) committed by an “employee”, acting alone or in collusion with others. Such dishonest or fraudulent acts must be committed by the “employee” with the manifest intent to:

(1)Cause you to sustain such loss; or

(2)Obtain an improper financial benefit for the “employee” or another person or entity.

b.We will pay for loss arising totally or partially from “loans” resulting directly from dishonest or fraudulent acts committed by an “employee” acting in collusion with another party to the “loan” transaction, provided that you first establish that the loss was caused directly by such dishonest or fraudulent acts committed by the “employee” with the manifest intent to:

(1)Cause you to sustain such loss; and

(2)Obtain an improper financial benefit for the “employee” and that is received by the “employee”. However, if the “employee” failed to receive such improper financial benefit, such loss will nevertheless be covered under this Paragraph 1.b. if you establish:

(a)Another party to the “loan” transaction that the “employee” was acting in collusion with received the proceeds from the “loan”; and

(b)The “employee” intended to obtain an improper financial benefit.

c.We will pay for loss arising totally or partially from trading resulting directly from dishonest or fraudulent acts committed by an “employee” acting alone or in collusion with others. Such dishonest or fraudulent acts must be committed by the “employee” with the manifest intent to:

(1)Cause you to sustain such loss; and

(2)Obtain an improper financial benefit for the “employee” or another person or entity.

d.We will pay for loss or damage resulting directly from vandalism or malicious mischief caused by an “employee” when such vandalism or malicious mischief results in loss of or damage to “electronic data”, books of account or other written or electronic records or “computer programs”.

e.As used throughout this Insuring Agreement, improper financial benefit does not include any employee benefits earned in the normal course of employment, including salaries, salary increases, commissions, fees, bonuses, promotions, awards, profit sharing, incentive plans, pensions or other emoluments.

Analysis

Insuring Agreement 1—Fidelity provides coverage for dishonest or fraudulent acts committed by an employee, working alone or in collusion with another person, that either cause the insured to sustain loss or for the employee or another person to gain financially. The act must be committed with the specific intent to cause the insured loss or for the employee/other person to gain improper financial benefit. For example, two employees work together to embezzle funds from the insured. This would be covered. Carelessness or negligence of the employee, without any intent to cause loss or improper gain, is not covered. Mistakes happen, and the coverage is not designed to compensate the insured for having careless or sloppy employees. The intent of the policy is to cover breach of trust, not honest mistakes or sloppiness. Employee benefits, salaries, commissions, awards, pensions, earned normally are not included as improper financial benefit.

Losses arising from loans or trading as a result of dishonest or fraudulent acts of employees that cause the insured to sustain financial loss are covered. It must be shown that the employee intended for the insured to suffer loss or for the employee or other party to obtain improper financial gain.

Damage as a result of vandalism or malicious mischief to electronic data, books of account, written or electronic records or computer programs is also covered. It is not unheard of for disgruntled employees to sabotage an employer's computer system out of anger towards a work situation.

The intent of the employee is important in this insuring agreement; the resulting damage or loss must be because the actions were intended to cause such loss or damage. The employee is either trying to gain financially or to deliberately cause harm or loss to the employer. The employee may also be working with someone else in order for that person to gain financially.

Insuring Agreement 2—On Premises

2.On Premises

a.We will pay for:

(1)Loss of “property” (except for tangible items of business personal property and tangible items of “customer” personal property as set forth in Property Definition, Paragraphs 29.b. and 29.c.) resulting directly from robbery, burglary, misplacement, mysterious unexplainable disappearance, damage thereto or destruction thereof; or

(2)Loss of “property” resulting directly from theft, false pretenses, common-law or statutory larceny, committed by a person present in your offices or on your premises; while the “property” is lodged or deposited within offices or premises located anywhere.

b. With regard to Paragraph 2.a., premises of depositories shall be deemed to be your premises, but only to the extent of your interest in “certificated securities” held by the depository.

c.We will pay for:

(1)Loss of or damage to tangible items of business personal property as set forth in Property Definition 29.b. within your offices or premises; or

(2)Loss from damage to your offices or premises or their exterior;

resulting directly from an actual or attempted robbery, burglary, theft, common-law or statutory larceny, provided with regard to Paragraphs 2.b.(1) and 2.b.(2) above:

(a)You are:

(i)The owner of such tangible items of business personal property;

(ii)The owner of the offices or premises; or

(iii)Liable for such loss or damage; and

(b)The loss or damage is not caused by fire.

d.We will pay for loss of “property” in the possession of a “customer”, or his or her representative, resulting directly from robbery of such “customer” or his or her representative, while such “customer” or representative is:

(1)Inside your offices or premises;

(2)Outside your offices or premises while transacting banking business at an outside window attended by an “employee”; or

(3)On any driveway or parking lot maintained by you, for the purpose of transacting banking business with you; whether or not you are liable for the loss, provided, such loss is included in your proof of loss.

Analysis

Covered causes of loss to property on premises are loss of property resulting directly from robbery, burglary, misplacement, mysterious unexplainable disappearance, damage or destruction. Loss resulting from theft, false pretenses, common-law or statutory larceny committed by a person in the named insureds offices or on the named insureds premises is also covered. The property must be lodged or deposited within the offices or premises of the insured located anywhere. New to the 2012 form is 2.b., the declaration that depositories shall be considered to be the insured premises but only to the extent of the insured's interest in “certificated securities” being held by the depository. Robbery is the taking of another's property through force, intimidation or threat. Burglary is the taking of another's property by unlawful entry. Larceny is the theft of property without force. The intent of all these actions is to deprive the owner of the value of the stolen property. While the end result of the actions of burglary, robbery, and larceny is usually the same, the terms are applied separately as the courts apply punishments separately based on the actual action involved.

Customer's property includes money, certificated or uncertificated securities, negotiable instruments, certificates of deposit, documents of title, acceptances, evidences of debt, security agreements, withdrawal orders, certificates of origin or title, letters of credit, insurance policies, abstracts of title, deeds, mortgages, revenue and other stamps, tokens, unsold lottery tickets, gems, jewelry and precious metal in any form. Customer's property not included in the above list is not covered.

The following business personal property items are not covered for the causes of loss listed: furnishings, fixtures, supplies, safes, vaults, or equipment.

However, those same items of business personal property are covered provided that: the insured is the owner of the items, the owner of the offices or premises, or liable for loss or damage and the loss or damage is not caused by fire. Loss from damage to the insured's offices, premises, or exterior is covered under the same conditions. Loss must result from actual or attempted robbery, burglary, theft, common-law or statutory larceny.

If loss of property in possession of a customer or his representative is the result of robbery, the loss will be covered provided the customer or his representative is: inside the named insured's office or premises, outside the named insured's office or premises while transacting business at an outside window attended by an employee, or on any driveway or parking lot maintained by the named insured for the purpose of transacting business with the named insured. As long as the customer is on the named insured's premises to transact business and is robbed while there, even in the parking lot, the loss is covered. Once out of the premises or away from the parking lot, however, there is no coverage. Coverage is provided whether or not the named insured is liable. The loss must be included in the insured's proof of loss. For example, Lucky Joe is crossing the parking lot in order to deposit his race track winnings in the bank, but before he can enter the bank he is robbed of all his winnings. This would be covered under this policy. Diamond Jim, however, who after picking up a diamond necklace for his girlfriend crosses the bank's parking lot on the way to dinner is robbed of the necklace, is afforded no coverage from this policy. He was not headed to do business with the insured; he was simply crossing the property and was not a customer of the insured.

Insuring Agreement 3—In Transit

3.In Transit

a.We will pay for loss of “property” (except for tangible items of business personal property and tangible items of “customer” personal property as set forth in Property Definition, Paragraphs 29.b. and 29.c.) resulting directly from robbery, common-law or statutory larceny, theft, misplacement, mysterious unexplainable disappearance, damage thereto or destruction thereof, while the “property” is in transit anywhere in the custody of:

(1)A natural person acting as your messenger (or another natural person acting as a messenger or custodian during an emergency arising from the incapacity of the original messenger);

(2)A “transportation company” and being transported in an armored motor vehicle; or

(3)A “transportation company” and being transported in a conveyance other than an armored motor vehicle, provided that “property” transported in such manner is limited to the following:

(a)Records, whether recorded in writing or electronically;

(b)”Certificated securities” issued in registered form and not endorsed, or with restrictive endorsements; and

(c)”Negotiable instruments” not payable to bearer, or not endorsed or with restrictive endorsements.

b.Coverage under this Insuring Agreement begins immediately upon the receipt of such “property” by the natural person or “transportation company” and ends immediately upon delivery to the designated recipient or its agent.

Analysis

While property is in transit under the direction of the insured, coverage for loss resulting from robbery, common-law or statutory larceny, theft, misplacement, mysterious unexplainable disappearance, or damage or destruction is available with certain provisions. The property must be in the custody of a person acting as messenger, a transportation company using an armored vehicle for the property, or a transportation company not using an armored vehicle for the property. The property being transported is limited to the following: written or electronic records, certified securities in registered form and not endorsed or with restrictive endorsements, and negotiable instruments not payable to bearer, or not endorsed with restrictive endorsements. Note that if the original messenger becomes incapacitated, another person can take over for that person and act as messenger or custodian, and coverage will be in effect.

Tangible items of business personal property that are not covered are furnishings, fixtures, supplies, safes, vaults and equipment. Furniture, office supplies and other such items are not financial property and those items are better covered under a commercial property policy. Property of customers that is not covered is anything not in the following list: money, certificated or uncertificated securities, negotiable instruments, certificates of deposit, documents of title, acceptances, evidences of debt, security agreements, withdrawal orders, certificates of origin or title, letters of credit, insurance policies, abstracts of title, deeds, mortgages, revenue and other stamps, tokens, unsold lottery tickets, gems, jewelry and precious metal in any form.

Coverage begins once the messenger or transportation company receives the property and ends once the property is delivered. The property can be in transit anywhere.

For example, thieves may decide that breaking into the vault is too risky, but they have a better chance of successfully stealing property when it is being moved to or from the armored car or while in transit. If the thieves are successful in obtaining the property, coverage is provided. However, if the messenger asks a bank employee to hold a bag of cash while he gets out the keys to the vehicle and the thieves rob the employee, there is no coverage. The cash was not in the custody of a messenger or transportation company.

Insuring Agreement 4—Forged or Altered Instruments

4.Forged Or Altered Instruments

a.We will pay for loss resulting directly from “forgery” or alteration of any:

(1)”Negotiable instrument” (other than an “evidence of debt”);

(2)”Acceptance”;

(3)”Withdrawal order”;

(4)Receipt for the withdrawal of “property”;

(5)”Certificate of deposit” issued by you; or

(6)”Letter of credit” issued by you.

b.We will pay for loss resulting directly from transferring, paying or delivering any “funds” or “property” or establishing any credit or giving any value in reliance upon any written instructions directed to you authorizing or acknowledging the transfer, payment, delivery or receipt of “funds” or “property”, which instructions purport to have been signed or endorsed by any “customer” or by any financial institution, but which instructions either bear a signature which is a “forgery” or have been altered without the knowledge and consent of such “customer” or financial institution.

Analysis

Coverage is provided for loss as a result of the insured unknowingly relying on forged or altered documents to authorize or acknowledge the transfer, payment, delivery or receipt of funds or property. Coverage is provided for the forgery or alteration of the following documents: Negotiable instrument (other than evidence of debt), acceptance, withdrawal order, receipt for the withdrawal of property, certificate of deposit issued by insured or letter of credit issued by insured. The document in question must have been altered or forged without the knowledge and consent of the customer or financial institution who supposedly issued the document.

A forged document is one in which the signing of the name of another person or organization is made with the intent to deceive. For example; a blank certificate of deposit is taken, and the thief falsely signs the name of the senior accountant to the certificate so that he can cash it and collect the money. Coverage is provided as the intent is to deceive the organization. However, if a bank employee who does not have the authority to sign certificates starts signing them, there is no coverage as signing your own name with or without authority is not covered.

