Summary: Insurance Services Office (ISO) has updated and revised the coverage form for loss suffered by the insured due to kidnap, ransom, or extortion. This policy is part of the commercial crime and fidelity insurance program and allows worldwide coverage for loss from the payment of a ransom from a kidnaping or extortion threat and any expenses incurred in obtaining the release of a kidnapped victim or in resolving an extortion threat. This article offers a review and analysis of the revised coverage form.
The coverage is found on CR 00 40 08 13 and CR 00 41 08 13. CR 00 40 is for use with the commercial package policy, and CR 00 41 is a stand alone form written outside the commercial package program. This article is based on CR 00 41.
Topics covered: Insuring Agreements Deductible 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 and "expenses" that you incur resulting directly from an "occurrence" taking place during the Policy Period shown in the Declarations and reported to us during the policy period or during the period of time provided in the Extended Reporting Period Condition E.2.j.:
- Kidnap/Ransom And Extortion – Direct Loss
a. Loss of "property" surrendered as a ransom payment resulting directly from the "kidnap" or alleged "kidnap" of an "insured person".
b. Loss of "property" surrendered as an extortion payment resulting directly from an extortion threat communicated to you:
(1) To do bodily harm to an "insured person";
(2) To do damage to "premises" or "property";
(3) To introduce a denial of service attack into your "computer system";
(4) To introduce a virus or other malicious instruction into your "computer system" which is designed to damage, destroy or corrupt "electronic data" or "computer programs" stored within your "computer system";
(5) To contaminate, pollute or render sub-standard your products or goods;
(6) To disseminate, divulge or utilize:
(a) Your proprietary or confidential information, including formulas, patents, data, processes or other confidential information unique to your business, or the confidential or personal information of another person or organization, provided you make a constant and conscious effort not to disclose the existence of such information to any third party; or
(b) Weaknesses in the source code within your "computer system"; or
(7) To inflict "ransomware" on your "computer system".
Analysis:
Coverage is now provided for the infliction of "ransomware" on the computer system of an insured. This is a type of virus that deprives the owner of access to its computers until a ransom is paid. Once a ransom is paid to the hacker, the data is again made available to the insured. Retrieving the data from back-ups and recovering that data not backed up can be exceedingly expensive and time consuming. This is new to the 2013 form.
Coverage must apply to a loss and expenses that result from an occurrence that takes place during the policy period and is reported during the policy period or extended policy period. Only losses that are covered under the policy, or occur during the period, and qualify as an occurrence are covered.
2. Kidnap/Ransom and Extortion—Expenses Incurred
We will pay for "expenses" incurred by you resulting directly from a "kidnap," alleged "kidnap," or extortion threat covered under Insuring Agreement 1.
Analysis:
This part of the insuring agreement applies to the expenses that the insured incurs in its handling of the direct loss payments discussed in the first insuring agreement. "Expenses" is a defined term that will be treated later in this article, but it includes such items as fees and costs for negotiators, travel costs, hospitalization and medical service costs, reward money, and any other reasonable expenses incurred by the named insured with the consent of the insurer. For example, if the insured's company representative in the Middle East is kidnapped and held for ransom, and the company hires a negotiator who acts as the go-between in the deal, CR 00 41 will pay the negotiator's expenses and fees. And, after the representative is released, CR 00 41 will pay for his medical costs (including psychiatric care).
The maximum amount that the insurer will pay for these expenses is listed on the declarations (CR DS 07). There is no deductible applicable to this coverage, and the payment is on a per occurrence basis. The statement that fees and expenses incurred are in addition to the limit of insurance was removed. Coverage has not changed however, since this language now appears under section B. limit of insurance.
3. Detention or Hijack
We will pay for "expenses" incurred by you resulting directly from the "detention" or "hijack" of an "insured person".
Analysis:
This insuring agreement makes a distinction between kidnapping and detention and hijacking. Both of these latter terms are defined and will be discussed later, but the main difference is that a kidnap requires a demand for money or other consideration in exchange for the release of the victim, while detention and hijacking mean holding an insured person under duress for any reason other than a kidnapping. What this other reason could be is not explained in CR 00 41, but an example might include hijacking an airplane to force it to go to Cuba or Libya. Another example may be a dissident group's detaining some businessmen to protest the actions of American businesses in the group's country. In any case, CR 00 41 pays for the expenses incurred by the insured in responding to the detention or hijacking. The same change regarding expense payments made in the prior agreement has been made here.
