Discovery or Loss Sustained Form
Includes copyrighted material of Insurance Services Office, Inc., with its permission.
Summary: The crime program from Insurance Services Office (ISO) was updated in 2013. While many changes were made for clarification, there are some new sections. This article reviews the changes in both the discovery, CR 00 22 08 13, and loss sustained, CR 00 23 08 13, forms. The language in the two policies is identical in many areas; where the policies differ is noted.
There are now seven insuring agreements: employee theft, forgery or alteration; theft of money and securities, inside the premises; robbery or safe burglary, inside the premises; outside the premises; computer fraud and funds transfer fraud, and money orders and counterfeit money. Computer fraud and funds transfer fraud have been combined. The insured chooses which of the agreements is needed, and the declarations page is marked accordingly. The policy provides coverage where a limit is shown on the declarations.
Topics covered:
Definitions
The defined terms come at the end of the policy. They are treated first here because the reader needs an understanding of the terms to better comprehend the policy. In the policy, any word in quotation marks is a defined term. Many of the terms are the same as they were in the prior policies. Changes in the new forms will be discussed here.
F.Definitions
1."Computer program" means a set of related electronic instructions, which direct the
operation and function of a computer or devices connected to it, which enable the computer or devices to receive, process, store or send "electronic data".
2."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 or retrieved.
3."Counterfeit money" means an imitation of "money" which is intended to deceive and to be taken as genuine.
4."Custodian" means you, or any of your partners or "members", or any "employee" while having care and custody of property inside the "premises", excluding any person while acting as a "watchperson" or janitor.
5."Discover" or "discovered" means the time when you first become 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.
"Discover" or "discovered" also means the time when you first receive 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 insurance.
Analysis
The term "client" was removed from the 2006 forms, and "banking premises" was removed from the 2013 form. The definition of "counterfeit" specifically refers to money only. The definition notes that the counterfeit has to be an item that is intended to deceive and to be taken as genuine. The intent to deceive is not always so easy to prove. If a customer of a bank unwittingly gets a bundle of counterfeit twenty dollar bills and then innocently passes them onto the insured bank, where is the intent to deceive? The customer did not intend to deceive the bank, but the bank surely can put in a claim for loss resulting from accepting counterfeit paper currency. More than likely, the insurer will presume that if the insured has accepted counterfeit currency, there was intent to deceive on someone's part and pay the claim.
Definitions of "computer program" and "computer system" were added in the 2013 edition of the form. A "computer program" is the electronic instructions that allow the computer to operate and perform various functions such as storing and processing data. "Computer system" relates to the hardware, including PDAs and other handheld or transportable devices such as tablets and other related components. Included also are system and application software and related communication networks that collect, transmit, process, store, and retrieve data. This would include a company's proprietary system and internal networks, as well as software purchased for word processing and other common functions.
"Discover" is defined as when the named insured first becomes aware of information that would cause a reasonable person to believe that a loss that would be covered under this policy has or will occur; the definition was added in the 2006 form. Note that this is different than actual knowledge. Sometimes referred to as "guilty" or "real" knowledge, it differs from presumed knowledge or knowledge that may be imputed to the insured because of his having had information that should have put him on inquiry that would have led to real knowledge. Put another way, actual knowledge is based in fact, whereas constructive knowledge is based on a reasonable belief. Ashcraft v. U.S. Fidelity & Guar. Co., 255 S.W .2d 485 (Ky. App. 1953). (In an action on robbery insurance policy, the court interpreted "actually cognizant" within the policy to mean that the insured must have had knowledge of the occurrence of the act).
For example, on May 15 an insured is informed by a loyal and trustworthy employee that two other employees are planning to break into the office over some weekend and steal money and other valuables. The insured then observes the employees in question behaving suspiciously. On Monday, August 25, it is discovered that the office has been broken into over the weekend and money and other valuables have been stolen, exactly as the loyal employee had warned. The insured "discovered" the loss May 1—at that point a reasonable person could expect a loss to occur; however, the timing of the loss is unknown. It also includes the receipt of first notice of an actual loss to a third party that would be considered a loss under this policy. Thus, by defining "discover" in the forms, the insurer is clarifying that the insured's duty under an insurance policy to notify the insurer of an occurrence arises when an insured has knowledge of an occurrence or an accident for which he or she might be liable or might be sued. Whether the insured has actual or constructive knowledge is a fact specific inquiry for a jury to determine. However, insureds should note that a delay in notification has been excused only where it appears that the insured had "no knowledge of the occurrence or accident and could not have acquired such knowledge by exercise of reasonable diligence." 13 Couch on Ins. § 192:6.
6."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.
7."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)Who you compensate directly by salary, wages or commissions; and
(c)Who 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 7.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 7.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 of yours 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 by you 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; and
(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.
b.Does not mean:
Any agent, broker, factor, commission merchant, consignee, independent contractor or representative of the same general character not specified in Paragraph 7.a.
8."Employee benefit plan" means any welfare or pension benefit plan shown in the Declarations that you sponsor and which is subject to the Employee Retirement Income Security Act of 1974 (ERISA) and any amendments thereto.
Analysis
The definition of "employee" states that if the employee was terminated due to theft or other dishonest conduct committed by the employee, that person does not fit the definition of "employee" for thirty days after termination as do other employees. If an honest employee is terminated and somehow manages to steal from the insured after being fired, coverage still exists under insuring agreement A.1 for that employee for thirty days. However, if in the same situation the employee was terminated because of theft or dishonest acts, there is no extended period of coverage.
The exclusion for a temporary worker while having care and custody of property while outside the premises has been removed. This broadens coverage and allows coverage when a temporary worker is taking property off premises. The same exclusion is removed for students or interns while pursuing studies or duties on premises.
The forms extend employee status to leased employees, recognizing how common this arrangement has become. Employee status is also granted to guest students or interns, unless they have custody of property outside the premises. Employees of entities merged with the insured are also considered an employee, and managers, directors, or trustees while performing the acts of an employee or while serving on a committee elected by the board and performing specific acts on the insured's behalf.
9."Financial institution" means:
a.With regard to Insuring Agreement A.3.:
(1)A bank, savings bank, savings and loan association, trust company, credit union or similar depository institution; or
(2)An insurance company.
b.With regard to Insuring Agreement A.6.:
(1)A bank, savings bank, savings and loan association, trust company, credit union or similar depository institution;
(2)An insurance company; or
(3)A stock brokerage firm or investment company.
10."Financial institution premises" means the interior of that portion of any building occupied by a "financial institution".
11."Forgery" means the signing of the name of another person or organization 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.
12."Fraudulent instruction" means:
a.With regard to Insuring Agreement A.6.a.(2):
(1)A computer, telegraphic, cable, teletype, telefacsimile, telephone or other electronic instruction directing a "financial institution" to debit your "transfer account" and to transfer, pay or deliver "money" or "securities" from that "transfer account", which instruction purports to have been issued by you, but which in fact was fraudulently issued by someone else without your knowledge or consent.