Insuring Agreement 5—Forged, Altered or Counterfeit Securities

5.Forged, Altered Or Counterfeit Securities

a.We will pay for loss resulting directly from your having, in good faith, for your own account or for the account of others:

(1)Acquired, sold or delivered, or given value, extended credit or assumed liability, in reliance upon any original:

(a)”Certificated security”;

(b)”Document of title”;

(c)Deed, mortgage or other instrument conveying title to, or creating or discharging a lien upon, real property;

(d)”Certificate of origin or title”;

(e)”Evidence of debt”;

(f)Corporate, partnership or personal “guarantee”;

(g)”Security agreement”;

(h)”Instruction”;

(i)”Certificate of deposit” not issued by you; or

(j)”Letter of credit” not issued by you; which, with regard to the items listed in Paragraphs 5.a.(1)(a) through 5.a.(1)(j):

(i)Bears a signature of any maker, drawer, issuer, endorser, assignor, lessee, transfer agent, registrar, acceptor, surety, guarantor, or of any person signing in any other capacity which is a “forgery”;

(ii)Is altered; or

(iii)Is lost or stolen;

(2)Guaranteed in writing or witnessed any signature upon any transfer, assignment, bill of sale, power of attorney, “guarantee”, endorsement or any of the items listed in Paragraphs 5.a.(1)(a) through 5.a.(1)(j); or

(3)Acquired, sold or delivered, or given value, extended credit or assumed liability, in reliance upon any item listed in Paragraphs 5.a.(1)(a) through 5.a.(1)(d), 5.a.(1)(i) or 5.a.(1)(j), which is a “counterfeit”.

b.Actual physical possession of the items listed in Paragraphs 5.a.(1)(a) through 5.a.(1)(j) by you, your correspondent bank or other authorized representative, is a condition precedent to your having relied on the validity of such items.

Analysis

Forged, altered, lost or stolen signatures that appear on certain documents that the insured relies upon to give credit, assume liability, give value, sell, acquire or deliver are covered under this policy.

The documents in question are original: certificated security, document of title, deed, mortgage, or other real property instrument, certificate of origin or title, evidence of debt, corporate, partnership or personal guarantee, security agreement, instruction, certificate of deposit not issued by insured or letter of credit not issued by insured that have been forged or altered.

Any guarantee in writing or witnessing of a signature for the listed documents is covered as well. Reliance on counterfeit certificated securities, titles, deeds, mortgages, certificate of origin or title, certificate of deposit not issued by insured or letter of credit not issued by insured are also covered.

The altered or forged document must be in the insured's physical possession in order to verify that he relied on said document in order to give value, extend credit, or assume liability.

Insuring Agreement 6—Counterfeit Money

6.Counterfeit Money

We will pay for loss resulting directly from your having, in good faith, accepted any “counterfeit money” of any country.

Insuring Agreement 7—Computer Fraud

7.Computer Fraud

a.We will pay for loss resulting directly from a fraudulent:

(1)Entry of “electronic data” or “computer program” into; or

(2)Change of “electronic data” or “computer program” within; any “computer system” owned, leased or operated by you or your contracted electronic data processing firm, provided the fraudulent entry or fraudulent change causes, with regard to Paragraphs 7.a.(1) and 7.a.(2):

(a)”Property” to be transferred, paid or delivered;

(b)An account of yours, or of a “customer”, to be added, deleted, debited or credited; or

(c)An unauthorized account or a fictitious account to be debited or credited.

b.As used throughout this Insuring Agreement, fraudulent entry or fraudulent change of “electronic data” or “computer program” shall include such entry or change made by an “employee” acting, in good faith, upon a fraudulent instruction:

(1)From a computer software contractor who has a written agreement with you to design, implement or service “computer programs” for a “computer system” covered under this Insuring Agreement; or

(2)Transmitted by “tested” telex or similar means of “tested” communication (except a “telefacsimile device”) purportedly sent by a “customer”, financial institution or automated clearinghouse.

Analysis

Coverage is provided for loss generated by the entry or change of electronic data or computer programs into any computer system owned, leased, or operated by the insured or his contracted processing firm. The fraudulent entry or change must cause property to be transferred, paid or delivered, an account to be added, deleted, credited or debited, or an unauthorized or fictitious account to be credited or debited. The action is done deliberately to make unauthorized changes to the system for the perpetrator's individual benefit. Since hacking has become such a large issue, this is important coverage.

The actions of an employee acting on good faith on fraudulent instructions from a software contractor with an agreement to design, implement, or service programs, or a telex sent by a customer or automated clearinghouse, is covered. For example, an employee of a software company builds a program that creates an unauthorized account and deposits money into it from all the bank's other accounts. Based on the software company's instructions, the bank employee installs and runs the program unaware of these functions. This loss would be covered.

Insuring Agreement 8—Voice Initiated Transfer Fraud

8.Voice Initiated Transfer Fraud

a.We will pay for loss resulting directly from your having, in good faith, transferred or delivered “funds”, “certificated securities” or “uncertificated securities” from a “voice initiated transfer customer's” account in reliance upon a fraudulent voice instruction transmitted by telephone purporting to have been made by:

(1)A “voice initiated transfer customer”;

(2)A person authorized by your “voice initiated transfer customer” to instruct you to make such transfers; or

(3)An “employee” who was authorized by you to instruct other “employees” to transfer or deliver “funds”, “certificated securities” or “uncertificated securities”;

and was received by an “employee” specifically designated to receive and act upon such voice instructions, but the voice instruction was in fact not from a person described in Paragraph 8.a.(1), 8.a.(2) or 8.a.(3).

b.The following is a condition precedent to coverage under this Insuring Agreement:

Transfers in excess of the amount shown in the Declarations as the verification call-back amount for this Insuring Agreement shall be verified by you by a call-back according to a prearranged procedure.

Analysis

If funds are transferred from a voice initiated transfer customer's account based on reliance of fraudulent instructions transmitted by telephone, the resultant loss will be paid. The 2012 form adds “certificated securities” and “uncertificated securities” to the items covered. A voice initiated transfer customer is one who has a written agreement with the organization that the organization can rely on voice instructions, in lieu of written instructions, to make changes to her accounts. The instructions by phone must be purportedly made by: a voice initiated transfer customer, a person authorized by your voice initiated transfer customer to instruct you to make transfers, or an employee authorized by the named insured to instruct others to transfer funds. The call must have been received by an employee designated to receive and act upon voice instructions, but the instructions were not made by the appropriate individual as listed above. An identity thief who has gained access to someone's account number and passwords may call the institution and pretend to be the valid owner of the account, and authorize a transfer of funds or securities to another account.

The Declarations will show an amount as the verification call-back amount for this insuring agreement. In order for coverage to apply, the prearranged call-back procedure must be followed for any transfer amount in excess of that figure which is listed on the Declarations.

Insuring Agreement 9—Telefacsimile Transfer Fraud

9.Telefacsimile Transfer Fraud

a.We will pay for loss resulting directly from your having, in good faith, transferred or delivered “funds”, “certificated securities” or “uncertificated securities” from a “telefacsimile transfer customer's” account in reliance upon a “tested” telefacsimile instruction received through a “telefacsimile device” or “computer system” purporting to have been sent by:

(1)A “telefacsimile transfer customer”;

(2)Another financial institution; or

(3)Another of your offices;

and which contains the name and signature of a person authorized to initiate such transfers, but which in fact proves to have been fraudulently sent without the knowledge and authorization of the “telefacsimile transfer customer” or entity whose identification it bears.

b.The following is a condition precedent to coverage under this Insuring Agreement:

Analysis

This insuring agreement is similar to the prior one; coverage is provided for a loss that is caused by the good faith reliance on a “tested” telefacsimile instruction by a supposed telefacsimile costumer, financial institution, or another of your offices. This is a change from the previous form; a “tested” instruction is a method of authenticating the contents of a communication by the use of a test key that has been agreed upon between the insured and a “telefacsimile transfer customer”. The prior form simply stated coverage was for loss from reliance on a fraudulent communication. Coverage is for communications received with the signature and name of an authorized person to make such transfer, but the instruction was not sent by the telefacsimile transfer customer or the authorized person whose identification appears on the document.

Insuring Agreement 10—Automated Teller Machines

10.Automated Teller Machines

a.For any “attended automated teller machine”, we will pay for:

(1)Loss of “property” lodged or deposited within such “attended automated teller machine” resulting directly from burglary, damage thereto or destruction thereof; or

(2)Loss of or damage to such “attended automated teller machine” resulting directly from an actual or attempted burglary or theft, provided:

(a)You are:

(i)The owner of such “attended automated teller machine”; or

(ii)Liable for such loss or damage; and

(b)The loss or damage is not caused by fire.

b.For any “unattended automated teller machine”, we will pay for:

(1)Loss of “property” lodged or deposited within such “unattended automated teller machine” resulting directly from an actual or attempted robbery of an “employee” while servicing such “unattended automated teller machine”, burglary, damage thereto or destruction thereof; or

(2)Loss of or damage to such “unattended automated teller machine” resulting directly from an actual or attempted robbery of an “employee” while servicing such “unattended automated teller machine”, provided:

(a)You are:

(i)The owner of such “unattended automated teller machine”, or

(ii)Liable for such loss or damage; and

(b)The loss or damage is not caused by fire.

Analysis

There are two types of automatic teller machines, attended and unattended. An attended automatic teller machine is one inside the named insured's premises or attached to the outside of the named insured's premises where banking operations are conducted by the named insured's employees. The machine isn't exactly attended, but bank employees are nearby. Unattended automatic teller machines are machines located anywhere else; for example shopping malls, grocery stores, etc.

Covered losses for attended automated teller machines are loss of property lodged or deposited within the machine resulting from burglary, damage or destruction, and loss or damage from actual or attempted burglary or theft providing the insured is: the owner of such automated teller machine, or liable for loss or damage, and the loss or damage is not caused by fire.

The covered losses for unattended automatic teller machines are similar in nature except that the damage or loss of property lodged or deposited in the machine must result from the actual or attempted robbery of an employee servicing the machine. Likewise, loss or damage to the machine itself must result from the actual or attempted robbery of an employee servicing the machine providing the insured is: the owner of such automated teller machine, or liable for loss or damage, and the loss or damage is not caused by fire.

Insuring Agreement 11—Fraudulent Mortgages

11.Fraudulent Mortgages

We will pay for loss resulting directly from your having, in good faith, in connection with any “loan”, accepted, received or acted upon the validity of any:

a.Real property mortgage;

b.Real property deed of trust or like instruments pertaining to realty; or

c.Assignments of such mortgage, deed of trust or like instruments; which, with regard to Paragraphs 11.a., 11.b. and 11.c., prove to have been unenforceable by reason of:

(1)The signature of any natural person on such document having been obtained through trick, artifice, fraud or false pretenses; or

(2)The signature on the recorded deed conveying such real property to the mortgagor or grantor of such mortgage or deed of trust having been obtained by, or on behalf of, such mortgagor or grantor through trick, artifice, fraud or false pretenses.

Analysis

Insuring agreement 11 provides coverage for loss that results from the insured having relied on property documents on which signatures have been obtained through trick, artifice, fraud or false pretenses. The first named insured relied on these documents in connection with a loan. The documents are real property mortgages, deeds of trust or like instruments pertaining to realty, or assignments of such mortgages, deeds of trust or like instruments. These documents are unenforceable by reason of fraud. The signatures were obtained through fraud, trick, artifice, or false pretenses.

Insuring Agreement 12—Stop Payment or Refusal to Pay

12. Stop Payment Or Refusal To Pay

We will pay for loss which you shall become legally obligated to pay as damages resulting directly from your having:

a.Failed to comply with any request from a “customer”, or its designated agent, to stop payment on any check or draft made or drawn by such “customer” or its designated agent; or

b.Wrongfully refused to pay or certify any check or draft made or drawn upon you by a “customer” or its designated agent.

Analysis

This agreement is straightforward. If the insured mistakenly refuses to pay a check issued by a customer, or refuses to honor a request by a customer to stop payment on a check, coverage is provided under this policy.

