Since the differences between the discovery and loss sustained policies are discussed in the commercial crime policy those differences will not be discussed here. See “Commercial Crime Policy.”

Topics covered:

Insuring agreements

Exclusions

Conditions

Definitions

Insuring Agreements

A. Insuring Agreements

Coverage is provided under the following Insuring Agreements for which a Limit of Insurance is shown in the Declarations and applies to loss that you sustain resulting directly from an “occurrence” taking place at any time which is “discovered” by you during the Policy Period shown in the Declarations or during the period of time provided in the Extended Period To Discover Loss Condition E.1.j.:

1. Employee Theft

We will pay for loss of or damage to “money”, “securities” and “other property” resulting directly from “theft” committed by an “employee”, whether identified or not, acting alone or in collusion with other persons.

For the purposes of this Insuring Agreement, “theft” shall also include forgery.

2. Forgery Or Alteration

a. We will pay for loss resulting directly from “forgery” or alteration of checks, drafts, promissory notes, or similar written promises, orders or directions to pay a sum certain in “money” that are:

(1) Made or drawn by or drawn upon you; or

(2) Made or drawn by one acting as your agent; or that are purported to have been so made or drawn.

For the purposes of this Insuring Agreement, a substitute check as defined in the Check Clearing for the 21st Century Act shall be treated the same as the original it replaced.

b. If you are sued for refusing to pay any instrument covered in Paragraph 2.a., on the basis that it has been forged or altered, and you have our written consent to defend against the suit, we will pay for any reasonable legal expenses that you incur and pay in that defense. The amount that we will pay is in addition to the Limit of Insurance applicable to this Insuring Agreement.

Analysis

There is no change to the insuring agreements. The agreements state that coverage is provided when a limit shown on the declarations applies to a loss that has occurred as a result of a defined “occurrence,” which was “discovered” by the insured during the policy period or the extended period to cover loss. This restricts the policy so that the nature of the loss and how it is discovered are defined and must fit those definitions before the policy limit can apply.

The forgery or alteration agreement is the same as in the prior policies. Loss caused by forgery or alteration of checks, drafts, promissory notes, or similar promises is covered. “Forgery” is defined as the signing of the name of another person or organization with the intent to deceive; it does not include a signature that consists in whole or part of one's actual name, signed with or without authority, in any capacity, for any purpose. For example, company drafts are stolen and the thief signs the checks as if he were the authorized signer, using that person's name. This is a forgery by definition; the intent is to deceive the bank into thinking the check is legitimately signed and authorized. However, if an authorized signer writes himself a check for expenses for a weekend at the spa, that is not a forgery.

The 2006 form introduced the addition of language stating that a “substitute check” as defined in the Check Clearing for the 21^st Century Act shall be treated the same as the original it replaces. Check Clearing 21 is a federal law designed to allow banks to handle checks electronically, thus making processing faster and more efficient. A substitute check is a paper copy of the front and back of the original check; it is slightly larger so that a picture of the original check can be presented. Very specific standards dictate how the substitute check is printed so that it can be used the same way as the original check. With a substitute check, banks can transmit the information electronically instead of physically moving a paper check. This is different than converting checks to electronic payments; different regulations govern electronic funds and paper checks.

Exclusions

c. Confidential Or Personal Information

Loss resulting from:

(1) The disclosure of your or another person's or organization's confidential or personal information including, but not limited to, patents, trade secrets, processing methods, customer lists, financial information, credit card information, health information or any other type of nonpublic information; or

(2) The use of another person's or organizations confidential or personal information including, but not limited to, patents, trade secrets, processing methods, customer lists, financial information, credit card information, health information or any other type of nonpublic information.

d. Data Security Breach

Fees, costs, fines, penalties and other expenses incurred by you which are related to the access to or disclosure of another person's or organization's confidential or personal information including, but not limited to, patents, trade secrets, processing methods, customer lists, financial information, credit card information, health information or any other type of nonpublic information.

Analysis

With the concerns regarding identity theft, and recent situations where companies' computers with large amounts of confidential information have been lost or stolen, unauthorized disclosure of such information is excluded. The exclusion has been updated. The exclusion now lists disclosure of financial information, credit card information, health information, or other type of nonpublic information among items excluded. While the list has always stated that the exclusion is not limited to the listed items, these newly added items to the list are significant enough to be added and not just implied.