(2)A written instruction (other than those covered under Insuring Agreement A.2.) issued to a "financial institution" directing the "financial institution" to debit your "transfer account" and to transfer, pay or deliver "money" or "securities" from that "transfer account", through an electronic funds transfer system at specified times or under specified conditions, which instruction purports to have been issued by you, but which in fact was issued, forged or altered by someone else without your knowledge or consent.
(3)A computer, telegraphic, cable, teletype, telefacsimile, telephone or other electronic or written instruction initially received by you, which instruction purports to have been issued by an "employee", but which in fact was fraudulently issued by someone else without your or the "employee's" knowledge or consent.
b.With regard to Insuring Agreement A.6.b.
A computer, telegraphic, cable, teletype, telefacsimile, telephone or other electronic, written or voice instruction directing an "employee" to enter or change "electronic data" or "computer programs" within a "computer system" covered under the Insuring Agreement, which instruction in fact was fraudulently issued by your computer software contractor.
13."Manager" means a person serving in a directorial capacity for a limited liability company.
14."Member" means an owner of a limited liability company represented by its membership interest, who also may serve as a "manager".
15."Messenger" means you, or a relative of yours, or any of your partners or "members", or any "employee" while having care and custody of property outside the "premises".
16."Money" means:
a.Currency, coins and bank notes in current use and having a face value; and
b.Travelers checks and money orders held for sale to the public; and
c.In addition, includes:
(1)Under Insuring Agreements A.1. and A.2., deposits in your account at any financial institution; and
(2)Under Insuring Agreement A.6., deposits in your account at a "financial institution" as defined in Paragraph F.9.b.
17."Occurrence" means:
a.Under Insuring Agreement A.1.
(1)An individual act;
(2)The combined total of all separate acts whether or not related; or
(3)A series of acts whether or not related; committed by an "employee" acting alone or in collusion with other persons, during the Policy Period shown in the Declarations, before such Policy Period or both.
b.Under Insuring Agreement A.2.
(1)An individual act;
(2)The combined total of all separate acts whether or not related; or
(3)A series of acts whether or not related;
committed by a person acting alone or in collusion with other persons, involving one or more instruments, during the Policy Period shown in the Declarations, before such Policy Period or both.
c.Under All Other Insuring Agreements:
(1)An individual act or event;
(2)The combined total of all separate acts or events whether or not related; or
(3)A series of acts or events whether or not related;
committed by a person acting alone or in collusion with other persons, or not committed by any person, during the Policy Period shown in the Declarations, before such policy period or both.
18."Other property" means any tangible property other than "money" and "securities" that has intrinsic value. "Other property" does not include "computer programs", "electronic data" or any property specifically excluded under this insurance.
19."Premises" means the interior of that portion of any building you occupy in conducting your business.
20."Robbery" means the unlawful taking of property from the care and custody of a person by one who has:
a.Caused or threatened to cause that person bodily harm; or
b.Committed an obviously unlawful act witnessed by that person.
21."Safe burglary" means the unlawful taking of:
a.Property from within a locked safe or vault by a person unlawfully entering the safe or vault as evidenced by marks of forcible entry upon its exterior; or
b.A safe or vault from inside the "premises".
22."Securities" means negotiable and nonnegotiable instruments or contracts representing either "money" or property and includes:
a.Tokens, tickets, revenue and other stamps (whether represented by actual stamps or unused value in a meter) in current use; and
b.Evidences of debt issued in connection with credit or charge cards, which cards are not issued by you; but does not include "money".
23."Theft" means the unlawful taking of property to the deprivation of the Insured.
24."Transfer account" means an account maintained by you at a financial institution from which you can initiate the transfer, payment or delivery of "money" or "securities":
a.By means of computer, telegraphic, cable, teletype, telefacsimile, telephone or other electronic instructions; or
b.By means of written instructions (other than those covered under Insuring Agreement A.2.) establishing the conditions under which such transfers are to be initiated by such "financial institution" through an electronic funds transfer system.
25."Watchperson" means any person you retain specifically to have care and custody of property inside the "premises" and who has no other duties.
Analysis
"Financial institution" and "financial institution premises" were newly defined on the 2013 form. The first section of the "financial institution" definition defines an institution as banks, savings banks, savings and loans, trust companies, credit unions, or similar organizations. This definition applies to coverage for theft of money and securities from inside the premises. The definition also applies to computer and funds transfer fraud and also includes stock brokerage firms and investment companies as financial institutions.
"Forgery" means the signing of another's name; a person cannot forge his own signature under the terms of the definition. A "fraudulent instruction" is an instruction that appears to be a legitimate instruction but in reality is not. If the instruction is followed, money is transferred to the thief. If the instruction to transfer funds is made without the insured's consent, then the claim is covered under this form. The fraudulent instruction may be by telefacsimile, cable, teletype, telephone, electronic, or in writing. The definition was revised in the 2013 form and contains an addition that applies to agreement A.6.b., which is fraudulent entry or change into a computer system by an employee made in good faith due to fraudulent instruction from the company's computer software contractor.
The next several definitions have not been changed.
The definition of "money" adds under insuring agreements A.1 and A.2, employee theft and forgery, deposits in the insured's account at any financial institution. In insuring agreement A.6., computer and funds transfer fraud, it adds deposits in the insured's account in "financial institutions" using the defined term.
"Transfer accounts" are accounts from which the insured can initiate a transfer, payment, or delivery of "money" or "securities" using any of several different means. The definition removed the no-longer-defined term "funds" and now uses "money" and "securities."
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 during the Policy Period shown in the Declarations, except as provided in Condition E.1.o. or E.1.p., 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.
Analysis
The insuring agreement has not changed; coverage is provided for loss or damage to "money," "securities," and ""other property" caused by "theft" committed by an "employee." Note the use of defined terms in the insuring agreement: the policy intent is to cover specific losses to specific property caused by specific people. No room is left for misinterpretation by using defined terms. The agreement also notes that theft includes forgery.
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
The forgery or alteration agreement is the same as in the prior policies. The policy states that a substitute check as defined in the Check Clearing for the Twenty-first 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.
We will pay for:
a.Loss of "money" and "securities" inside the "premises" or "financial institution premises":
(1)Resulting directly from "theft" committed by a person present inside such "premises" or " financial institution premises"; or
(2)Resulting directly from disappearance or destruction.
b.Loss from damage to the "premises" or its exterior resulting directly from an actual or attempted "theft" of "money" and "securities", if you are the owner of the "premises" or are liable for damage to it.
c.Loss of or damage to a locked safe, vault, cash register, cash box or cash drawer located inside the "premises" resulting directly from an actual or attempted "theft" of or unlawful entry into, those containers.