4. In-Transit Delivery of Property
We will pay for loss of "property" while in the care and custody of a "messenger" resulting directly from theft, disappearance, confiscation or destruction while being delivered to persons demanding the payment of such "property" arising out of a "kidnap", alleged "kidnap" or extortion threat covered under Insuring Agreement 1.
Analysis:
If the insured has agreed to pay a ransom or pay an extortion demand, the payment, whether it be in the form of money or other property, must leave the insured's premises. While being delivered by a messenger (a defined term) to the persons demanding the payment, the property may be lost, confiscated by a government, stolen by thieves, or simply destroyed in an act of nature. In case of a loss, CR 00 41 will pay for the loss to the property. If the property lost is money, CR 00 41 will pay up to and including the face value. If the property is securities, the policy will pay up to the market value at the close of business on the day the securities were surrendered. If the property is other than money or securities, the amount paid by the insurer is the lesser of the replacement cost value (without deduction for depreciation) or the stated limit of insurance.
This coverage is for loss of property while in the care and custody of the messenger. If, for some reason, the messenger no longer has care and custody of the property, a loss to the property would presumably not be covered by CR 00 41. However, what constitutes "care and custody" is not detailed on CR 00 41. So if the messenger was instructed to leave the property in a certain place and walk away, and the property is then stolen by a party other than the kidnappers or is destroyed in a flash fire, was the property in the care and custody of the messenger at the time of loss? This is a question that will no doubt be settled in future court cases. An example is E.M.M.I. Inc. v. Zurich American Ins. Co., 9 Cal Rptr 3d 701 (2004), which dealt with similar language that excluded losses from a vehicle where the person in charge of the property was not "in, on or upon" the vehicle. In this case the person in charge of the property was inspecting the rear of the vehicle for noise when someone stole both the vehicle and the property it contained. The supreme court majority, finding an ambiguity in the word "upon," redefined an exclusion requiring an insured to be "in, on or upon" the automobile at the time of a loss for coverage to apply to mean "in close proximity." The court held that coverage was not precluded.
B. Limit Of Insurance
The most we will pay for all loss or "expenses" resulting directly from an "occurrence" is the applicable Limit of Insurance shown in the Declarations.
However, the fees and costs of the security firm shown in the Declarations are payable by us in addition to the Limits of Insurance applicable to Insuring Agreements 2. and 3.
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.
The Deductible Amount does not apply to any "expenses" paid under Insuring Agreements 2. and 3.
Analysis:
The only change made to limit of insurance in the 2013 revision is the addition of the language stating that fees and costs of the security firm shown in agreements 2. and 3. are payable in addition to the limits of insurance.
The limit of insurance and deductible are standard policy language. The deductible does not apply to expenses listed in insuring agreements 2 and 3. The declarations form for the Kidnap and Ransom policy is CR DS 07. The form provides a schedule for listing the limits of insurance for each of the insuring agreements provided by CR 00 41. The limits are on a per occurrence basis.
CR DS 07 also schedules deductibles for the kidnap/ransom and extortion—direct loss coverage and the in-transit delivery of property coverage. The basic deductible is $500, but the insured can choose a deductible ranging from $0 up to $25,000. The premium for the coverage varies, of course, based on the deductible chosen by the insured.
D. Exclusions
- This policy does not cover:
a. Acts Committed by You or any Insured Person
Loss or "expenses" resulting from any dishonest, fraudulent or criminal act committed by:
(1) You; or
(2) Any "insured person".
b. Surrender of Property
Loss or "expenses" resulting from the surrender of "property":
(1) Inside the "premises" unless first brought inside the "premises" after receipt of the ransom or extortion demand for the purpose of paying such demand; or
(2) Outside the "premises" as a result of a threat to do bodily harm to a person in possession of such "property" other than a "messenger".
2. Insuring Agreement 3. does not apply to:
a. Political or Military Activity
"Expenses" resulting from an "insured person" taking part in any political activity or the operations of any security or military force.
b. Travel Documents
"Expenses" resulting from the failure of you or an "insured person" to properly procure or maintain required travel documents including passports, visas, permits and other similar documentation.
c. Violation of Laws of Foreign Countries
"Expenses" resulting from "detention" due to any actual or alleged violation of the laws of a foreign country by you or an "insured person", unless the "detention" results from allegations that are deliberately false, fraudulent or malicious and made solely to achieve political, propaganda and/or coercive effect upon or at the expense of you or an "insured person".