Insuring Agreement 13—Cash Letter

13.Cash Letter

a.We will pay for loss resulting directly from misplacement, mysterious unexplainable disappearance, damage thereto or destruction thereof, or by any other cause, involving:

(1)Any item(s) enclosed in a “cash letter” while in transit during the course of collection, presentation or payment between any of your offices and any place in the United States of America (its territories and possessions), Puerto Rico and Canada, provided that such item(s) is still missing at least 21 days after you learn that the item(s) has not arrived at its destination; or

(2)Any canceled check(s) drawn by a “customer” after such check(s) has been charged to a “customer's” account and after a statement of the condition of that account purporting to enclose such check(s) has been delivered or dispatched to the “customer”.

b.We will indemnify you:

(1)For wages paid to temporary “employees” and overtime wages paid to your regular “employees” for necessary services rendered in identifying the depositors of lost items and in assisting those depositors in obtaining duplicates thereof; and

(2)Necessary costs incurred by you in the use of mechanical devices and materials in obtaining duplicates of the “cash letter” item(s) where such mechanical devices and materials are not owned by you.

c.The following are conditions precedent to coverage under this Insuring Agreement:

(1)You shall make a record of the name of the issuer, drawer or maker of each check, promissory note, draft or similar item(s) and a record of the name of the person presenting each check, promissory note, draft or similar item(s) with all other descriptive data necessary for the purpose of reconstruction; or

(2)You shall make a photograph or image of each check, promissory note, draft or similar item(s) in its entirety. However, if you are unable to produce a photograph or image of the item(s) because of:

(a)The failure of such equipment to record or otherwise make a legible copy of such item;

(b)Error by an “employee”; or

(c)The unintended destruction of the photograph or image after it has been made; coverage shall not be denied for that reason.

Analysis

A cash letter is any letter or package that itemizes by separate amounts all checks, promissory notes, drafts or any similar items that have been accepted by you for deposit, payment, collection or encashment. Loss that results directly from misplacement, mysterious unexplainable disappearance, damage or destruction or any other cause will be covered for cash letters or canceled checks under the following circumstances.

Cash letters are covered while in transit during the course of collection, payment or presentation between any of your offices and any place in the United States, its territories and possessions, Puerto Rico and Canada . The item must be missing at least 21 days after you learn that it has not arrived at its destination.

Canceled checks that have been drawn and charged to a customer's account are covered after a statement of the account which states that the canceled check is enclosed has been sent or delivered to the customer, but the check was not enclosed.

Coverage applies for wages of temporary staff or overtime for regular employees for necessary services to identify the depositors of lost items and obtain duplicates. The cost of mechanical devices not owned by you, but used to obtain duplicates of the cash letter items is also paid.

Coverage is dependent on the fulfillment of the following conditions: for each check, draft or promissory note lost, a record of the name of the issuer, drawer, name of the person presenting each check, with all data for reconstruction will be provided. Or, a photograph or image of each check, note or draft will be made. If you are unable to make an image due to failure of equipment, error of an employee, or the unintended destruction of the image after it is made, coverage will not be denied for those reasons.

Insuring Agreement 14—Audit and Claims Expense

14.Audit And Claims Expense

a.We will pay for reasonable expenses incurred by you with our written consent:

(1) For that part of the cost of audits or examinations conducted by state or federal supervisory authorities or by independent accountants or auditors to determine the amount of loss that you sustained through dishonest or fraudulent acts committed by an “employee” that are covered under Insuring Agreement 1.; and

(2) That are directly related to the preparation of a proof of loss in support of a claim covered under Insuring Agreement 1.

b. Any expenses covered under this Insuring Agreement will be paid only after settlement of the covered loss under Insuring Agreement 1.

c. We shall have no liability to pay any such expenses under this Insuring Agreement if the amount of the covered loss under Insuring Agreement 1. does not exceed the Single Loss Deductible Amount applicable to that Insuring Agreement.

Analysis

If a loss is caused by dishonest or fraudulent acts committed by an employee and in order to prepare a proof of loss for the insured audits or examinations are conducted by State or Federal supervisory authorities or independent accountants, the cost of those audits will be paid. This section now applies only to those losses covered under Insuring Agreement 1., Fidelity. Those costs will be paid only after the settlement of covered losses. There is no liability if the expenses do not exceed the deductible. Under (2) c., the non-aggregate policy refers only to the deductible amount; that policy does not have a single loss deductible amount.

Limit of Insurance-Aggregate Policy

1.Policy Aggregate Limit Of Insurance

a.The most we will pay for all loss (including court costs and attorneys' fees incurred by us as provided under Condition 8.c.) “discovered” during the Policy Period shown in the Declarations is the Policy Aggregate Limit Of Insurance shown in the Declarations. The Policy Aggregate Limit Of Insurance shall be reduced by the amount of any payment made under the terms of this policy, regardless of when paid.

b.Upon exhaustion of the Policy Aggregate Limit Of Insurance by such payments:

(1)We shall have no further liability for loss or losses regardless of when “discovered” and whether or not previously reported to us; and

(2)We shall have no obligation under Condition 8.c. to continue your defense, and upon our notice to you that the Policy Aggregate Limit Of Insurance has been exhausted, you shall assume all responsibility for your defense at your own cost.

c.The Policy Aggregate Limit Of Insurance shall be reinstated by any recovery net of the expense of such recovery received by us during the Policy Period and before the Policy Aggregate Limit Of Insurance is exhausted. Recovery from reinsurance and/or indemnity of ours shall not be deemed a recovery. In the event that a loss of “property” is settled by us through the use of a lost instrument bond, such loss shall not reduce the Policy Aggregate Limit Of Insurance, unless a payment under such lost instrument bond is made and then only for that amount of payment.

2.Single Loss Limit Of Insurance

a. Subject to the Policy Aggregate Limit of Insurance in Paragraph B.1., the most we will pay for each “single loss” is the applicable Single Loss Limit Of Insurance shown in the Declarations.

b. If a “single loss” is covered under more than one Insuring Agreement or coverage, the most we will pay for such loss shall not exceed the largest amount available under any one of those Insuring Agreements or coverages.

However, Paragraph 2.b. shall not apply to expenses covered under Insuring Agreement 14.

Analysis

This is an aggregate form policy. The most that will be paid for all loss discovered during the policy period on the declarations is the policy aggregate limit shown on the declarations. The new form now includes court costs and attorneys' fees in the aggregate limit. Regardless of when payment is made, the aggregate limit of insurance will be reduced by that amount. Successive losses within a policy period will subtract from the overall available limit for other losses during the remainder of the policy period.

Once the policy aggregate limit has been reached, the insurer has no further obligation for any losses regardless of when they were discovered or reported. There is no obligation to continue any defense; once the aggregate limit has been reached, the insured is responsible for all defense costs.

Any recovery less the actual expense of such recovery, and received during the policy period before the aggregate limit is exhausted, will replenish the aggregate limit by the amount of recovery. Recovery from reinsurance is not considered to be recovery and will not replenish the aggregate limit.

A “single loss” means all covered loss including court costs and attorney fees incurred by the insurer resulting from an occurrence. The insuring agreements on the policy may each have a separate single loss limit. Subject to the aggregate limit, the most that is payable for a single loss is that listed on the declarations for the applicable single loss limit. If a loss involves more than one insuring agreement, the most that will be paid is the largest amount available under any one insuring agreement or coverage. For example, if damage to electronic property falls under both the fidelity and the computer fraud insuring agreements, the most that will be paid for the loss is the highest limit of the two listed on the Declarations. Likewise, if the single loss limit is $15,000 and there is a $20,000 loss, even though the policy aggregate limit is higher, the amount paid in the claim will be the single loss limit, $15,000.

For audit and claim expenses described in agreement 14, the requirements for a single loss under more than one insuring agreement does not apply.

Non-Aggregate Limit of Insurance-Wording in Non-Aggregate Policy

1. The most we will pay for all loss (including court costs and attorneys' fees incurred by us as provided under Condition 8.c.) in any one “occurrence” is the applicable Limit of Insurance shown in the Declarations.

2. If any loss is covered under more than one Insuring Agreement or Coverage, the most we will pay for such loss shall not exceed the largest amount available under any one of those Insuring Agreements or coverages.

Analysis

The non-aggregate policy simply states that the most that will be paid in any one occurrence, including court costs and attorney's fees, is the limit of insurance as shown in the Declarations. Unlike the aggregate policy, there is no reduction in the limit of insurance for each loss paid out.

If a loss involves more than one insuring agreement, the most that will be paid is the largest amount available under any one insuring agreement or coverage.

Single Loss Deductible

We will only pay the amount by which any “single loss” exceeds the applicable Single Loss Deductible Amount shown in the Declarations. We will then pay the amount of loss in excess of the Single Loss Deductible Amount, up to the Single Loss Limit Of Insurance, subject to the Policy Aggregate Limit Of Insurance.

Analysis

The single loss deductible is self explanatory. The non-aggregate policy, not having any single loss deductible, plainly states that a loss will not be paid unless it first exceeds the deductible amount as shown in the declarations, and the policy will pay up to the limit of insurance.

Exclusions

This policy does not cover:

1.Loss resulting directly or indirectly from the dispersal or application of pathogenic or poisonous biological or chemical materials, nuclear reaction, nuclear radiation or radioactive contamination, or any related act or incident.

2.Loss or damage caused by or resulting from pollution. Pollution means the discharge, dispersal, seepage, migration, release or escape of any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

Analysis

These exclusions are the common biological, chemical, nuclear, and pollution exclusions. Coverage is not provided for any loss resulting from biological or chemical pathogens, nuclear radiation, or contamination. The pollution exclusion defines the pollutant and the mechanism by which it may occur on the property.

3.Shortage in any teller's cash due to error, regardless of the amount of such shortage. Any shortage in any teller's cash which is not in excess of the normal shortage in the teller's cash in the office where such shortage occurred shall be presumed to be due to error.

4.Potential income, including but not limited to interest and dividends, not realized by you or your “customer”.

Analysis

The failure to earn potential income, including interest and dividends, and any shortage in teller's cash, regardless of the amount of such shortage, is excluded. The intent of the policy is to provide coverage for actual loss due to crime, not mistakes or loss of potential income.

5.Damages of any type for which you are legally liable, except direct compensatory damages, but not multiples thereof, arising directly from a loss covered under this policy.

6.Indirect or consequential loss of any nature.

7.Loss resulting from any violation by you or by any “employee”:

a.Of law regulating:

(1)The issuance, purchase or sale of securities;

(2)Securities transactions upon security exchanges or markets;

(3)Commodity transactions upon commodity exchanges or markets; or

(4)Investment companies or investment advisers; or

b.Of any rule or regulation made pursuant to any such law; unless it is established by you that the act or acts that caused the loss were dishonest or fraudulent and would have caused a covered loss to you in a similar amount in the absence of such laws, rules or regulations.

Analysis

Except for direct compensatory damages, any damages for which the insured is legally liable are excluded, as are losses that are indirect and of a secondary nature.

The loss that results from the action of you or an employee which violates the following laws regulating:

Issuance, purchase or sale of securities, securities or commodities transactions upon exchanges or markets, investment companies or advisers, or any rule or regulation made pursuant to any such law is not covered unless it can be shown that the acts that caused the loss were dishonest or fraudulent and would have caused a covered loss without the existence of said laws, rules, regulations. If an employee is in a hurry and fails to completely follow the regulations, any loss which results is not covered. The employee was sloppy, not fraudulent. However, if the employee intentionally causes the organization loss and such loss would have occurred without the existence of laws or regulations, such loss is covered.

8.Loss or damage resulting directly or indirectly from:

a.War, including undeclared or civil war;

b.Warlike action by a military force, including action in hindering or defending against an actual or expected attack, by any government, sovereign or other authority using military personnel or other agents;

c.Insurrection, revolution, usurped power, or action taken by governmental authority in hindering or defending against any of these; or

d.Riot or civil commotion outside the United States of America (its territories and possessions), Puerto Rico and Canada; unless such loss or damage occurs to “property” while in transit in the circumstances recited in Insuring Agreement 3., and unless, when such transit was initiated, there was no knowledge of such actions as enumerated in Paragraphs 8.a. through 8.d. on the part of any person acting for you in initiating such transit.