Analysis
The form stipulates that loss of money and securities inside the premises is covered when it results from theft by someone present inside the premises. The policy now includes "financial institution" instead of "banking premises," a broader and more explicit definition that includes savings banks, credit unions, trust companies, and other such institutions. The first covers damage to the premises or its exterior resulting from an actual or attempted theft of money and securities. The named insured must be the owner of the premises or liable for damage to the premises. The second pays for loss of or damage to a locked safe, vault, cash register, cash box, or cash drawer in the premises that results from an actual or attempted theft of or unlawful entry into the container. These coverages have not been changed.
We will pay for:
a.Loss of or damage to "other property":
(1)Inside the "premises" resulting directly from an actual or attempted "robbery" of a "custodian"; or
(2)Inside the "premises" in a safe or vault resulting directly from an actual or attempted "safe burglary".
b.Loss from damage to the "premises" or its exterior resulting directly from an actual or attempted "robbery" or "safe burglary" of "other property", if you are the owner of the "premises" or are liable for damage to it.
c.Loss of or damage to a locked safe or vault located inside the "premises" resulting directly from an actual or attempted "robbery" or "safe burglary".
Analysis
Agreement four contains two distinct coverages: one for actual or attempted robbery of a custodian inside the premises, the other for actual or attempted safe burglary inside the premises. Included in the insuring agreement is coverage for damage to covered property, as well as coverage for direct loss of covered property. For example, if the property is damaged but not stolen in an attempted robbery, the damage to the property is covered. This agreement has not been changed.
We will pay for:
a.Loss of "money" and "securities" outside the "premises" in the care and custody of a "messenger" or an armored motor vehicle company resulting directly from "theft", disappearance or destruction.
b.Loss of or damage to "other property" outside the "premises" in the care and custody of a "messenger" or an armored motor vehicle company resulting directly from an actual or attempted "robbery".
Analysis
This agreement covers theft, disappearance, or destruction of covered property outside the premises. The property must be in the care of a messenger or armored car company. There is no change in this condition.
a.We will pay for:
(1)Loss resulting directly from a fraudulent:
(a)Entry of "electronic data" or "computer program" into; or
(b)Change of "electronic data" or "computer program" within; any "computer system" owned, leased or operated by you, provided the fraudulent entry or fraudulent change causes, with regard to Paragraphs 6.a.(1)(a) and 6.a.(1)(b):
(i)"Money", "securities" or "other property" to be transferred, paid or delivered; or
(ii)Your account at a "financial institution" to be debited or deleted.
(2)Loss resulting directly from a "fraudulent instruction" directing a "financial institution" to debit your "transfer account" and transfer, pay or deliver "money" or "securities" from that account.
b.As used in Paragraph 6.a.(1), 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" received 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.
Analysis
Agreement six covers "money," "securities," and "other property" when a computer has been used to fraudulently transfer that property. Thus, the loss or damage must be accomplished through the use of a computer. This may be a computer on the premises that the perpetrator gains access to, or it may be a computer located outside the premises. The controlling factor here is that the computer was used to fraudulently cause a transfer of property from inside the premises to someone, or someplace, outside the premises. The agreement has been expanded to include entry of data into a system or changes of data already in a system. Funds transfer fraud has been incorporated into this section, and is no longer a separate insuring agreement.
Fraudulent instructions are also covered when an institution relied on such instructions in order to transfer funds from the transfer account. A transfer account is an account kept at a financial institution for the purpose of being able to transfer funds as needed based on various forms of instructions from the named insured. Remember a fraudulent instruction is an instruction supposedly transmitted by the named insured but was in fact transmitted by someone else without the named insured's consent or knowledge. The instruction can be electronic, telegraphic, cable, telefascimile, telephone, or teletype. A forged written instruction is also considered fraudulent instruction, as is an instruction supposedly transmitted by an employee but was fraudulently transmitted without the named insured's or employee's knowledge or consent.
For example, someone illegally gains access to the bank's computer and instructs it to transfer funds from the insured's account to pay a fictitious payee; if the thief is successful in cashing the check made out the fictitious payee, he has caused a loss coverable under agreement six. The loss is also covered if the funds are transferred to a Swiss bank account. Changes made in good faith by an employee relying on fraudulent instructions received from a contractor with a written agreement with the insured to provide designs, implementation, or servicing of computer programs for a computer system are covered under this policy.
We will pay for loss resulting directly from your having in good faith, accepted in exchange for merchandise, "money" or services:
a.Money orders issued by any post office, express company or "financial institution" that are not paid upon presentation; or
b."Counterfeit money" that is acquired during the regular course of business.
Analysis
This is fairly straightforward. If the insured accepts counterfeit money orders or currency in exchange for merchandise or services that he provides, the insured has suffered a loss due to a crime and coverage is provided. The only changes in this agreement were minor wording changes, from "bank" to the defined "financial institution" term.
The most we will pay for all loss resulting directly from an "occurrence" is the applicable Limit of Insurance shown in the Declarations.
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 Limit of Insurance available under any one of those Insuring Agreements or coverages.
C.Deductible
We will not pay for loss resulting directly from an "occurrence" unless the amount of loss exceeds the Deductible Amount shown in the Declarations. We will then pay the amount of loss in excess of the Deductible Amount, up to the Limit of Insurance.
Analysis
The limit of insurance and deductible clauses have not been changed from the 2006 policy. The limit of insurance clause states that the most that is paid for any loss, even if covered under more than one insuring agreement, is the largest limit of insurance among those agreements. For example, a loss occurs and there is coverage under various agreements in the policy with the following limits: $10,000, $15,000, and $20,000. The most that will be paid for the loss is $20,000; coverage is not stackable among insuring agreements or coverages. If the loss is $30,000, the payout will be $20,000—the highest coverage available.
Removed from the 2006 deductible provision, and carried through here, is the clause stating that in the event that more than one deductible could be applied to the same loss, only the highest deductible may be applied. With the removal of that clause, it is possible for multiple deductibles to be applied to the same loss.
1.This Policy does not cover:
a.Acts Committed By You, Your Partners Or Your Members
Loss resulting from "theft" or any other dishonest act committed by:
(1)You; or
(2)Any of your partners or "members";
whether acting alone or in collusion with other persons.
b.Acts Committed By Your Employees Learned Of By You Prior To The Policy Period
Loss caused by an "employee" if the "employee" had also committed "theft" or any other dishonest act prior to the effective date of this Policy and you or any of your partners, "members", "managers", officers, directors or trustees, not in collusion with the "employee", learned of such "theft" or dishonest act prior to the Policy Period shown in the Declarations.
c.Acts Committed By Your Employees, Managers, Directors, Trustees Or Representatives
Loss resulting from "theft" or any other dishonest act committed by any of your "employees", "managers", directors, trustees or authorized representatives:
(1)Whether acting alone or in collusion with other persons; or
(2)While performing services for you or otherwise;
except when covered under Insuring Agreement A.1.
d. 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 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 non-public information.
e.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.
f.Governmental Action
Loss resulting from seizure or destruction of property by order of governmental authority.
g.Indirect Loss
Loss that is an indirect result of an "occurrence" covered by this insurance including, but not limited to, loss resulting from:
(1)Your inability to realize income that you would have realized had there been no loss of or damage to "money", "securities" or "other property".