A new exclusion, data security breach, has been added. This excludes fees, penalties, and fines associated with the breach of an insured's data. If the insured is fined by a regulatory agency, such fines will not be covered. The FTC may fine a company for a loss of data. For instance, in 2006 ChoicePoint was fined $10 million for loss of consumer records. The March 2014 Target breach of 40 million records is being investigated. Companies may have to pay fines and agree to multiyear reviews of their compliance with regulations after a breach. None of these fines are covered.

Conditions

E. Conditions

g. Duties In The Event Of Loss

After you “discover” a loss or a situation that may result in loss of or damage to “money”, “securities” or “other property”, you must:

(1) Notify us as soon as possible;

(2) Give us a detailed, sworn proof of loss within 120 days;

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

(4) Produce for our examination all pertinent records;

(5) Submit to examination under oath at our request and give us a signed statement of your answers; and

(6) Secure all of your rights of recovery against any person or organization responsible for the loss and do nothing to impair those rights.

Analysis

The duties in event of a loss condition has been reworded for clarification. New to this section is (6), the requirement to secure all rights of recovery and to not impair those rights. The carrier wants to be able to collect from any responsible party who caused the loss.

h. Employee Benefit Plans

The “employee benefit plans” shown in the Declarations (hereafter referred to as Plan) are included as Insureds under Insuring Agreement A.1., subject to the following:

(1) If any Plan is insured jointly with any other entity under this Policy, you or the Plan Administrator is responsible for selecting a Limit of Insurance for Insuring Agreement A.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.

(2) With respect to loss sustained or “discovered” by any such Plan, Insuring Agreement A.1. is replaced by the following:

We will pay for loss of or damage to “money”, “securities” and “other property” resulting directly from fraudulent or dishonest acts committed by an “employee”, whether identified or not, acting alone or in collusion with other persons.

(3) If the first Named Insured is an entity other than a Plan, any payment we make for loss sustained by any Plan will be made to the Plan sustaining the loss.

(4) If wo or more Plans are insured under this Policy, any payment we make for loss:

(a) Sustained by two or more Plans; or

(b) Of commingled “money”, “securities” or “other 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.

(5) The Deductible Amount applicable to Insuring Agreement A.1. does not apply to loss sustained by any Plan.

Analysis

There are some wording changes for clarification in the employee benefit plans section. The section has been renumbered so that what was section (1) is now an introductory statement. Section (1) now states that the limit must meet those required by ERISA as if the plan was separately insured; the prior policy stated that the limit must be equal to that required, but it was not indicated who was setting any requirements. Section (2) removes “funds” as what payment for loss or damage is for and replaces it with “money” and “securities.” The definition of “funds” has been removed; the definition of “funds” was “money” and “securities”; it is easier to just refer to “money” and “securities” instead of using a term to mean the same thing. Section (4) makes those same wording changes. Similar changes throughout the policy are made where “funds” had been mentioned in the prior form.

l. Joint Insured

(1) If more than one Insured is named in the Declarations, the first Named Insured will act for itself and for every other Insured for all purposes of this policy. If the first Named Insured ceases to be covered, then the next Named Insured will become the first Named Insured.

(2) If any Insured, or partner, “member” or officer of that Insured has knowledge of any information relevant to this policy, that knowledge is considered knowledge of every Insured.

(3) An “employee” of any Insured is considered to be an “employee” of every Insured.

(4) If this policy or any of its coverages is cancelled as to any Insured, loss sustained by that Insured is covered only if it is “discovered” by you:

(a) No later than 60 days from the date of that cancellation. However, this extended period to “discover” loss terminates immediately upon the effective date of any other insurance obtained by that Insured, whether from us or another insurer, replacing in whole or in part the coverage afforded under this Policy, whether or not such other insurance provides coverage for loss sustained prior to its effective date.

(b) No later than one year from the date of that cancellation with regard to any “employee benefit plan”.