Analysis

There is no coverage for war, warlike action, insurrection, revolution, or military action to defend against any such actions. Riot or civil commotion outside the United States, its territories and possessions, Canada and Puerto Rico is excluded. Property that began transit (via messenger, armored car, other vehicle) when there was no knowledge of warlike actions or riot, is covered.

9.All fees, costs and expenses incurred by you:

a.In establishing the existence or amount of loss covered under this policy, except when covered under Insuring Agreement 14.; or

b.In connection with any legal proceeding whether or not such legal proceeding exposes you to loss covered under this policy.

10. Loss:

a. Resulting directly or indirectly from the disclosure of confidential information held by you including, but not limited to, patents, trade secrets, customer lists, financial information, personal information or credit card information;

b. Resulting directly or indirectly from the use of confidential information of another person or entity which is held by you including, but not limited to, financial information, personal information or credit card information, unless the use of such confidential information results in a loss covered under Insuring Agreement 1., 7., 8. or 9.; or

c. Of or damage to confidential information, except loss of or damage to “electronic data”, books of account or other written or electronic records or “computer programs” when covered under Insuring Agreement 1.d.

11.Loss resulting directly or indirectly from any acts of any of your directors or trustees, except when covered under Insuring Agreement 1.

Analysis

Fees and costs related to establishing the amount of loss, other than the cost of audits by federal or state authorities or cost to prepare proof of loss are not covered. The costs of audits by federal or state authorities or independent accountants are covered under Insuring Agreement 14. Fees in connection with legal proceedings, whether or not they expose the insured to loss are not covered.

The damage to computer programs or electronic data, books of account or other written or electronic records are covered only for loss due to vandalism or malicious mischief by an employee. Any other loss or damage to confidential information is excluded. This exclusion has been expanded in the 2012 form to include loss from the disclosure of confidential information held by the insured, and such information includes patents, customer lists, trade secrets, and other confidential information. Likewise, loss from confidential information held by the insured and inappropriately disclosed is not covered. The loss must be covered under the insuring agreements for fidelity, computer fraud, voice initiated transfer fraud, or telefacsimile transfer fraud.

Dishonest or fraudulent acts with the intent to cause loss or personal financial gain are covered under Insuring Agreement 1- Fidelity; any other loss resulting from the acts of directors or trustees is not covered.

12.Loss resulting directly or indirectly from the use or purported use of credit, debit, charge, access, convenience, identification or other cards:

a.In obtaining credit or funds;

bIn gaining access to any automated teller machine; or

c.In gaining access to point of sale terminals, customer-bank communication terminals, or similar electronic terminals of electronic funds transfer systems; whether such cards were issued, or purport to have been issued, by you or by anyone else, except when covered under Insuring Agreement 1.

13.Loss resulting directly or indirectly from payments made or withdrawals from a depositor's account involving items of deposit which are not finally paid for any reason, including, but not limited to, “forgery” or any other fraud, except when covered under Insuring Agreement 1.

Analysis

The use of any credit, debit, charge, access or other cards to obtain funds, access to automated teller machines or point of sale, electronic terminals, regardless of who issued the cards is excluded unless covered by Insuring Agreement 1—Fidelity, that does cover the intentional dishonesty/fraud of employees for financial gain or to cause the insured loss. Also excluded unless covered in Insuring Agreement 1 are losses directly or indirectly resulting from payments made or withdrawals from a depositor's account that are not paid for any reason, including but not limited to forgery.

14.Damages resulting from any civil, criminal or other legal proceeding in which you are alleged to have engaged in racketeering activity, unless it is established by you that the act or acts giving rise to such damages were committed by an “employee” under circumstances that result directly in a loss to you covered under Insuring Agreement 1. For the purposes of this Exclusion, racketeering activity is defined in 18 United States Code 1961 et seq., as amended.

15.Loss resulting directly or indirectly from dishonest or fraudulent acts committed by any employee of a correspondent or drawee bank to which a “cash letter” involved in such loss is transmitted or addressed, except when covered under Insuring Agreement 1.

16.Loss of any tangible item of “customer” personal property that is not specifically enumerated in Property Definition 29.a. and for which you are legally liable, if such “customer” personal property is specifically insured by other insurance of any kind and in any amount obtained by you, and in any event, loss of such “customer” personal property occurring more than 60 days after you shall have become aware that you are liable for the safekeeping of such “customer” personal property, except when covered under Insuring Agreement 1.

17.Loss of property contained in “customers'” safe deposit boxes, except when covered under Insuring Agreement 1.

Analysis

Any racketeering activity, unless the acts were committed by an employee's actions that result in coverage under Insuring Agreement 1, Fidelity, is excluded. The definition of racketeering as defined in RICO title 18 United States Code 1961 et seq. is far reaching; the basic definition is: any act or threat involving murder, kidnapping, gambling, arson, bribery, extortion, dealing in obscene matter, or dealing in a controlled substance or listed chemical that is chargeable under State law and punishable by imprisonment for more than one year. Embezzlement, wire fraud, witness tampering, passport forging, trafficking in contraband are also considered racketeering activity.

Unless coverage is available under Insuring Agreement -1 Fidelity, any loss that results directly or indirectly from dishonest or fraudulent acts committed by an employee who involves the transmission or addressing of a cash letter is excluded.

Property Definition 29.a. of the policy includes money, certificated or uncertificated securities, negotiable instruments, certificates of deposit, documents of title, acceptances, evidences of debt, security agreements, withdrawal orders, certificates of origin or title, letters of credit, insurance policies, abstracts of title, deeds, mortgages, revenue and other stamps, tokens, unsold lottery tickets, gems, jewelry and precious metal in any form.

Customer's property not listed above is not covered if it is specifically insured by other insurance obtained by the named insured and the named insured becomes aware of his liability for it after sixty days of the date of the loss unless coverage is provided under Insuring Agreement 1-Fidelity.

Likewise, loss of customer's property contained in safe deposit boxes is not covered unless covered under Insuring Agreement 1-Fidelity.

18.Loss:

a.Through cashing or paying forged or altered travelers' checks or travelers' checks bearing forged endorsements; or

b.Of unsold travelers' checks or unsold money orders placed in your custody with authority to sell, unless:

(1)You are legally liable for such loss; and

(2)Such checks or money orders are later paid or honored by the drawer thereof; except when covered under Insuring Agreement 1.

19.Loss resulting directly or indirectly from payments made or withdrawals from a “customer's” account involving erroneous credits to such account, unless such payments or withdrawals are physically received by such “customer” or representative of such “customer” who is within any of your offices at the time of such payment or withdrawal, or except when covered under Insuring Agreement 1.

20.Loss resulting directly or indirectly from the failure of a financial or depository institution, or its receiver or liquidator, to pay or deliver, upon your demand, your “funds” or “property” held by it in any capacity, except when covered under Insuring Agreement 1. or 2.a.(1).

Analysis

If the cause of loss for these three exclusions is listed in Insuring Agreement 1-Fidelity, then coverage is provided. Loss of unsold travelers checks/money orders is excluded unless you are legally liable and the checks or money orders are later paid or honored by the drawer. The cashing or paying of forged or altered travelers checks is excluded.

The erroneous credits to accounts, payments or withdrawals made from a customer's account that results in direct or indirect loss is excluded. Coverage is available if the payments or withdrawals are physically received by a customer or representative of a customer within your offices at the time of the withdrawal.

The failure of a financial or depository institution, its receiver or liquidator, to pay on demand your funds or property held in any capacity that results in direct or indirect loss is not covered.

21. Loss through the surrender of property:

a. Away from any of your offices or premises as a result of any kidnap or extortion threat, except loss of “property” in transit in the custody of any person acting as your messenger, provided that when such transit was initiated you had no knowledge of any such kidnap or extortion threat;

b.Inside your offices or premises unless first brought inside the premises after receipt of the ransom or extortion demand for the purpose of paying such demand; or

c.Outside your offices or premises as a result of a threat to do bodily harm to a person in possession of such property other than a messenger;

except when covered under Insuring Agreement 1.

Analysis

The loss of property through surrender away from your offices or premises has been changed in the 2012 form. Section a. formerly listed introduction of denial of service attack into the computer system, introduction if a virus into the system, or dissemination of proprietary information or computer system weaknesses. These events have been removed from this section.

If property is in transit in the custody of a messenger, and there was no knowledge of a threat of bodily harm against that person before the transit began, coverage is provided. Otherwise, the surrender of property in response to threats of bodily harm to any person is not covered.

22.Loss resulting directly or indirectly from an “evidence of debt”, except when covered under Insuring Agreement 1.b., 2., 3. or 5.

Analysis

An evidence of debt is an instrument executed by a person which, in the regular course of business, is treated an evidencing that person's debt to the named insured. Coverage for such items are excluded except for specified insuring agreements. These agreements provide coverage for employee dishonesty or fraudulent acts with loans, on premises loss of property, in transit property by messenger or armored vehicle, or forged, altered or counterfeit securities.

23.Loss caused by any “employee”, except:

a.When covered under Insuring Agreement 1.; or

b.When covered under Insuring Agreement 2., 3. or 13. and resulting directly from misplacement, mysterious unexplainable disappearance or unintentional damage to or unintentional destruction of “property”; however, all loss or damage resulting directly or indirectly from vandalism or malicious mischief caused by an “employee” is excluded, except when covered under Insuring Agreement 1.d.

Analysis

Loss caused by an employee is excluded except for very narrow areas. The fidelity losses are covered under insuring agreement 1- this covers employee dishonesty/fraud with intent to cause the company loss or the employee to earn improper financial gain. This exclusion gives back coverage for employees for loss of customer's property on premises, in transit, or for cash letters, provided that the loss results from misplacement, disappearance or unintentional damage or destruction of the property. Vandalism or malicious mischief is excluded except for that covered under the fidelity insuring agreement, covering vandalism of electronic data, books of account or computer programs or records. Therefore, if an employee inadvertently loses or damages the customer's property, coverage is provided. Any deliberate act of damage or destruction, other than that of electronic media as covered in insuring agreement 1, is not covered.

24.Loss involving any “attended automated teller machine” or “unattended automated teller machine”, except when covered under Insuring Agreement 1., 2.c. or 10. but in no event shall we be liable for loss:

a.As a result of damage to any such “attended automated teller machine” or “unattended automated teller machine” from vandalism or malicious mischief;

b.As a result of failure of any such “attended automated teller machine” or “unattended automated teller machine” to function properly; or

c.To any “customer” or to any representative of such “customer” unless such person is using an “attended automated teller machine”.

Analysis

In the insuring agreements, dishonest acts of employees for financial gain or to create loss, loss to customer's property on premises resulting from robbery, disappearance, damage, and loss from attempted burglary or robbery of automated teller machines is covered. All other causes of loss are excluded, including vandalism, mechanical failure or loss involving a customer not using an automatic teller machine.

25.Loss of property while:

a.In the mail; or

b.In the custody of any “transportation company”, unless covered under Insuring Agreement 3.; except when covered under Insuring Agreement 1. or 13.

Analysis

Any loss of property while in the mail is excluded; once the property is out of the control of the financial institution, it cannot be held responsible for what happens to the property. Any property in transit by way of a transportation company is excluded for any loss not already covered in prior insuring agreements that cover the property for theft, disappearance, or damage from the time the transportation company receives the property to the time it is delivered. Also covered are dishonest acts of employees under the fidelity agreement, and the loss of a cash letter. Any other cause of loss is excluded.

26.Loss resulting directly or indirectly from trading, except when covered under Insuring Agreement 1.c., 4.,5., 7., 8 or 9.

27.Loss resulting directly or indirectly from forgery of any type or alteration, except when covered under Insuring Agreement 1., 4., 5. or 6.