(2)Payment of damages of any type for which you are legally liable. But, we will pay compensatory damages arising directly from a loss covered under this Policy.
(3)Payment of costs, fees or other expenses you incur in establishing either the existence or the amount of loss under this Policy.
h.Legal Fees, Costs And Expenses
Fees, costs and expenses incurred by you which are related to any legal action, except when covered under Insuring Agreement A.2.
i.Nuclear Hazard
Loss or damage resulting from nuclear reaction or radiation or radioactive contamination, however caused.
j.Pollution
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.
k.War And Military Action
Loss or damage resulting from:
(1)War, including undeclared or civil war;
(2)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; or
(3)Insurrection, rebellion, revolution, usurped power, or action taken by governmental authority in hindering or defending against any of these.
Analysis
These exclusions apply to all insuring agreements of the Commercial Crime Policy. Other exclusions in the policy are specified as applying to a certain insuring agreement, and those stand separately in the policy. Two of the exclusions—war and nuclear reaction or radiation—are commonly found in many property and liability coverage forms.
Many of the exclusions are the same as the previous policy. The first three exclusions deal with dishonest acts of the insured, partners, members, employees, or trustees. For example, an employee had falsified hours on his timecard, and his manager discovered that fact May 2014. The employee was reprimanded but not terminated. In July of 2014 this policy took effect; in August of 2014 it was discovered that the employee stole money. This loss would not be covered since the manager was aware of the employee's dishonest nature. Note that dishonest is not a defined term in the policy; therefore, the insured and carrier may easily have different interpretations as to what constitutes a dishonest act.
The exclusion for confidential information has been modified to include not just confidential but personal information and now excludes financial information, credit card information, health, or any other nonpublic information. The rise in cybercrime drives this change. As more company databases are hacked and thousands of records of credit card and other information are stolen, this policy aims to exclude such coverage. The rise of electronic health records also plays into this; medical information may be the next target for hackers. Imagine if a medical provider's set of health records is stolen and histories of everyone treated for sexually transmitted diseases was spread on the Internet. Also excluded is loss that results from the disclosure of confidential information that is exclusive to the organization including processes, trade secrets, and customer lists. If an employee steals the patented formula for Fantastic Fizzy Pop with intent to sell it to the leading competitor, that loss is not covered. Likewise, the theft of credit card information of the named insured's customer base is also not covered.
Fees and costs are specifically mentioned in the exclusion for legal expenses. The fees must also specifically be incurred by the named insured; the prior policy did not have such specific wording.
The nuclear hazard exclusion has minor wording changes: damage as well as loss is excluded.
The standard pollution exclusion has been added to the policy. Pollution from any cause is excluded. There is no coverage if a peril insured against results in a pollution loss.
The exclusion for war and similar actions remains the same, with loss or damage excluded, and warlike action is separately described as 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. For example, securities are in the possession of a messenger for the insured outside the insured's premises. The government is defending the area from terrorist bombs and in the course of defense, the securities are destroyed. There is no coverage for the loss of the securities because they were destroyed by a warlike action.
a.Inventory Shortages
Loss, or that part of any loss, the proof of which as to its existence or amount is dependent upon:
(1)An inventory computation; or
(2)A profit and loss computation.
However, where you establish wholly apart from such computations that you have sustained a loss, then you may offer your inventory records and actual physical count of inventory in support of the amount of loss claimed.
b.Trading
Loss resulting from trading, whether in your name or in a genuine or fictitious account.
c.Warehouse Receipts
Loss resulting from the fraudulent or dishonest signing, issuing, cancelling or failing to cancel, a warehouse receipt or any papers connected with it.
Analysis
Insuring agreement A.1, employee theft, is subject to three additional exclusions: inventory shortages, trading, and warehouse receipts. There is an exclusion of loss, or that part of any loss, dependent upon an inventory computation or a profit and loss computation to prove the existence of the loss. This is a standard exclusion whenever inventory is involved. The insured must discover a loss on his own and not rely on inventory calculations to alert him to a loss. The inventory records can be used to substantiate the amount of the loss, just not that a loss has occurred. There is also no coverage if the insured suffers loss from trading or from fraudulent or dishonest warehouse receipts.
a.Accounting Or Arithmetical Errors Or Omissions
Loss resulting from accounting or arithmetical errors or omissions.
b.Exchanges Or Purchases
Loss resulting from the giving or surrendering of property in any exchange or purchase.
c.Fire
Loss or damage resulting from fire, however caused, except:
(1)Loss of or damage to "money" and "securities"; and
(2)Loss from damage to a safe or vault.
d.Money Operated Devices
Loss of property contained in any money operated device unless the amount of "money" deposited in it is recorded by a continuous recording instrument in the device.
e.Motor Vehicles Or Equipment And Accessories
Loss of or damage to motor vehicles, trailers or semi-trailers or equipment and accessories attached to them.
f.Transfer Or Surrender Of Property
(1)Loss of or damage to property after it has been transferred or surrendered to a person or place outside the "premises" or "financial institution premises":
(a)On the basis of unauthorized instructions; or
(b)As a result of a threat including, but not limited to:
(i) A threat to do bodily harm to any person;
(ii) A threat to do damage to any property;
(iii) A threat to introduce a denial of service attack into any "computer system";
(iv) A threat to introduce a virus or other malicious instruction into any "computer system" which is designed to damage, destroy or corrupt "electronic data" or "computer programs" stored within the "computer system";
(v) A threat to contaminate, pollute or render substandard your products or goods; or
(vi) A threat to disseminate, divulge or utilize:
i. Your confidential information;
ii. Confidential or personal information of another person or organization; or
iii. Weaknesses in the source code within any "computer system".
(2)But, this Exclusion does not apply under Insuring Agreement A.5. to loss of "money", "securities" or "other property" while outside the "premises" in the care and custody of a "messenger" if you:
(a)Had no knowledge of any threat at the time the conveyance began; or
(b)Had knowledge of a threat at the time the conveyance began, but the loss was not related to the threat.
g.Vandalism
Loss from damage to the "premises" or its exterior, or to any safe, vault, cash register, cash box, cash drawer or "other property" by vandalism or malicious mischief.
h.Voluntary Parting Of Title To Or Possession Of Property
Loss resulting from your, or anyone acting on your express or implied authority, being induced by any dishonest act to voluntarily part with title to or possession of any property.
Analysis
Most of these exclusions remain the same. The transfer exclusion has a new clause excluding threats to disseminate not just confidential information, but personal information as well. Several generic terms are replaced with defined terms so the exclusion is more direct as to what exactly is excluded.