(5) We will not pay more for loss sustained by more than one Insured than the amount we would pay if all such loss had been sustained by one Insured.

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

Analysis

The joint insured wording has been modified in section (6). It now includes “payment by us to any 'employee benefit plan'” as well as payment to the first named insured.

p. Ownership Of Property; Interests Covered

The property covered under this Policy is limited to property:

(1) That you own or lease;

(2) That is held by you in any capacity; or

(3) For which you are legally liable, provided you were liable for the property prior to the time the loss was sustained.

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

Analysis

Newly added to this section is section (3)—now property that the insured is legally liable for is also covered as long as the insured was legally liable for the property prior to the loss. This broadens coverage so that property that is in a warehouse is covered as well.

x. Valuation – Settlement

The value of any loss for purposes of coverage under this Policy shall be determined as follows:

(1) Money

Loss of “money” but only up to and including its face value. We will, at your option, pay for loss of “money” issued by any country other than the United States of America:

(a) At face value in the “money” issued by that country; or

(b) 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”.

(2) Securities

Loss of “securities” but only up to and including their value at the close of business on the day the loss was “discovered”. We may, at our option:

(a) Pay the market value of such “securities” or replace them in kind, in which event you must assign to us all your rights, title and interest in and to those “securities”; or

(b) Pay the cost of any Lost Securities Bond required in connection with issuing duplicates of the “securities”.

However, we will be liable only for the payment of so much of the cost of the bond as would be charged for a bond having a penalty not exceeding the lesser of the:

(i) Market value of the “securities” at the close of business on the day the loss was “discovered”; or

(ii) Limit of Insurance applicable to the “securities”.

(3) Property Other Than Money And Securities

(a) Loss of or damage to “other property” for the replacement cost of the property without deduction for depreciation. However, we will not pay more than the least of the following:

(i) The Limit of Insurance applicable to the lost or damaged property;

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

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

(b) We will not pay on a replacement cost basis for any loss or damage to property covered under Paragraph x.(3)(a):

(i) Until the lost or damaged property is actually repaired or replaced; and

(ii) Unless the repair or replacement is 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.

(c) We will, at your option, pay for loss or damage to such property:

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

(ii) 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”.

(d) Any property that we pay for or replace becomes our property.

Analysis

The valuation section has been revised for clarification. The changes are self-explanatory.

Definitions

2. “Employee”:

a. “Employee” means:

(1) Any natural person:

(a) While in your service and for the first 30 days immediately after termination of service, unless such termination is due to “theft” or any other dishonest act committed by the “employee”;

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

(c) Whom you have the right to direct and control while performing services for you;

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

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

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

(3) 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 2.a.(2);

(4) Any natural person who is:

(a) A trustee, officer, employee, administrator or manager, except an administrator or manager who is an independent contractor, of any “employee benefit plan”; and

(b) Your director or trustee while that person is engaged in handling “money”, “securities”, or “other property” of any “employee benefit plan”;

(5) Any natural person who is a former “employee”, partner, “member”, “manager”, director or trustee retained as a consultant while performing services for you;

(6) Any natural person who is a guest student or intern pursuing studies or duties;

(7) Any natural person employed by an entity merged or consolidated with you prior to the effective date of this Policy; or

(8) Any natural person who is your “manager”, director or trustee 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.

Analysis

The definition of “employee” has removed the exclusion for temporary employees, students, or interns if they have care and custody of property outside the “premises.” Other changes to the definition are for clarification only.

7. “Money” means:

a. Currency, coins and bank notes in current use and having a face value;

b. Traveler's checks and money orders held for sale to the public; and

c. Deposits in your account at any financial institution.

9. “Other property” means any tangible property other than “money” and “securities” that has

intrinsic value. “Other property” does not include computer programs or electronic data or any property specifically excluded under this Policy.

Analysis

A few changes appear in the definition of “money.” Register checks have been removed from the definition. A new section has been added to the definition of “money,” which is “deposits in your account at any financial institution.” This clarifies that deposits in a financial institution are not different than currency and bank notes. The definition of “other property” has been modified to exclude computer programs or equipment that are already specifically excluded by the policy. This is to clarify that the definition of “other property” does not make an exception to an exclusion.