28.Loss resulting directly or indirectly from the complete or partial nonpayment of, or default upon, any “loan” or transaction involving you as a lender or borrower, or extension of credit, including the purchase, discounting or other acquisition of false or genuine accounts, invoices, notes, agreements or “evidences of debt”, whether such “loan”, transaction or extension was procured in good faith or through trick, artifice, fraud or false pretenses, except when covered under Insuring Agreement 1.b., 4., 5. or 11.

29.Loss resulting directly or indirectly from counterfeiting, except when covered under Insuring Agreement 1., 5. or 6. However, this Exclusion shall not apply to loss involving the fraudulent reproduction of a handwritten signature covered under Insuring Agreement 4.

Analysis

The exclusions enumerated here are eliminating coverage for any situation that has not been granted coverage under existing insuring agreements. Those referenced insuring agreements are 1-Fidelity, 4-Forged or Altered Instruments, 5-Forged, Altered or Counterfeit Securities, 6-Counterfeit Money, 7-Computer Fraud, 8-Voice Initiated Transfer Fraud, 9-Telefacsimile Transfer Fraud, 11-Fraudulent Mortgages. The intent of the policy is cover losses resulting from specific dishonest or fraudulent acts. Agreements 7, 8, and 9 were newly added in the 2012 form.

30.Loss resulting directly or indirectly from any e-mail instruction, except when covered under Insuring Agreement 1. or 7.

31.Loss resulting directly or indirectly from the fraudulent use of a computer to transfer “property”, except when covered under Insuring Agreement 1. or 7.

32.Loss resulting directly or indirectly from the introduction of a virus or other malicious instruction into your “computer system” that is designed to damage, destroy or corrupt data or “computer programs” stored within your “computer system”, unless covered under Insuring Agreement 1. or 7.

33.Loss resulting directly or indirectly from entry or change of “electronic data” or “computer programs” in a “computer system”, unless covered under Insuring Agreement 1. or 7.

34.Loss resulting directly or indirectly from the preparation or modification of “computer programs”, unless covered under Insuring Agreement 1. or 7.

Analysis

Losses resulting from email instructions, corruption, tampering, or unauthorized changing of programs or data, are excluded except for actions covered under the Fidelity or Computer Fraud insuring agreements. Losses from telegraphic or cable instruction device, unless in insuring agreements 1 or 7 have been deleted. The changes to the programs or the source of the email must be fraudulent; the policy will not cover general mistakes, just acts of fraud.

35.Loss resulting directly or indirectly from any voice instruction, unless covered under Insuring Agreement 1., 7.b.(1) or 8.

36.Loss resulting directly or indirectly from any telefacsimile instruction, except when covered under Insuring Agreement 1. or 9.

Analysis

Coverage is not provided for loss resulting from fraudulent instructions received by phone or facsimile unless those instructions were acted on in good faith. Then coverage is provided under insuring agreements 1-Fidelity, 8-Voice Initiated Transfer Fraud, and 9-Telefacsimile Transfer Fraud. These insuring agreements provide coverage for employee dishonesty or fraudulent acts by another party with the intent to cause loss to the institution or for the employee or other person to gain financially.

37.Loss under Insuring Agreement 7. resulting directly or indirectly from negotiable instruments, securities, documents or other written instruments that bear a forged signature, or are counterfeit, altered or otherwise fraudulent and that are used as source documentation in the preparation of “electronic data” entered into a data terminal.

38.Loss under Insuring Agreement 7. resulting directly or indirectly from:

a.Mechanical failure, faulty construction, error in design, latent defect, fire, wear or tear, gradual deterioration, electrical disturbance or electrical surge that affects a “computer system”;

b.Failure, malfunction or breakdown of electronic data processing media; or

c.Error or omission in programming or processing.

39.Loss under Insuring Agreement 7. resulting directly or indirectly from the input of “electronic data” into a “computer system” terminal device either on the premises of a “customer” or under the control of such “customer” by a person who had authorized access to the “customer's” authentication mechanism.

40.Loss under Insuring Agreement 7., 8. or 9. resulting directly or indirectly from your assumption of liability under any contract, unless the liability arises from an otherwise covered loss and would be imposed on you regardless of the existence of the contract.

41.Loss under Insuring Agreement 4., 5. or 11. resulting directly or indirectly from your having accepted or otherwise acted upon an electronic signature or electronic record. For the purposes of this Exclusion, electronic signature and electronic record have the meaning prescribed in the Electronic Signatures in Global and National Commerce Act of 2000 and the Uniform Electronic Transactions Act and any amendments thereto.

Analysis

Insuring Agreement 7, Computer Fraud, provides coverage from losses generated by the entry or change of electronic data or computer programs into any computer system owned, leased, or operated by the insured or their contracted processing firm. The exclusions listed here remove coverage under that agreement as a result of loss from fraudulent or forged documents used as source data, mechanical breakdown/defect, data input from a customer's site, and loss from the assumption of liability under a contract. Voice and facsimile transfers are also excluded as a result of liability assumed under a contract.

Also excluded are losses under the agreements for forged or altered instruments or securities and fraudulent mortgages that result from the insured's having accepted or acted upon an electronic signature or record as defined in the Electronic Signatures in Global and National Commerce Act of 2000 and the Uniform Electronic Transactions Act.

The Uniform Electronic Transactions Act defines an electronic signature as an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record. An electronic record is a record created, generated, sent, communicated, or stored by electronic means.

The fraudulent entry or change must cause property to be transferred, paid or delivered, an account to be added, deleted, credited or debited, or an unauthorized or fictitious account to be credited or debited. The action is done deliberately to make unauthorized changes to the system for the perpetrator's individual benefit.

42. Loss caused by an “employee” if the “employee” had also committed any dishonest or fraudulent act prior to the effective date of this policy and a “designated person”, not in collusion with the “employee”, learned of such dishonest or fraudulent act prior to the effective date of this policy.

43. Loss resulting directly or indirectly from any dishonest or fraudulent act committed by any non-”employee” who is a securities, commodities, money, mortgage, real estate, loan, insurance, property management, investment banking broker, agent or other representative of the same general character.

Analysis

Items 42 and 43 are new in the 2012 forms. These exclusions apply if an employee committed a dishonest act before the effective date of the policy, and this action was known by the insured or a designated person before the effective date of the policy. Basically, one cannot buy insurance to cover a loss that has already occurred. Likewise, this policy is not designed to provide coverage when a dishonest broker, agent, or other such financial representative commits fraud.

Conditions

The Conditions section enumerates rights and duties of the insured and rights of the insurer.

1.Cooperation

You must cooperate with us in all matters pertaining to this policy as stated in its terms and conditions.

2.Representations

a.You represent that all information and statements contained in the application for this policy are true, accurate and complete. All such information and statements are the basis for our issuing this policy and shall be considered as incorporated into and constitute a part of this policy.

b.Any intentional:

(1)Misrepresentation;

(2)Omission;

(3)Concealment; or

(4)Misstatement of a material fact; in the application or otherwise, shall be grounds for the rescission of this policy.

3.Ownership

The “property” covered under this policy is limited to “property”:

a.That you own or lease;

b.That is held by you in any capacity;

c.For which you are legally liable, provided you were liable for the “property” prior to the time that the covered loss was sustained; or

d.As set forth under Insuring Agreement 2.c.

However, this policy is for your benefit only. It provides no rights or benefits to any other person or organization. Any claim for loss covered under this policy must be presented by you.

Analysis

The first three conditions deal with standard duties and requirements of the insured. The insured is required to cooperate with the company and any misrepresentation of truth or fact will be grounds for the voiding of the policy. The policy is for the benefit of the insured only, and is limited to property the insured owns, leases, becomes legally liable for or holds. The only change is that the insured has to have been liable for the property before the time of the loss; if the insured is liable for the property, then there is no need for coverage.

When a policy is rescinded due to intentional misrepresentation, the coverage is void ab initio, which is from the beginning as if coverage never existed. The reasoning behind this is if the insurer had known the truth from the beginning, they would not have agreed to provide coverage. Statutes concerning rescission of policies vary from state to state.

4.Additional Offices, Premises Or Employees

If, while this policy is in force, you establish any additional offices or premises or hire additional “employees”, other than through consolidation or merger with, or purchase or acquisition of assets or liabilities of, another institution, such offices, premises and “employees” shall automatically be covered under this policy. Notice to us of an increase in the number of offices, premises or “employees” need not be given and no additional premium need be paid for the remainder of the Policy Period.

5.Consolidation – Merger Or Acquisition

a.Except as provided in Paragraph 5.b., if you consolidate or merge with, or purchase or acquire the assets or liabilities of, another institution:

(1)You shall notify us in writing as soon as practicable and obtain our written consent to extend the coverage provided by this policy to such consolidated or merged institution or such purchased or acquired assets or liabilities. We may condition our consent by requiring payment of an additional premium; but

(2)For the first 90 days after the effective date of such consolidation, merger or purchase or acquisition of assets or liabilities, the coverage provided by this policy shall apply to such consolidated or merged institution or such purchased or acquired assets or liabilities, provided that all “occurrences” causing or contributing to a loss involving such consolidation, merger or purchase or acquisition of assets or liabilities, must take place after the effective date of such consolidation, merger or purchase or acquisition of assets or liabilities.

b.For institutions you acquire in which you own greater than 50% of the voting stock or voting rights, coverage under this policy shall automatically become effective on the date of such acquisition with no additional premium required, provided:

(1)All “occurrences” causing or contributing to a loss involving the acquired institution must take place after the effective date of such acquisition; and

(2)The assets of the acquired institution do not exceed 10% of your total assets as reflected in your most recent calendar quarter consolidated financial statements immediately preceding the effective date of the policy.

Analysis

New office spaces or additional employees, as long as they are not part of a merger or acquisition, are automatically covered under this policy without notice to the company or the payment of additional premium.

If the insured consolidates, merges, or purchases/acquires the assets/liabilities of another institution the insured is required to notify the carrier in writing as soon as possible and acquire the carrier's written consent to extend coverage. The carrier may require additional premium in order to cover the acquisition. Coverage will be provided for the new assets/liabilities for the first ninety days after the effective date of the consolidation as long as the date of loss is after the acquisition date.

When acquiring another institution in which the insured owns greater than 50 percent of the voting stock or rights, coverage is provided on the date of acquisition without additional premium provided: any loss is after the date of acquisition, and the assets of the newly acquired institution must not exceed 10 percent of the insured's total assets as shown in the most recent calendar quarter financial statements immediately preceding the date of the policy.

6.Joint Insured

a.If more than one Insured is named in the Declarations, the first Named Insured shall act for itself and for every other Insured for all purposes of this policy.

b.Knowledge possessed or “discovery” made by a “designated person” of any Insured shall constitute knowledge or “discovery” by all Insureds for all purposes of this policy.

c.An “employee” of any Insured is considered to be an “employee” of every Insured.

d.We will not pay more for loss or losses sustained by more than one Insured than the amount we would pay if all such loss or losses had been sustained by one Insured.

e.Payment by us to the first Named Insured for loss sustained by any Insured, or payment by us to any “employee benefit plan” for loss sustained by such Plan, shall fully release us on account of such loss.

Analysis

When there is more than one insured on the policy, any action by the first named insured shall be applicable to every other insured. Likewise knowledge possessed or discovery of information by a designated person of an insured shall constitute knowledge or discovery by all insureds on the policy.

Employees of one insured are considered to be an employee of all insureds.

If more than one insured sustains a loss, no more will be paid out than if all such losses had been sustained by one insured. Payment to the first named insured for loss sustained by any insured releases the company on account of such loss. The 2012 form now includes “employee benefit plan” as releasing the company once payment for a loss to a plan is made.

7.Change In Control – Notice To Us

a.When you learn of a change in control, you shall notify us in writing as soon as practicable, but not to exceed 60 days from the date of such change in control.

b.As used in this condition, control means the power to determine the management or policy of the Insured or of a controlling holding company by virtue of voting stock or voting rights ownership. A change in control, for the purpose of giving the required notice, means a change in ownership of voting stock or voting rights which results in direct or indirect ownership by a stockholder or an affiliated group of stockholders of more than 10% of such voting stock or voting rights.

c.Failure to give the required notice shall result in termination of coverage for any loss involving a transferee, to be effective upon the date of the stock transfer.

d.A change in ownership which results in direct or indirect ownership by a stockholder or an affiliated group of stockholders of more than 50% of the voting stock of the first Named Insured shall cause this policy to be terminated as set forth in Condition 22.b.(1)(b).