Exclusions Applicable to Other Coverages
4.Insuring Agreement A.6. does not cover:
a.Authorized Access
Loss resulting 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 by a person or organization with authorized access to that "computer system", except when covered under Insuring Agreement A.6.b.
b.Credit Card Transactions
Loss resulting from the use or purported use of credit, debit, charge, access, convenience, identification, stored-value or other cards or the information contained on such cards.
c.Exchanges Or Purchases
Loss resulting from the giving or surrendering of property in any exchange or purchase.
d.Fraudulent Instructions Loss resulting from an "employee" or "financial institution" acting upon any instruction to:
(1)Transfer, pay or deliver "money", "securities" or "other property"; or
(2)Debit or delete your account; which instruction proves to be fraudulent, except when covered under Insuring Agreement A.6.a.(2) or A.6.b.
e.Inventory Shortages
Loss, or that part of any loss, the proof of which as to its existence or amount is dependent upon:
(1)An inventory computation; or
(2)A profit and loss computation.
Analysis
The 2013 policy made significant changes to exclusions that apply to insuring agreement A.6, computer and funds transfer fraud. Unless directly covered by the insuring agreement, losses resulting from fraudulent entry, change of electronic data, or change of computer programs within the computer systems of the insured are excluded. For example, if an employee enters data based on instructions from a coworker to transfer funds, and the transfer turns out to be fraudulent, that is not covered. Loss caused by the use of credit cards, charge cards, and gift cards is not covered. Exchanges of property are also excluded.
Fraudulent instruction is excluded when an employee or financial institution—based on fraudulent instructions, transfers—pays or delivers money, securities, or other property or debits or deletes the insured's account unless such action is again specifically covered under A.6.a.(2) or A.6.b.
1.Conditions Applicable To All Insuring Agreements
a.Additional Premises Or Employees
If, while this insurance is in force, you establish any additional "premises" or hire additional "employees", other than through consolidation or merger with, or purchase or acquisition of assets or liabilities of, another entity, such "premises" and "employees" shall automatically be covered under this Policy. Notice to us of an increase in the number of "premises" or "employees" is not required and no additional premium will be charged for the remainder of the Policy Period shown in the Declarations.
b.Cancellation Of Policy
(1)The first Named Insured shown in the Declarations may cancel this policy by mailing or delivering to us advance written notice of cancellation.
(2)We may cancel this policy by mailing or delivering to the first Named Insured written notice of cancellation at least:
(a)10 days before the effective date of cancellation if we cancel for nonpayment of premium; or
(b)30 days before the effective date of cancellation if we cancel for any other reason.
(3)We will mail or deliver our notice to the first Named Insured's last mailing address known to us.
(4)Notice of cancellation will state the effective date of cancellation. The policy period will end on that date.
(5)If this Policy is cancelled, we will send the first Named Insured any premium refund due. If we cancel, the refund will be pro rata. If the first Named Insured cancels, the refund may be less than pro rata. The cancellation will be effective even if we have not made or offered a refund.
(6)If notice is mailed, proof of mailing will be sufficient proof of notice.
c.Changes
This Policy contains all the agreements between you and us concerning the insurance afforded. The first Named Insured shown in the Declarations is authorized to make changes in the terms of this policy with our consent. This Policy's terms can be amended or waived only by endorsement issued by us and made a part of this Policy.
d.Concealment, Misrepresentation Or Fraud
This Policy is void in any case of fraud by you as it relates to this Policy at any time. It is also void if you or any other Insured, at any time, intentionally conceal or misrepresent a material fact concerning:
(1)This insurance;
(2)The property covered under this insurance;
(3)Your interest in the property covered under this insurance; or
(4)A claim under this insurance.
e.Consolidation – Merger Or Acquisition
If you consolidate or merge with, or purchase or acquire the assets or liabilities of, another entity:
(1)You must give us written notice as soon as possible and obtain our written consent to extend the coverage provided by this insurance to such consolidated or merged entity 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 insurance shall apply to such consolidated or merged entity 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.
f.Cooperation
You must cooperate with us in all matters pertaining to this insurance as stated in its terms and 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. If you have reason to believe that any loss (except for loss covered under Insuring Agreement A.1. or A.2.) involves a violation of law, you must also notify the local law enforcement authorities;
(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.
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 insurance, you or the Plan Administrator must select 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 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 two or more Plans are insured under this insurance, 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 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.
i.Examination Of Your Books And Records
We may examine and audit your books and records as they relate to this Policy at any time during the Policy Period shown in the Declarations and up to three years afterward.
j.Extended Period To Discover Loss
We will pay for loss that you sustained prior to the effective date of cancellation of this insurance, which is "discovered" by you:
(1)No later than 60 days from the date of that cancellation. However, this extended period to "discover" loss terminates immediately upon the effective date of any other insurance obtained by you, whether from us or another insurer, replacing in whole or in part the coverage afforded under this insurance, whether or not such other insurance provides coverage for loss sustained prior to its effective date.
(2)No later than 1 year from the date of that cancellation with regard to any "employee benefit plans".
k.Inspections And Surveys
(1)We have the right to:
(a)Make inspections and surveys at any time;
(b)Give you reports on the conditions we find; and
(c)Recommend changes.
(2)We are not obligated to make any inspections, surveys, reports or recommendations
and any such actions we do undertake relate only to insurability and the premiums to be charged. We do not make safety inspections. We do not undertake to perform the duty of any person or organization to provide for the health or safety of workers or the public. And we do not warrant that conditions:
(a)Are safe or healthful; or
(b)Comply with laws, regulations, codes or standards.
(3)Paragraphs k.(1) and k.(2) apply not only to us, but also to any rating, advisory, rate service or similar organization which makes insurance inspections, surveys, reports or recommendations.
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 insurance or any of its coverages is cancelled as to any Insured, loss sustained by that Insured is covered only if it is "discovered" by you:
(a)No later than 60 days from the date of that cancellation. However, this extended period to "discover" loss terminates immediately upon the effective date of any other insurance obtained by that Insured, whether from us or another insurer, replacing in whole or in part the coverage afforded under this 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, other than an "employee benefit plan", shall fully release us on account of such loss.
m.Legal Action Against Us
You may not bring any legal action against us involving loss:
(1)Unless you have complied with all the terms of this Policy;
(2)Until 90 days after you have filed proof of loss with us; and
(3)Unless brought within 2 years from the date you "discovered" the loss.
If any limitation in this condition is prohibited by law, such limitation is amended so as to equal the minimum period of limitation provided by such law.
n.Liberalization
If we adopt any revision that would broaden the coverage under this insurance without additional premium within 45 days prior to or during the Policy Period shown in the Declarations, the broadened coverage will immediately apply to this Policy.
Analysis
Most changes to the conditions in the 2013 form are cosmetic. New is the condition under duties in event of a loss that the insured must secure all rights of recovery against anyone responsible for the loss and do nothing to impair those rights. The carrier wants to be sure that they can assume the insured's rights and go after responsible parties.