Analysis:
The exclusions are unchanged in the 2013 form. The first exclusion is elementary; no insurance policy will cover the criminal acts of an insured.
The second exclusion restricts, to a degree, the coverage for loss to property that is provided by CR 00 41. The coverage under CR 00 41 is not to be seen as just another crime form in that loss to the insured's property—such as money or other valuables—will not be covered if the loss occurs while such property is on the insured's premises as a result of the regular course of business. For example, if the insured keeps $10,000 in cash on premises for regular day-to-day operating expenses, and that money is stolen or disappears, the insured cannot use CR 00 41 to cover that type of loss. On the other hand, if the $10,000 is brought onto the premises as a result of an extortion demand, and the money is stolen or disappears, CR 00 41 will cover that loss.
When property is outside the premises, loss of property is covered while in the care and custody of a messenger. However, CR 00 41 will not respond to a loss of the property outside the premises if the messenger has given up control of the property and a robber takes it. As an example, if a messenger (a defined term) has the insured's property—$50,000 in cash—and is taking it to a drop off point to pay an extortionist, and a robber accosts the messenger, stealing the property, CR 00 41 will cover that loss. On the other hand, if the messenger has given the cash to a bank or a security firm for safekeeping before paying the extortionist, and a robber accosts a teller or a security guard and takes the money, CR 00 41 will not cover the loss.
Insuring agreement three relates to expenses incurred by the named insured as a result of the detention or hijack of an insured person. However, this agreement does not apply under certain circumstances. If the insured person takes part in an antigovernment political rally and is detained by the government because of his activities, CR 00 41 will not pay any expenses incurred by the named insured as a result of the detention. Similarly, if detained in a foreign country because the insured person has an expired passport or does not have the proper travel papers, CR 00 41 excludes the paying of incurred expenses due to this failure on the part of the partner. Finally, if the partner violates the laws of the foreign country he is visiting or is honestly accused of violating the law and is detained by the authorities, CR 00 41 will not pay incurred expenses. Just as this policy does not apply to criminal acts committed by insureds in this country, it does not apply to criminal acts committed in foreign countries.
Conditions
E. Conditions
- Confidentiality
You and every "insured person" must make every reasonable effort not to divulge the existence of this policy.
2. Other Conditions
Wherever used in the Conditions, the word loss shall also be deemed to mean "expenses".
a. Additional Premises Or Employees
If, while this policy is in force, you establish any additional "premises" or hire additional "employees", other than by 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" need not be given and no additional premium need be paid for the remainder of the Policy Period shown in the Declarations.
b. Cancellation Of Policy
(1) The first Named Insured shown in the Declarations may cancel this policy by mailing or delivering to us advance written notice of cancellation.
(2) We may cancel this policy by mailing or delivering to the first Named Insured written notice of cancellation at least:
(a) 10 days before the effective date of cancellation if we cancel for non-payment 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 policy;
(2) A person insured under this policy;
(3) The "property" covered under this policy;
(4) Your interest in the "property" covered under this policy; or
(5) A claim under this policy.
Analysis:
The confidentiality condition is unchanged in the 2013 form. Under other conditions, a new condition called Additional Premises or Employees has been added. The condition states that any additional premises established by the named insured or employees hired by the named insured are automatically covered under this policy. The addition of premises or employees must not be the result of a merger or acquisition. Notice to the carrier is not required, nor is payment of additional premium for the remainder of the policy period.
The cancellation, changes, concealment, and misrepresentation or fraud conditions have not been changed from the prior edition of the form. The first named insured can cancel or make changes to the policy, premium refunds will be sent to the first named insured, and any fraud by the first named insured will void the policy, as will fraud by any other insured that involves concealment/misrepresentation of material facts regarding the policy, persons, property, or claims under this policy.
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 policy 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 policy 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 policy as stated in its terms and conditions.
g. Due Diligence
You and every "insured person" must exercise due diligence in doing all things reasonably practicable to avoid or diminish any loss covered under this policy.
h. Duties In The Event Of An Occurrence
In the event of an "occurrence" which may result in a loss covered under this policy, you must:
(1) Determine that the "kidnap", extortion threat, "detention" or "hijack" has actually occurred.