Analysis

A change in control is defined as a change in ownership of voting stock that results in any given stockholder having possession of more than 10 percent of such stock. The insured is required to notify the carrier immediately of such a change, and ultimately before sixty days has passed since the date of the change. Any change in ownership that results in more than 50 percent of the voting stock being held by one stockholder or organization will cause this policy to be cancelled. The failure to give notice of change in control will result in the termination of coverage for any loss involving the transferee.

8.Notice To Us Of Legal Proceedings Against You – Our Election To Defend

a.You shall notify us at the earliest practicable moment, not to exceed 60 days after you receive notice of any legal proceeding brought to determine your liability for any loss, claim or damage, which, if established, would constitute a collectible loss under this policy. Concurrently, you shall furnish copies of all pleadings and pertinent papers to us.

b.We may, at our sole option, elect to conduct the defense of such legal proceeding, in whole or in part. If we so elect:

(1) The defense by us shall be in your name through attorneys selected by us; and

(2) You shall provide all reasonable information and assistance required by us for such defense.

c.If we elect to defend you, in whole or in part, any judgment against you on those counts or causes of action that we defended on your behalf or any settlement in which we participate and all attorneys' fees, costs and expenses incurred by us in defense of the litigation shall be a loss covered by this policy.

d.If you do not give the notices required in Condition 9.a.(1) and also in Paragraph 8.a., or if we elect not to defend any causes of action, neither a judgment against you, nor a settlement of any legal proceeding by you, shall determine the existence, extent or amount of coverage under this policy for loss sustained by you, and we shall not be liable for any attorneys' fees, costs and expenses incurred by you.

e.With regard to this Condition, Paragraphs a.(5) and b. of Condition 9. apply upon the entry of such judgment or the occurrence of such settlement instead of upon “discovery” of loss. In addition, you must notify us within 30 days after such judgment is entered against you or after you settle such legal proceeding, and, subject to Condition 9.c., you may not bring legal proceedings for the recovery of such loss after the expiration of 24 months from the date of such final judgment or settlement.

Analysis

In the event of legal proceedings against the insured that could establish liability for damages collectible under this policy, the insured is to notify the company as soon as possible, not to exceed sixty days from the initial date of notice. Any copies of pleadings are to be sent to the company.

The company has the right to elect to conduct a defense, and select attorneys. The company will pay any defense costs and any judgment the insured becomes liable for as a result of the company defense.

If the insured fails to provide the company notice of a suit or the company decides not to defend the case, any resultant judgment or settlement shall not determine the existence of coverage under this policy, nor will the company cover legal expenses and fees.

Paragraph a.(5) and b. of Condition 9 indicate that within six months of the discovery of a loss the insured must furnish a proof of loss, and that beyond twenty four months no legal proceedings for the recovery of any loss may be brought. Regarding this condition, those paragraphs apply upon the entry of judgment or settlement, and not the discovery of the loss.

9.Notice To Us – Proof – Legal Proceedings Against Us

a.After you “discover” a loss or a situation that may result in a loss, you shall:

(1)Notify us at the earliest practicable moment, not to exceed 60 days. For losses covered under any Insuring Agreement, other than Insuring Agreement 1. or 7., we will waive such notice if the amount of loss, in your best estimation, does not exceed the percentage of the Single Loss Deductible Amount over which losses must be reported as shown in the Declarations. If, however, you later determine that such loss does in fact exceed this percentage, then you shall notify us at the earliest practicable moment, not to exceed 15 days from the date such determination was made.

(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)Cooperate with us in the investigation and settlement of any claim.

(5)Within 6 months:

(a)From the date you “discovered” the loss; or

(b)From the date you determined that the loss exceeded the percentage of the Single Loss Deductible Amount over which losses must be reported as provided in Paragraph 9.a.(1);

furnish to us proof of loss, duly sworn to, with full particulars. In addition, with regard to Paragraphs 9.a.(5)(a) and 9.a.(5)(b):

(i)”Certificated securities” listed in a proof of loss shall be identified by certificate or bond numbers if such securities were issued therewith.

(ii)Proof of loss involving voice initiated transfers covered under Insuring Agreement 8., shall include verification of the call-back, as provided in Paragraph 8.b. of the Insuring Agreement.

(iii)Proof of loss involving telefacsimile transfers covered under Insuring Agreement 9., shall include a copy of the instruction received through the “telefacsimile device” or “computer system”.

b.Legal proceedings for the recovery of any loss under this policy shall not be brought after the expiration of 24 months from the date of “discovery” of such loss.

c.If any limitation in this Condition is prohibited by any law controlling the construction hereof, such limitation shall be deemed to be amended so as to equal the minimum period of limitation provided by such law.

d.This policy affords coverage only in your favor. No suit, action or legal proceeding shall be brought under this policy by anyone other than you.

Analysis

This agreement details the specific duties of the insured in the event of a loss; the reporting of the loss to the carrier, providing information including proof of loss statements, statements under oath, records, cooperation with the investigation, and time frames for submission of losses and documents.

Notification of the loss must be as soon as possible and not more than sixty days from the date of loss. Excluding losses under the fidelity and computer fraud insuring agreements, a loss does not need to be reported if it does not appear that the amount of loss exceeds the percentage of the single loss deductible found on the declarations. If it is later determined that the loss does exceed the percentage, the company must be notified within fifteen days from when the determination was made. A fully detailed proof of loss statement is required within six months of the date of the discovery of the loss.

There are certain requirements with the notification of certain types of losses; certificated securities need to be identified by certificate or bond numbers, losses involving voice initiated transfers must include the verification of call-back, and losses involving telefacsimile transfers or computer systems must include a copy of the document reproduced by the telefacsimile machine or computer.

Legal proceedings cannot be brought against the insurer once twenty four months from the date of discovery of the loss has passed.

10.Assignment – Subrogation – Recovery

a.In the event of payment under this policy, you shall deliver, if so requested by us, an assignment of your rights, title and interest and causes of action as you have against any person or entity to the extent of the loss payment.

b.In the event of payment under this policy, we shall be subrogated to all of your rights of recovery against any person or entity to the extent of such payment.

c.Recoveries, whether effected before or after any payment under this policy, whether made by us or by you, shall be applied net of the expense of such recovery:

(1)First, to you in satisfaction of your covered loss in excess of the amount paid under this policy;

(2)Second, to us in satisfaction of amounts paid in settlement of your claim;

(3)Third, to you in satisfaction of any Single Loss Deductible Amount; and

(4)Fourth, to you in satisfaction of any loss not covered under this policy.

d. Recovery on account of loss of securities as set forth in Condition 21.b. or recovery from reinsurance and/or indemnity by us shall not be deemed a recovery as used herein.

e. This policy does not afford coverage in favor of any depository. When we indemnify you for a loss covered under this policy, you shall assign the rights and causes of action to the extent of the claim payment against the depository, or any other entity or person against whom it has a cause of action, to us.

If the rules of the depository provide that you shall be assessed for a portion of the judgment (or agreed settlement) taken by us based upon the assignment set forth above and you actually pay such assessment, then we will reimburse you for the amount of the assessment but not exceeding the amount of the loss payment made by us.

Analysis

If payment is made under the policy, the insured is required to assign the rights, title and interest, and causes of action against any person or entity to the company and the company is subrogated to the insured's rights to the extent of such payment.

Any recoveries made under this policy are paid as follows: first to the insured for their loss in excess of the amount paid in the policy; then to the insurer for amounts paid in settlement of the claim, third, to the insured to cover any deductible, and lastly, to the insured for any loss not covered.

Two situations are not considered recovery: recovery on account of loss of securities as in condition 21.b, and recovery from reinsurance/indemnity by the company. Condition 21.b provides for the valuation of securities regarding settlement of a loss.

New to this section is that coverage is not provided to any depository. The insured is to assign rights and causes of action to the extent of the claim payment against the depository or any other person who has a cause of action to the carrier. The insured will be reimbursed for any assessment by the depository that the insured has paid.

11.Transfer Of Your Rights And Duties Under This Policy

Your rights and duties under this policy may not be transferred without our written consent.

12.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.

13.Records

You must keep records of all “property” (except “customer” personal property) covered under this policy so we can verify the amount of any loss.

14.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 3 years afterward.

15.Inspections And Surveys

a.We have the right to:

(1)Make inspections and surveys at any time;

(2)Give you reports on the conditions we find; and

(3)Recommend changes.

b.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 any workers or the public. And we do not warrant that conditions:

(1)Are safe or healthful; or

(2)Comply with laws, regulations, codes or standards.

c.Paragraphs 15.a. and 15.b. 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 insured may not transfer rights or duties under this policy without written consent from the insurer. The first named insured is authorized to make changes to the policy at the consent of the insurer. Policy terms can only be amended by endorsement to the policy issued by the insurer.

Records of all property insured under this policy must be kept by the insured so verification of the amount of any loss is possible.

The insurer has the right to examine and audit books and records up to three years after the policy period. The company may also make inspections, or surveys, and give the insureds reports and recommend changes. The company is not obligated to make surveys, and does so only to review insurability. No warranties are made that conditions are safe or comply with laws/regulations/codes.

16.Liberalization

If we adopt any revision that would broaden the coverage under this policy without additional premium within 45 days prior to or during the Policy Period, the broadened coverage will immediately apply to this policy.

17.Premiums

The first Named Insured shown in the Declarations:

a.Is responsible for the payment of all premiums; and

b.Will be the payee for any return premiums we pay.

18.Nominees

Loss sustained by any nominee organized by you for the purpose of handling certain of your business transactions and composed exclusively of “employees” shall, for all the purposes of this policy and whether or not any partner or member of such nominee is implicated in such loss, be deemed to be a loss sustained by you.

Analysis

When the insurer makes revisions to a policy that broadens coverage, and there is no additional premium charge, if the revisions are made forty five days prior to, or during the policy period, the policy will automatically expand to contain this coverage.

The first named insured is held responsible for any payments due, and is the payee for any return premiums.

An individual or group of employees may be organized by the insured to handle certain business transactions. Any loss sustained by the group, whether or not a partner or member of the group is implicated in the loss, is considered to be sustained by the insured.

19.Employee Benefit Plans

The “employee benefit plans” shown in the Declarations are included as Insureds under Insuring Agreement 1. and are subject to the following:

a.You are responsible for selecting a Single Loss Limit Of Insurance for Insuring Agreement 1. that is sufficient to provide a Limit of Insurance for each Plan that is at least equal to that required under ERISA as if each Plan were separately insured.

b.Any payment we make for loss sustained by any Plan will be made directly to the Plan.

c. We will not apply the Single Loss Deductible Amount applicable to Insuring Agreement 1. to loss sustained by any Plan up to the amount of coverage required under ERISA for that Plan at the time the loss was “discovered”. However, we will apply the Single Loss Deductible Amount to that part of any loss which exceeds the amount of coverage required for such Plan.

d. If two or more Plans are insured under this policy, any payment we make for loss:

(1) Sustained by two or more Plans; or

(2) Of commingled “property” of two or more Plans; resulting directly from an “occurrence”, will be made to each Plan sustaining loss in the proportion that the limit of insurance required under ERISA for each Plan bears to the total of those limits.

e.We will pay for loss sustained under any Plan prior to the effective date of termination or cancellation of this policy or of any Plan, which is “discovered” by a “designated person” no later than one year from the date of that termination or cancellation.

Analysis

This condition outlines how employee benefit plans are covered under this policy. Benefit plans are included as insureds under agreement 1, fidelity. A single loss limit of insurance for agreement 1 must be enough to cover each plan as if each plan was separately insured. Payments are made to and will be held by the first named insured for the use and benefit of the plans sustaining the losses.