(1)Loss Sustained Partly During This Insurance And Partly During Prior Insurance
If you "discover" loss during the Policy Period shown in the Declarations, resulting directly from an "occurrence" taking place:
(a)Partly during the Policy Period shown in the Declarations; and
(b)Partly during the Policy Period(s) of any prior cancelled insurance that we or any affiliate issued to you or any predecessor in interest; and this Policy became effective at the time of cancellation of the prior insurance, we will first settle the amount of loss that you sustained during this policy period. We will then settle the remaining amount of loss that you sustained during the policy period(s) of the prior insurance.
(2)Loss Sustained Entirely During Prior Insurance
If you "discover" loss during the Policy Period shown in the Declarations, resulting directly from an "occurrence" taking place entirely during the policy period(s) of any prior cancelled insurance that we or any affiliate issued to you or any predecessor in interest, we will pay for the loss, provided:
(a)This Policy became effective at the time of cancellation of the prior insurance; and
(b)The loss would have been covered under this Policy had it been in effect at the time of the "occurrence".
We will first settle the amount of loss that you sustained during the most recent prior insurance. We will then settle any remaining amount of loss that you sustained during the Policy Period(s) of any other prior insurance.
(3)In settling loss under Paragraphs o.(1) and o.(2):
(a)The most we will pay for the entire loss is the highest single Limit of Insurance applicable during the period of loss, whether such limit was written under this Policy or was written under the prior insurance issued by us.
(b)We will apply the applicable Deductible Amount shown in the Declarations to the amount of loss sustained under this Policy. If no loss was sustained under this Policy, we will apply the Deductible Amount shown in the Declarations to the amount of loss sustained under the most recent prior insurance.
If the Deductible Amount is larger than the amount of loss sustained under this Policy, or the most recent prior insurance, we will apply the remaining Deductible Amount to the remaining amount of loss sustained during the prior insurance.
We will not apply any other Deductible Amount that may have been applicable to the loss.
(4)The following examples demonstrate how we will settle losses subject to this condition.
Example Number. 1:
The insured sustained a covered loss of $10,000 resulting directly from an "occurrence" taking place during the terms of Policy A and Policy B.
Policy A
he current policy. Written at a Limit of Insurance of $50,000 and a Deductible Amount of $5,000.
Policy B
Issued prior to Policy A. Written at a Limit of Insurance of $50,000 and a Deductible Amount of $5,000.
The amount of loss sustained under Policy A is $2,500 and under Policy B is $7,500.
The highest single Limit of Insurance applicable to this entire loss is $50,000 written under Policy A. The Policy A Deductible Amount of $5,000 applies. The loss is settled as follows:
1.The amount of loss sustained under Policy A ($2,500) is settled first. The amount we will pay is nil ($0.00) because the amount of loss is less than the Deductible Amount (i.e., $2,500 loss – $5,000 deductible = $0.00).
2.The remaining amount of loss sustained under Policy B ($7,500) is settled next. The amount recoverable is $5,000 after the remaining Deductible Amount from Policy A of $2,500 is applied to the loss (i.e., $7,500 loss – $2,500 deductible = $5,000).
The most we will pay for this loss is $5,000.
Example No. 2:
The insured sustained a covered loss of $250,000 resulting directly from an "occurrence" taking place during the terms of Policy A and Policy B.
Policy A
The current policy. Written at a Limit of Insurance of $125,000 and a Deductible Amount of $10,000.
Policy B
Issued prior to Policy A. Written at a Limit of Insurance of $150,000 and a Deductible Amount of $25,000.
The amount of loss sustained under Policy A is $175,000 and under Policy B is $75,000.
The highest single Limit of Insurance applicable to this entire loss is $150,000 written under Policy B. The Policy A Deductible Amount of $10,000 applies. The loss is settled as follows:
1.The amount of loss sustained under Policy A ($175,000) is settled first. The amount we will pay is the Policy A Limit of $125,000 because $175,000 loss – $10,000 deductible = $165,000 which is greater than the $125,000 policy limit.
2.The remaining amount of loss sustained under Policy B ($75,000) is settled next. The amount we will pay is $25,000 (i.e., $150,000 Policy B limit – $125,000 paid under Policy A = $25,000).
The most we will pay for this loss is $150,000.
Example No. 3:
The insured sustained a covered loss of $2,000,000 resulting directly from an "occurrence" taking place during the terms of Policies A, B, C and D.
Policy A
The current policy. Written at a Limit of Insurance of $1,000,000 and a Deductible Amount of $100,000.
Policy B
Issued prior to Policy A. Written at a Limit of Insurance of $750,000 and a Deductible Amount of $75,000.
Policy C
Issued prior to Policy B. Written at a Limit of Insurance of $500,000 and a Deductible Amount of $50,000.
Policy D
Issued prior to Policy C. Written at a Limit of Insurance of $500,000 and a Deductible Amount of $50,000.
The amount of loss sustained under Policy A is $350,000, under Policy B is $250,000, under Policy C is $600,000 and under Policy D is $800,000.
The highest single Limit of Insurance applicable to this entire loss is $1,000,000 written under Policy A. The Policy A Deductible Amount of $100,000 applies. The loss is settled as follows:
1 The amount of loss sustained under Policy A ($350,000) is settled first. The amount we will pay is $250,000 (i.e., $350,000 loss – $100,000 deductible = $250,000).
2.The amount of loss sustained under Policy B ($250,000) is settled next. The amount we will pay is $250,000 (no deductible is applied).
3.The amount of loss sustained under Policy C ($600,000) is settled next. The amount we will pay is $500,000, the policy limit (no deductible is applied).
4.We will not make any further payment under Policy D as the maximum amount payable under the highest single Limit of Insurance applying to the loss of $1,000,000 under Policy A has been satisfied.
The most we will pay for this loss is $1,000,000.
p.Loss Sustained During Prior Insurance Not Issued By Us Or Any Affiliate
(1)If you "discover" loss during the Policy Period shown in the Declarations, resulting directly from an "occurrence" taking place during the policy period of any prior cancelled insurance that was issued to you or a predecessor in interest by another company, and the period of time to discover loss under that insurance had expired, we will pay for the loss under this Policy, provided:
(a)This Policy became effective at the time of cancellation of the prior insurance; and
(b)The loss would have been covered under this Policy had it been in effect at the time of the "occurrence".
(2)In settling loss subject to this condition:
(a)The most we will pay for the entire loss is the lesser of the Limits of Insurance applicable during the period of loss, whether such limit was written under this Policy or was written under the prior cancelled insurance.
(b)We will apply the applicable Deductible Amount shown in the Declarations to the amount of loss sustained under the prior cancelled insurance.
(3)The insurance provided under this Condition is subject to the following:
(a)If loss covered under this Condition is also partially covered under Condition E.1.o., the amount recoverable under this Condition is part of, not in addition to, the amount recoverable under Condition E.1.o.