(2) In regard to a "kidnap" or extortion threat, make every reasonable effort to:
(a) Immediately notify the Security Firm shown in the Declarations;
(b) Notify an associate;
(c) Notify the local law enforcement authorities; and
(d) Notify the Federal Bureau of Investigation; before surrendering any "property" in payment of a ransom demand or extortion threat.
(3) Approve any payment involving a ransom demand or extortion threat.
(4) Notify us as soon as possible.
(5) Submit to examination under oath at our request and give us a signed statement of your answers.
(6) Produce for our examination all pertinent records.
(7) Give us a detailed, sworn proof of loss within 120 days.
(8) Cooperate with us in the investigation and settlement of any claim.
Analysis:
The consolidation merger condition has been revised with no changes to the intent of the policy language.
The cooperation language continues in the 2013 form and is the standard cooperation language that controls almost every policy of insurance.
The due diligence clause is similar to the duty—found in property coverage forms—to take reasonable steps after a loss to protect the covered property from further damage. However, the clause in CR 00 41 differs in that it does not speak only of activities after a loss or speak of reimbursement from the insurer for the insured's taking protective measures as do the clauses found in property policies.
With this condition, the insurer wants the insured to take reasonable measures to prevent a loss, such as the following: do not make the presence of employees in a foreign country a widely publicized event, vary employee travel routes and times, keep employees advised of the potential dangers that exist in their travel areas, have backup systems to protect computers that may be shut down or overloaded by hackers, and hire security firms if the perceived threat of loss is great. The due diligence clause is worded vaguely enough to allow the insured the benefit of the doubt should there be a question as to its "reasonably practicable" efforts, but this does not mean that the insured can approach its risks of loss with a cavalier attitude.
CR 00 41 speaks of the duties of the named insured in the event of an occurrence that may result in a loss as opposed to duties after a loss has occurred. This does not change the fact that the named insured still has the duty to notify law enforcement authorities and cooperate with the insurer if something occurs that would bring CR 00 41 into play. Since kidnappings often extend beyond the jurisdiction of local law enforcement. CR 00 41 also requires the named insured to make sure that a kidnap, extortion threat, detention, or hijack has actually occurred. Considering the idea that the named insured is the main party with whom the insurer deals when it comes to CR 00 41, the insured's staff and executives must understand that no payment should be made without the approval of the named insured.
The duties of the named insured along with the due diligence requirement act as loss control measures in that they force the named insured to take an active role in preventing or diminishing a loss. As an example, since the named insured must approve any payment involving a ransom demand or extortion threat, this ensures that supervisors in various overseas offices cannot take it upon themselves to pay ransom demands, thereby creating uncontrollable and unaccountable losses for the named insured. The policy now requires the insured to also provide all pertinent records for the insurer to review.
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 3 years afterward.
j. Extended Reporting Period
We will pay for loss that you sustain prior to the effective date of cancellation of this policy which is reported to us or the security firm shown in the Declarations no later than 30 days from the date of that cancellation.
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", official or officer of that Insured has knowledge of any information relevant to this policy, that knowledge is considered knowledge of every Insured.
(3) If this policy or any of its coverages is cancelled as to any Insured, loss sustained by that Insured is covered only if reported to us no later than 30 days from the date of that cancellation.
(4) We will not pay more for loss or losses sustained by more than one Insured than the amount we would pay if all the loss or losses had been sustained by one Insured.
(5) Payment by us to the first Named Insured for loss sustained by any Insured 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 reported the loss to us.
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 policy 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:
There is nothing in the insuring agreements of CR 00 41 that would make the insured think this is a claims-made policy. And yet, one of the conditions on CR 00 41 creates an extended reporting period. The insured has thirty days from the date of policy termination or cancellation in which to report an act or event that may cause a loss; if this happens, CR 00 41 will respond to the loss.
A question arises, though, over the meaning of the word "termination." Does termination equate with policy expiration or with policy cancellation? This could affect the time of the reporting period. For example, if the policy period is from October 1, 2013, to October 1, 2014, and the insurer cancels the policy on September 20, 2014, does the insured have until October 20, 2014, to report a loss since this is thirty days after cancellation, or is the reporting cut-off date October 31, 2014, which is thirty days after the policy has terminated (ended)? Although probably a rare issue, the insurer seems to be repeating itself by using "cancellation" after "termination." An insurer faced with this situation will treat its insured fairly and in good faith to avoid going to court. As with every new insurance policy it will fall to the courts to ultimately interpret the wording. If a court finds the language ambiguous, it will, as a matter of course, be interpreted by the court in a manner most favorable to the insured.