If two or more plans are insured and a single loss involves two or more plans or commingled property of two or more plans, any payment is to be shared by each plan in proportion to the single loss limit of insurance each plan bears to the total of those limits.

The single loss deductible for the fidelity insuring agreement does not apply to losses sustained by any plan.

An extended period of discovery of up to one year from the date of cancellation or termination of the policy exists unless any other insurance is obtained by the insured, in which case the extended period terminates immediately. The extended period of discovery also terminates immediately upon the insured's being taken over by any State or Federal official, agency, receiver or liquidator, acting or appointed for this purpose. The non-aggregate contains a few minor variations.

20.Other Insurance Or Indemnity

Coverage afforded under this policy shall apply only as excess over any valid and collectible insurance or indemnity obtained by:

a.You;

b.One other than you on “property” subject to Exclusion 16.;

c.A “transportation company”; or

d.Another entity on whose premises the loss occurred or which employed the person causing the loss or the messenger conveying the “property” involved.

Analysis

If the first named insured has another policy in force that would apply to a covered loss, the insurance under this policy is considered excess. Also, a policy obtained by other than insured subject to customer's property under exclusion 16, by a transportation company, or by another entity employing the person causing the loss or on whose property the loss occurred, will make this policy excess regarding any other policy. Exclusion 16 excludes property not in the following list: money, certificated or uncertificated securities, negotiable instruments, certificates of deposit, documents of title, acceptances, evidences of debt, security agreements, withdrawal orders, certificates of origin or title, letters of credit, insurance policies, abstracts of title, deeds, mortgages, revenue and other stamps, tokens, unsold lottery tickets, gems, jewelry and precious metal in any form.

21.Valuation – Settlement

The value of any loss for purposes of coverage under this policy shall be the net loss to you after crediting any receipts, payments or recoveries, however denominated, and received by you in connection with the transaction giving rise to the loss.

Any interest or fees received by you in connection with a “loan”, or any commissions or other amounts received by you in connection with a trade, shall be deemed to be credits.

a.Money

Any loss of “money”, or loss payable in “money”, will be paid, at your option:

(1)In the “money” of the country in which the loss was sustained; or

(2)In the United States of America dollar equivalent determined by the rate of exchange published in The Wall Street Journal on the day the loss was “discovered”.

b.Securities

(1)We will settle in kind our liability under this policy on account of loss of any securities or, at your option, will pay you the cost of replacing such securities, determined by the market value of such securities at the close of business on the day the loss was “discovered”.

In case of a loss of subscription, conversion or redemption privileges through the misplacement or loss of securities, the amount of such loss will be the value of such privileges immediately preceding their expiration.

(2)If the applicable coverage of this policy is subject to a Single Loss Deductible Amount and/or is not sufficient in amount to indemnify you in full for the loss of securities for which claim is made under this policy, our liability under this policy is limited to the payment for, or the duplication of, so much of such securities as has a value equal to the limit of such applicable coverage.

c.Electronic Data And Other Written And Electronic Records

In case of loss of or damage to:

(1)Books of account or other written records used by you in your business, upon our written consent, we will pay for reasonable costs to reproduce such books of account or written records, provided they are actually reproduced and then for not more than the cost of the blank books, blank pages or other materials plus the cost of labor for the actual transcription or copying of data which shall have been furnished by you in order to reproduce such books of account and other written records.

(2)”Electronic data” or other electronic records, upon our written consent, we will pay for reasonable costs to replace or restore such “electronic data” or electronic records, including the cost of data entry and computer consultation services. However, we will not pay for the cost to duplicate research that led to the development of your “electronic data” or electronic records. To the extent that any “electronic data” or electronic records cannot be restored, we will pay the cost to replace the media on which the “electronic data” or electronic records were stored with blank media of substantially identical type.

Analysis

In order to determine the value of property involved in a loss, the net loss is determined by subtracting any receipts, payments or recoveries received by the insured from the initial value of the property. If a loan is involved in the loss, any interest or fees received by the insured will be considered a credit.

Any losses of money are payable, at the insured's request, either in the currency of the country in which the loss was sustained or in U.S. dollars. The dollar equivalent is based on the exchange rate published in the Wall Street Journal on the date the claim was made or the loss was discovered.

Loss of securities is settled in kind or, at insured's option, the cost of replacing them will be paid. Their value is determined by the market value of the securities on the close of business on the day the loss was discovered. If subscription, conversion or redemption privileges are lost, the amount of settlement will be the value of such privileges immediately preceding their expiration.

Once the policy limits have been reached, the insurer's obligation for payment is complete, even though the loss may be greater than the applicable limits of coverage.

Upon written consent of the company the reasonable cost to replace books of account or other written records as long as they are actually reproduced is covered. The company will not pay for more than the cost of the blank books or other materials and the cost of labor to manually copy the data to reproduce the records.

In 21.b.(2), the non-aggregate policy again refers only to a deductible amount, where the aggregate policy refers to a Single Loss Deductible Amount.

d.Computer Programs

In case of loss of or damage to “computer programs”, upon our written consent, we will pay for reasonable costs to replace or restore such “computer programs”, including reprogramming and computer consultation services. However, we will not pay for the costs to duplicate research that led to the development of your “computer programs”.

e.Other Property Not Specified Above

(1)In case of loss of or damage to any “property” not specified in Paragraphs 21.a., through 21.d., we will pay the replacement cost of such “property” without deduction for depreciation. However, we will not pay more than the least of the following:

(a)The Single Loss Limit Of Insurance applicable to the lost or damaged “property”;

(b)The cost to replace the lost or damaged “property” with “property” of comparable material and quality and used for the same purpose; or

(c)The amount you actually spend that is necessary to repair or replace the lost or damaged “property”.

(2)We will not pay on a replacement cost basis for any loss of or damage to “property” covered in Paragraph 21.e.(1):

(a)Until the lost or damaged “property” is actually repaired or replaced; and

(b)Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage.

If the lost or damaged “property” is not repaired or replaced, we will pay on an actual cash value basis.

(3)We will, at your option, pay for loss of or damage to such “property”:

(a)In the “money” of the country in which the loss or damage occurred; or

(b)In the United States of America dollar equivalent of the “money” of the country in which the loss or damage was sustained, determined by the rate of exchange published in The Wall Street Journal on the day the loss was “discovered”.

(4)Any “property” that we pay for or replace becomes our property.

f.Set-Off

Any loss covered under Insuring Agreement 1. will be reduced by a set-off consisting of the amount owed by you to the “employee” causing the loss.

Analysis

In the event of loss to computer programs, the reasonable costs to replace or restore such programs are covered. However, the cost to duplicate research that developed said programs is not covered.

Other property not specified as money or securities will be paid on a replacement cost basis without deductions for depreciation. Payment will not be more than the least of: limit of applicable insurance, cost to replace damaged property with like kind and quality, amount the insured actually spends to repair or replace the lost or damaged property. While payment is on a replacement cost basis, payment will not be made until the lost or damaged property is repaired/replaced, and the repairs/replacements are made as soon as possible. Payment is on an actual cash value basis when the property is not repaired or replaced. Payment again is offered in the currency of the country in which the loss occurred or in U.S. currency at the exchange rate on the day the loss was discovered.

Under the fidelity insuring agreement, coverage is provided for dishonest or fraudulent acts of employees that result in loss to the insured or improper financial gain to the employee. The employee's regular salary for the regular and normal performance of duties is not covered under this policy.

In e (1) (a), the non-aggregate policy refers to the Limit of Insurance instead of the Single Loss Limit of Insurance referred to in the aggregate policy.

22.Policy Cancellation Or Termination

a.Policy Cancellation

(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 non-payment of premium; or

(b)60 days before the effective date of cancellation if we cancel for any other reason, other than for policy termination as provided in Paragraph 22.b.

(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 canceled, 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.

b.Policy Termination

(1)This policy terminates immediately upon:

(a)The taking over of the Insured by a receiver or other liquidator or by state or federal officials;

(b)The effective date when the first Named Insured is acquired by another entity. As used in this condition, acquired means a change in control where the power to determine the management or policy of the first Named Insured has changed by virtue of a change of ownership which results in direct or indirect ownership by a stockholder or an affiliated group of stockholders of more than 50% of its voting stock or voting rights, regardless of the changes to the core functions of the acquired institution;

(c)The expiration of the Policy Period shown in the Declarations; or

(d)The exhaustion of the Policy Aggregate Limit Of Insurance.

If this policy terminates for any reason specified in Paragraph 22.b.(1)(a) or 22.b.(1)(b), we will send the first Named Insured any premium refund due. The refund will be pro rata.

(2)This policy terminates as to any “employee”, or any partner, member, manager, officer or employee of any “data processor”:

(a)As soon as a “designated person”, or an “employee” in your Human Resources Department or its equivalent, not in collusion with such person learns of any dishonest or fraudulent act committed by such person at any time, whether in your employment or otherwise, whether or not of the type covered under Insuring Agreement 1., against you or any other person or entity, without prejudice to the loss of any “property” then in transit in the custody of such person; or

(b)15 days after the receipt by you of a written notice from us of our decision to terminate this policy as to such person.

(3)This policy terminates as to any Insured, other than the first Named Insured, immediately upon its acquisition by another entity of more than 50% of its voting stock or being taken over by a receiver or other liquidator or by State or Federal officials.

(4)Termination of the policy as to any Insured terminates liability for any loss sustained by such Insured which is “discovered” after the effective date of such termination.

Analysis

The policy may be cancelled at the request of the insured; the request must be in writing from the first named insured. The company may cancel the policy by delivering notice to the last known address of the first named insured. If the policy is to be cancelled due to nonpayment of premium, notice must be given ten days in advance of the effective date of the action. For cancellations for any other reason, notice must be given sixty days in advance. Any refunds will be sent to the first named insured.

The taking over of the first named insured by a receiver or other liquidator, or by State or Federal officials results in immediate termination of the policy. If the first named insured is acquired by another entity, the effective date of that takeover is the termination date of the policy. This acquisition indicates a change in control by management or stockholders controlling more than 50 percent of the voting stock.

Relative to dishonest or fraudulent actions of employees, this policy terminates as to any such employee as soon as a designated person or an employee in the Human Resources Department or its equivalent learns of the dishonest or fraudulent act committed by the employee. The designated person or Human Resources representative cannot be in collusion with the employee in question. The same applies to any dishonest or fraudulent actions of partners, members, managers, officers or employee of any data processor. Or, the policy is terminated fifteen days after the receipt by the insured of a written notice from the company stating their decision to terminate the policy due to the person in question.

Once a policy is terminated, any losses discovered beyond the termination date are not covered.

Under 22.b.(1), the non-aggregate policy does not contain provision (d).

Definitions

As used in this policy:

1.”Acceptance” means the drawee's signed agreement to pay a draft as presented. It must be written on the draft and may consist of the drawee's signature alone.

2.”Attended automated teller machine” means a machine which, on your behalf, disburses “money”, accepts deposits, cashes checks, drafts or similar written instruments or makes credit card loans and is located within, or attached to the outside of your offices or premises where banking operations are conducted by your “employees”.

3.”Cash letter” means any letter or package itemizing by separate amounts all checks, promissory notes, drafts or any similar items enclosed in it, which have been accepted by you for deposit, payment, collection or encashment.

4.”Certificate of deposit” means an instrument containing an acknowledgment by a financial institution that a sum of “money” has been received by the financial institution and a promise by the financial institution to repay the sum of “money”.

5.”Certificate of origin or title” means a document issued by a manufacturer of personal property or a governmental agency evidencing the ownership of the personal property and by which ownership is transferred.

6.”Certificated security” means a share, participation or other interest in property of or an enterprise of the issuer or an obligation of the issuer, which is:

a.Represented by an instrument issued in bearer or registered form;

b.Of a type commonly dealt in on securities exchanges or markets or commonly recognized in any area in which it is issued or dealt in as a medium for investment; and

c.Either one of a class or series or by its terms divisible into a class or series of shares, participations, interests or obligations.

Analysis

There are thirty nine definitions in this policy; many are specific to the banking and financial industries while others are common to most insurance policies.