(b)For loss covered under this Condition that is not subject to Paragraph (3)(a), the amount recoverable under this Condition is part of, not in addition to, the Limit of Insurance applicable to the loss covered under this Policy and is limited to the lesser of the amount recoverable under:
(i)This insurance as of its effective date; or
(ii)The prior cancelled insurance had it remained in effect.
Analysis
This entire section is specific to the loss sustained form only and provides examples of how losses are settled dependent upon when the loss was sustained—during a prior policy and the current policy, during the prior policy only, or during a prior policy when that policy was not issued by the current insurer or an affiliate. There are only cosmetic changes in the 2013 form.
Section 3.(b) explains how the deductible is to be applied and provides examples. The deductible is applied under the current policy if the loss was sustained under the current policy; if not, the prior policy's deductible is used. When the loss occurs under both a current and prior policy and the loss sustained under the current policy is less than the deductible amount, the remaining deductible amount from the current policy will be applied to the remaining amount of loss that occurred during a prior policy.
Example number one clearly shows the application of the deductible. The loss is $10,000 and occurs during both terms. The current policy, policy A, sustains $2,500 of the loss and has a $5,000 deductible and a limit of $50,000. As the loss is less than the deductible, nothing is paid under policy A, but $2,500 is applied to the deductible. Policy B has the same limits and deductible as policy A. The amount of loss under policy B is $7,500. As $2,500 of the loss was applied to the deductible in policy A, the remaining $2,500 of the deductible from policy A is applied under policy B. The settlement then is $5,000; the remaining loss amount of $7,500 less the applied deductible of $2,500. The deductible is applied one time to the entire loss and not separately between the policies.
Example number two clearly shows how the deductible is applied when a loss takes place during two policy terms, and the loss is larger than the limits of the policies. When the loss is larger than the limits of the first policy less the deductible, the limits are paid. Under the second policy, the amount already paid under the first limit is subtracted from the available limit; the remaining limit is then what is paid under the second policy.
Example number three shows how only one deductible is applied even though many policies are involved. Also, the single highest limit of liability of any of the policies is used. There is no stacking of limits or deductibles.
Condition p. is another new condition and deals with loss that occurred during a prior policy and that policy was not issued by the current carrier or an affiliate. Coverage is provided under this policy following the same terms as 1 and 2. What changes in this circumstance is how the settlement itself is handled. Under loss, whether or not the limit was written under the current policy or prior policy. So, if the current policy has a limit of $100,000 and the prior policy has a limit of $150,000 the maximum payable amount is $100,000—the lesser of the limits. The deductible from the current policy is applied to the loss, even when the loss occurs under a prior cancelled policy.
In the event that a loss is covered under condition o. and condition p., the amount of recovery is part of, and not in addition to, the limits in condition o. If a loss is covered under condition p., the loss again is part of, not in addition to, the limits applicable but is also limited to the lesser of the amount recoverable under either the current policy or the prior canceled policy.
q.Other Insurance
If other valid and collectible Policy is available to you for loss covered under this insurance, our obligations are limited as follows:
(1)Primary Insurance
When this insurance is written as primary insurance, and:
(a)You have other insurance subject to the same terms and conditions as this Policy, we will pay our share of the covered loss. Our share is the proportion that the applicable Limit of Insurance shown in the Declarations bears to the total limit of all insurance covering the same loss.
(b)You have other insurance covering the same loss other than that described in Paragraph o.(1)(a), we will only pay for the amount of loss that exceeds:
(i) The Limit of Insurance and Deductible Amount of that other insurance, whether you can collect on it or not; or
(ii) The Deductible Amount shown in the Declarations;
whichever is greater. Our payment for loss is subject to the terms and conditions of this Policy.
(2)Excess Insurance
(a)When this Policy is written excess over other insurance, we will only pay for the amount of loss that exceeds the Limit of Insurance and Deductible Amount of that other insurance, whether you can collect on it or not. Our payment for loss is subject to the terms and conditions of this insurance.
(b)However, if loss covered under this Policy is subject to a Deductible, we will reduce the Deductible Amount shown in the Declarations, by the sum total of all such other insurance plus any Deductible Amount applicable to that other insurance.
r.Ownership Of Property; Interests Covered
The property covered under this insurance is limited to property:
(1)That you own or lease; or
(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
The clause for other insurance under o. in the discovery policy is presented under q. in the loss sustained policy; the language is the same for both policies. Because of the policy specific sections, the ordering of this section is slightly out of sync between the two policies. The differences will be identified.
When the coverage in this policy is primary and other insurance exists subject to the same terms and conditions, payment is based on the proportion of the limit of insurance to the total limit of all insurance covering the loss. For example, the limit of applicable insurance on this policy is $400,000 and the other policy limit is $600,000. The loss sustained is $500,000. As this policy provides 40 percent of the available limits for the loss, this policy will pay 40 percent of the loss (500,000 x .40), or $200,000.
When the other insurance is not subject to the same terms and conditions, this policy will pay the amount of loss that exceeds the other policy's limit of insurance and deductible, regardless of whether or not the insured can collect it, or the deductible amount shown in this policy's declarations, whichever is greater. For example, the loss is $800,000. The other policy's limit of insurance and deductible are $600,000, and the deductible for this policy is $500,000. The amount that exceeds $600,000 or the difference between the deductible and limits and the amount of the loss, is $200,000 for the other policy. The amount that exceeds the insured's policy deductible of $500,000, or is the difference between the deductible and amount of the loss, is $300,000. Since the amount that exceeds the insured's policy deductible is the greatest amount between this and the other policy, this policy will pay $300,000 of the loss.
When the coverage in this policy is excess over other insurance, this policy will pay only the amount of loss that exceeds the other policy limit and deductible, whether or not the insured can collect on it. If the loss covered under this policy is subject to a deductible, the deductible amount will be reduced by the total of all such other insurance including any applicable deductible to that other insurance. The loss is $1,800,000 and the other policy's limit and deductible is $600,000. The deductible on this policy is $800,000. The $800,000 deductible is reduced by the amount of the limit and deductible of the other insurance, the $600,000. Therefore, the remaining $200,000 is taken from the loss for this policy's deductible, and this policy pays the remaining $1,000,000 to the insured.
(1)If this Policy replaces insurance that provided you with an extended period of time after cancellation in which to discover loss and which did not terminate at the time this insurance became effective:
(a)We will not pay for any loss that occurred during the policy period of that prior insurance which is discovered by you during the extended period to discover loss, unless the amount of loss exceeds the Limit of Insurance and Deductible Amount of that prior insurance. In that case, we will pay for the excess loss subject to the terms and conditions of this policy.
(b)However, any payment we make for the excess loss will not be greater than the difference between the Limit of Insurance and Deductible Amount of that prior insurance and the Limit of Insurance shown in the Declarations. We will not apply the Deductible Amount shown in the Declarations to this excess loss.