An attended automated teller machine is one attached to or inside the premises of the financial institution; it is not attended by an individual, it is simply on the institution's premises and not in a shopping mall or other place of commerce.

Cash letter, certificate of deposit, certificate of origin or title, and certificated security are self explanatory definitions of various instruments evidencing funds, property ownership, or interest.

7.”Computer program” means a set of related electronic instructions that direct the operations and function of a computer or devices connected to it and enable the computer or devices to receive, process, store or send “electronic data”.

8.”Computer system” means:

a.Computers, including Personal Digital Assistants (PDAs) and other transportable or handheld devices, electronic storage devices and related peripheral components;

b.Systems and applications software; and

c.Related communications networks;

by which “electronic data” is collected, transmitted, processed, stored and retrieved.

9.”Counterfeit” means an imitation of an actual valid original which is intended to deceive and to be taken as the original.

10.”Counterfeit money” means an imitation of “money” that is intended to deceive and to be taken as genuine.

11.”Customer” means a person or entity having an account with you or for whom you provide banking services.

12.”Data processor” means each natural person, partnership or corporation duly authorized by you to perform services as data processor of your checks and accounting records related to such checks, but only while such “data processor” is performing such services and not creating, preparing, modifying or maintaining your computer software or “computer programs”.

Each such “data processor”, and the partners, members, managers, officers and employees of such “data processor” shall, collectively, be deemed to be one “employee” for all the purposes of this policy, excepting, however, Condition 22.b.(2). A Federal Reserve Bank or clearinghouse shall not be construed to be a “data processor”.

13.”Designated person” means:

a.Any insurance risk manager;

b.Any director or trustee;

c.Any elected, appointed or otherwise titled officer; or

d.The highest ranking “employee” at the office or premises where such “employee” performs the majority of his or her duties; of any Insured.

14.”Discovery”, “discover” or “discovered” means the time when a “designated person” first becomes aware of facts which would cause a reasonable person to assume that a loss of a type covered by this policy has been or will be incurred, regardless of when the act or acts causing or contributing to such loss occurred, even though the exact amount or details of loss may not then be known.

“Discovery”, “discover” or “discovered” also means the time when a “designated person” first receives notice of an actual or potential claim in which it is alleged that you are liable to a third party under circumstances which, if true, would constitute a loss under this policy.

15.”Document of title” means a bill of lading, dock warrant, dock receipt, warehouse receipt or order for the delivery of goods, and also any other document which in the regular course of business or financing is treated as adequately evidencing that the person in possession of it is entitled to receive, hold and dispose of the document and the goods it covers and must purport to be issued by or addressed to a bailee and purport to cover goods in the bailee's possession which are either identified or are fungible portions of an identified mass.

16.”Electronic data” means information, facts, images or sounds stored as or on, created or used on, or transmitted to or from computer software (including systems and applications software) on data storage devices, including hard or floppy disks, CD-ROMs, tapes, drives, cells, data processing devices or any other media which are used with electronically controlled equipment.

Analysis

In this section of definitions, most are self explanatory. Worth noting is the definition of data processor, that specifically excludes creating, preparing, modifying computer software or systems. A data processor is limited to data entry and processing of items, nothing further.

When a designated person discovers a loss it triggers the start of the time requirements to present a proof of loss to the company. This trigger does not occur until a designated person, one with certain authority within the organization, becomes aware of a loss. A loss discovered by a lower level employee does not imply that the insured as an entity is aware of the loss; the loss must be reported to a designated person or discovered by a designated person in order for the insured to be considered aware of the loss.

17.”Employee”:

a.”Employee” means:

(1)Any natural person:

(a) While in your service;

(b) Whom you compensate directly by salary, wages or commissions; and

services for you;

(2)Any guest student or intern pursuing studies or duties;

(3)Any attorney retained by you and any employee of such attorney while either is performing legal services for you;

(4)Any natural person who is furnished temporarily to you:

(a)To substitute for a permanent “employee” as defined in Paragraph 17.a.(1), who is on leave; or

(b)To meet seasonal or short-term workload conditions; while that person is subject to your direction and control and performing services for you;

(5)Any natural person who is leased to you under a written agreement between you and a labor leasing firm, to perform duties related to the conduct of your business, but does not mean a temporary “employee” as defined in Paragraph 17.a.(4);

(6)Any natural person employed by an institution merged or consolidated with you prior to the effective date of this policy;

(7)Any of your directors or trustees while:

(a)Performing acts within the scope of the usual duties of an “employee”; or

(b)Acting as a member of any committee duly elected or appointed by resolution of your board of directors or board of trustees to perform specific, as distinguished from general, directorial acts on your behalf;

(8)Any natural person who is a director or trustee of yours while such director or trustee is engaged in handling “property” of any “employee benefit plan”, or any natural person who is a trustee, administrator, manager, officer or employee of any such “employee benefit plan”, except an administrator or manager who is an independent contractor; and

(9)Any “data processor”.

b. Does not mean:

(1) Any agent, broker or other representative of the same general character not specified in Paragraph 17.a.; or

(2) Any independent contractor, except those contractors specified in Paragraphs 17.a.(3) and 17.a.(9).

18.”Employee benefit plan” means any welfare or pension benefit plan shown in the Declarations that you sponsor and that is subject to the Employee Retirement Income Security Act of 1974 (ERISA) and any amendments thereto.

19.”Evidence of debt” means an instrument, including a “negotiable instrument”, executed by a person and held by you which in the regular course of business is treated as evidencing that person's debt to you.

20.”Forgery” means:

a.The signing of the name of another person or organization in writing with intent to deceive; it does not mean a signature which consists in whole or in part of one's own name signed with or without authority, in any capacity, for any purpose; or

b.A fraudulent reproduction of a handwritten signature (but not the unauthorized signing of a person's own signature).

21.”Funds” means “money” on deposit in an account.

22.”Guarantee” means a written undertaking obligating the signer to pay the debt of another to you, your assignee or to a financial institution from which you have purchased participation in the debt, if the debt is not paid in accordance with its terms.

23.”Instruction” means a written order to the issuer of an “uncertificated security” requesting that the transfer, pledge or release from pledge of the “uncertificated security” specified therein be registered.

Analysis

The policy provides a lengthy definition of employee. Included as an employee are students or interns, attorneys retained by the office, data processors, a person provided on a temporary basis from an agency to substitute for a prolonged absence or to meet short-term increases in volume of workload. Directors and trustees while performing acts within the usual duties of employees are considered employees, while handling property of any employee benefit plan, or acting as a member of a committee appointed by a board to perform specific, instead of general, duties on behalf of the insured.

Not considered employees are agents, brokers, commission merchants, cosignees, independent contractors or factors. As the policy provides coverage for dishonest or fraudulent acts of employees, the nature of who is or isn't an employee is crucial to the interpretation of the policy.

24.”Letter of credit” means an engagement in writing by a financial institution or other person made at the request of a “customer” that the financial institution or other person will honor drafts or other demands for payment upon compliance with the conditions specified in the “letter of credit”.

25.”Loan” means all extensions of credit by you and all transactions creating a creditor relationship in your favor and all transactions by which you assume an existing creditor relationship.

26.”Money” means a medium of exchange in current use authorized or adopted by a domestic or foreign government as a part of its currency.

27.”Negotiable instrument” means any writing:

a.Signed by the maker or drawer;

b.Containing any unconditional promise or order to pay a sum certain in “money” and no other promise, order, obligation or power given by the maker or drawer;

c.Is payable on demand or at a definite time; and

d.Is payable to order or bearer.

“Negotiable instrument” includes a substitute check as defined in the Check Clearing for the 21st Century Act, and shall be treated the same as the original it replaced.

28.”Occurrence” means:

a.Any one act or series of related acts of burglary, robbery or attempt thereat, in which no “employee” is implicated;

b.Any one act or series of related unintentional or negligent acts or omissions on the part of any person (whether an “employee” or not) resulting in damage to or destruction of, or misplacement of “property”;

c.All acts or omissions other than those specified in Paragraphs 28.a. and 28.b. above, caused by any person (whether an “employee” or not) or in which such person is implicated;

d.Any one casualty or event not specified in Paragraphs 28.a. through 28.d.

29.”Property “means:

a.”Money”, “certificated securities”, “uncertificated securities”, “negotiable instruments”, “certificates of deposit”, “documents of title”, “acceptances”, “evidences of debt”, “security agreements”, “withdrawal orders”, “certificates of origin or title”, “letters of credit”, insurance policies, abstracts of title, deeds and mortgages on real estate, revenue and other stamps, tokens, unsold lottery tickets, gems, jewelry and precious metals in any form;

b.Tangible items of business personal property, meaning furnishings, fixtures, supplies, safes, vaults or equipment;

c.Tangible items of “customer” personal property not specified in Paragraph 29.a.;

d.”Electronic data” and books of account or other records whether recorded in writing or electronically; and

e.”Computer programs”.

30.”Security agreement” means an agreement which creates an interest in personal property or fixtures and which secures payment or performance of an obligation.

31.”Single loss” means all covered loss, including court costs and attorney's fees incurred by us under Condition 8., resulting directly from an “occurrence”.

Analysis

The policy provides a thorough definition of occurrence; this is a key element in a loss and how it is or is not covered. Burglary or robbery, as long as an employee is not involved; and unintentional acts or omissions that cause damage or loss, whether by an employee or not, are considered an occurrence.

The definition of property encompasses a wide range of financial documents including money, securities, deeds and titles. Other property covered includes business personal property, including vaults or equipment, customer's items, data and computer programs.

Single loss includes court costs, attorney fees, expenses, and judgments when the insurer has elected to defend the insured in legal proceedings as a result of the loss.

The non-aggregate policy does not contain the definition of “Single loss”.

32.”Telefacsimile device” means a machine capable of sending or receiving a duplicate image of a written document by means of electronic impulses transmitted through a telephone line and which reproduces the duplicate image on paper.

33.”Telefacsimile transfer customer” means an entity or individual that has a written agreement with you, authorizing you to rely on “telefacsimile device” instructions to initiate transfers and has provided you with the names of persons authorized to initiate such transfers, and with which you have established an instruction verification procedure.

34.”Tested” means:

a. With regard to Insuring Agreement 7., a method of authenticating the contents of a communication by affixing to it a valid test key which has been agreed upon between you and a “customer”, automated clearinghouse or another financial institution for the purpose of protecting the integrity of the communication in the ordinary course of business.

b. With regard to Insuring Agreement 9., a method of authenticating the contents of a communication by affixing to it a valid test key which has been agreed upon between you and a “telefacsimile transfer customer”, another financial institution or another of your offices for the purpose of protecting the integrity of the communication in the ordinary course of business.

c. For the purpose of this definition, “test key”, found in Paragraphs 34.a. and 34.b., means a code established and used in transmitting messages so that the recipient can authenticate the message.

35.”Transportation company” means any organization which provides its own or leased vehicles for transportation or which provides freight forwarding or air express services.

36.”Unattended automated teller machine” means a machine which, on your behalf, disburses “money”, accepts deposits, cashes checks, drafts or similar written instruments or makes credit card loans and is located anywhere, other than within or attached to the outside of your offices or premises, where banking operations are conducted by your “employees”.

37.”Uncertificated security” means a share, participation or other interest in property of or an enterprise of the issuer or an obligation of the issuer, which is:

a.Not represented by an instrument and the transfer of which is registered upon books maintained for that purpose by or on behalf of the issuer;

b.Of a type commonly dealt in on securities exchanges or markets; and

c.Either one of a class or series or by its terms divisible into a class or series of shares, participations, interests or obligations.

38.”Voice initiated transfer customer” means an entity or individual that has a written agreement with you, authorizing you to rely on voice instructions to initiate transfers and has provided you with the names of persons authorized to initiate such transfers, and with which you have established an instruction verification procedure.

39.”Withdrawal order” means a nonnegotiable instrument, other than an “instruction”, signed by a “customer” authorizing you to debit the “customer's” account in the amount stated therein.

Analysis

The remaining definitions are self-explanatory.

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