(2)The Other Insurance Condition E.1.k. does not apply to this Condition.
Analysis
The Policy Bridge-Discovery Replacing Loss Sustained section does not appear in the loss sustained form. This condition explains the connection between a prior policy with an extended time after cancellation to discover loss that was not terminated when this policy became effective. This policy will pay a loss that was discovered during the extended period only after the prior policy limits and deductible have been exceeded. The deductible from this policy will not be applied, and any payment for the excess loss will not exceed the difference between the limits and deductible of the first policy and the limits and deductible of this policy. For example, the limits of the first policy are $2 million. This policy's limits are $3 million; the loss is $4 million. This policy will pay only $1 million of the loss, which is the difference between the limits of the first policy limits and this policy's limits. The other insurance condition E.1.k. that defines how primary and excess coverage applies does not apply to this condition.
The first Named Insured shown in the Declarations:
(1) Is responsible for the payment of all premiums; and
(2) Will be the payee for any return premiums we pay.
t.Records
You must keep records of all property covered under this Policy so we can verify the amount of any loss.
u.Recoveries
(1)Any recoveries, whether effected before or after any payment under this Policy, whether made by us or you, shall be applied net of the expense of such recovery:
(a) First, to you in satisfaction of your covered loss in excess of the amount paid under this Policy;
(b) Second, to us in satisfaction of amounts paid in settlement of your claim;
(c) Third, to you in satisfaction of any Deductible Amount; and
(d) Fourth, to you in satisfaction of any loss not covered under this Policy.
(2)Recoveries do not include any recovery:
(a) From insurance, suretyship, reinsurance, security or indemnity taken for our benefit; or
(b) Of original "securities" after duplicates of them have been issued.
v.Territory
This Policy covers loss that you sustain resulting directly from an "occurrence" taking place within the United States of America (including its territories and possessions), Puerto Rico and Canada.
w.Transfer Of Your Rights And Duties Under This Policy
(1)Your rights and duties under this policy may not be transferred without our written consent except in the case of death of an individual Named Insured.
(2)If you die, your rights and duties will be transferred to your legal representative but only while acting within the scope of duties as your legal representative. Until your legal representative is appointed, anyone having temporary custody of your property will have your rights and duties but only with respect to that property.
x.Transfer Of Your Rights Of Recovery Against Others To Us
You must transfer to us all your rights of recovery against any person or organization for any loss you sustained and for which we have paid or settled. You must also do everything
necessary to secure those rights and do nothing after loss to impair them.
y.Valuation – Settlement
The value of any loss for purposes of coverage under this Policy shall be determined as follows:
(1) 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). The Limit of Insurance applicable to the "securities".
(3)Property Other Than Money And Securities
(a)Loss of or damage to "other property" or loss from damage to the "premises" or its exterior 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".
Analysis
Because of the policy-specific sections the ordering of this section continues to be slightly out of sync between the two policies; in the loss sustained policy premiums are listed under s., and in the loss discovered policy premiums are listed under r.; the remaining sections of the policies contain identical language.
Recoveries are applied net of the expense of the recovery. The named insured is made whole first for any loss that the named insured sustains in excess of the limit of insurance and the deductible. The insurer is then paid until it is reimbursed for the amount it paid out for the loss. Third, the insured receives compensation for the deductible he has chosen.
The valuation and settlement condition discusses the value of lost money, securities, and other property that the policies cover. Loss of money is settled only up to and including its face value; it may pay for loss of money issued by a country other than the United States either at the face value in the money issued by that country, or in the United States dollar equivalent at the rate of exchange on the day the loss is discovered.
2.Conditions Applicable To Insuring Agreement A.1.
a.Termination As To Any Employee
This Insuring Agreement terminates as to any "employee":
(1)As soon as:
(a)You; or
(b)Any of your partners, "members", "managers", officers, directors or trustees not in collusion with the "employee";
learn of "theft" or any other dishonest act committed by the "employee" whether before or after becoming employed by you.
(2)On the date specified in a notice mailed to the first Named Insured. That date will be at least 30 days after the date of mailing.
We will mail or deliver our notice to the first Named Insured's last mailing address known to us. If notice is mailed, proof of mailing will be sufficient proof of notice.
b.Territory
We will pay for loss caused by any "employee" while temporarily outside the territory specified in the Territory Condition E.1.p. for a period of not more than 90 consecutive days.
Analysis
The policy terminates as to any employee as soon as the named insured, any partners, officers, managers, or directors not in collusion with the employee learn of theft or any dishonest act committed by the employee whether before or after becoming employed by the named insured. Therefore, the employee does not have to engage in dishonest conduct while employed for the policy to exclude coverage. If it is discovered that one year prior to being employed by the named insured the employee in question embezzled from a former employer, these policies will not apply to that employee.
If an employee is in Japan on a business trip and steals the insured company's money, coverage will be provided for the theft even though Japan is outside the stated territorial limits of the policy. The coverage is for ninety days and the policies state that the ninety-day period is ninety consecutive days, not business days or some other variation on the counting of days.
3.Conditions Applicable To Insuring Agreement A.2.
a.Deductible Amount
The Deductible Amount does not apply to legal expenses paid under Insuring Agreement A.2.
b.Electronic And Mechanical Signatures
We will treat signatures that are produced or reproduced electronically, mechanically or by other means the same as handwritten signatures.
c.Proof Of Loss
You must include with your proof of loss any instrument involved in that loss, or, if that is not possible, an affidavit setting forth the amount and cause of loss.
d.Territory
We will cover loss that you sustain resulting directly from an "occurrence" taking place anywhere in the world. Territory Condition E.1.p. does not apply to Insuring Agreement A.2.
4.Conditions Applicable To Insuring Agreements A.4. And A.5.
a.Armored Motor Vehicle Companies
Under Insuring Agreement A.5., we will only pay for the amount of loss you cannot recover:
(1)Under your contract with the armored motor vehicle company; and
(2)From any insurance or indemnity carried by, or for the benefit of customers of, the armored motor vehicle company.
b.Special Limit Of Insurance For Specified Property
We will only pay up to $5,000 for any one "occurrence" of loss of or damage to:
(1)Precious metals, precious or semi-precious stones, pearls, furs, or completed or partially completed articles made of or containing such materials that constitute the principal value of such articles; or
(2)Manuscripts, drawings, or records of any kind, or the cost of reconstructing them or reproducing any information contained in them.
5.Conditions Applicable To Insuring Agreement A.6.
a.Special Limit Of Insurance For Specified Property
We will only pay up to $5,000 for any one "occurrence" of loss of or damage to manuscripts, drawings, or records of any kind, or the cost of reconstructing them or reproducing any information contained in them.
b.Territory
We will cover loss that you sustain resulting directly from an "occurrence" taking place anywhere in the world. Territory Condition E.1.v. does not apply to Insuring Agreement A.6.
Analysis
The remaining conditions are self-explanatory, and there are no language changes to these sections.