The insurer claims for itself the right to inspect the insured's premises and operations and to make recommendations to the insured for changes. However, this is not done by the insurer as a safety inspection. The inspections relate only to the insurability of the workplaces and the premiums to be charged. There have been instances where insurers have been sued for negligence if, after a premises inspection, a worker or customer was injured. The wording of this condition is meant to counteract that idea. For court cases on the subject, the discussion on a similar condition in the workers compensation policy is worth reading; see Workers Compensation and Employers Liability Policy.
The joint insured condition merely emphasizes the point that the first named insured is considered the main partner in the insurance contract with the insurer. In the case of multiple insureds, the insurer needs to be able to deal with one party for convenience sake, and the first named insured is the one. The other provisions of this condition declare that if one insured knows something that is relevant to the policy, CR 00 41 assumes that all insureds know; that coverage can be cancelled for any insured, but CR 00 41 will still cover a loss sustained by that former insured if the loss is reported within the extended reporting period; and, that losses by multiple insureds does not mean the limit of insurance will be multiplied by the number of insureds. Once the carrier has paid the loss, there are no further obligations the company needs to abide by.
The legal action clause allows the insured to sue the insurer under certain conditions, with one of them being a two-year statute of limitations. This time period can be changed in accordance with relevant state laws on the subject. There are no changes to the liberalization clause.
Some states, like California, toll (put on hold) the limitation period from the moment the claim is first made until it is rejected. That means the two-year statute does not even begin to run until the claim is denied. It is imperative, therefore, to check the law in the jurisdiction where the policy was issued or where the loss occurred to determine how to count the time needed to file suit.
o. Other Insurance
If other valid and collectible insurance is available to you for a loss we cover under this policy, our obligations are limited as follows:
(1) Primary Insurance
When this policy 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 other 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, if any, 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 policy.
(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.
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.
q. Premiums
The first Named Insured shown in the Declarations:
(1) Is responsible for the payment of all premiums; and
(2) Will be the payee for any return premiums we pay.
r. 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.
s. Surrender Of Personal Assets
In the event of a ransom or extortion demand directed against any "insured person" other than the Named Insured, any "property" surrendered or to be surrendered by or on behalf of the "insured person" and additional "expenses" of the "insured person" shall be considered "property" or "expenses" of the Named Insured shown in the Declarations, provided the ransom or extortion demand occurred directly as the result of the "insured person's" association with the Named Insured shown in the Declarations and not as the result of such person's association or position with any other entity.
Analysis:
Here there is one change from the 2007 form. The interests covered now include coverage for property that is held by you in any capacity or for which you are legally liable, provided you were liable for the "property" prior to the time the loss was sustained. It also changed the provision that earlier provided coverage for property that the insured holds for others whether or not legally liable for the loss of such property.
When this policy is primary insurance and other insurance is subject to the same terms, any loss is paid proportionally between the two carriers. If the limits of this policy are 40 percent of the total limits available for payment of the loss, then this policy pays 40 percent of the loss.
If the other insurance is subject to different terms, then this policy pays for the amount that exceeds the limits and deductible of the other policy or the deductible amount shown in the declarations. For example, the loss is $2 million and the other insurance has a limit of $1.25 million with a $250,000 deductible so the total of the limit plus deductible is $1.5 million. This policy would then pay the remaining $500,000. However if the deductible on this policy was $250,000 with limits of $2 million, then this policy would pay $1.75 million since that is the greater of the two amounts.
When this policy is excess over other insurance, it pays only what is excess over the limit and deductible of the other insurance whether or not that amount is collectible. So, if the loss is $2 million and the other carrier has $1.5 million in coverage, but for whatever reason that amount is not collectible, this policy only pays the $500,000, which is the amount excess to the other policy. If a deductible applies to this policy, that deductible is reduced by the total of all other insurance and its deductible.
The ownership of property condition has some minor wording revisions and the premium condition has no changes. The records condition has been removed.
Once the monies recovered have been paid to the insured for loss in excess over the policy limits, to the carrier for settlement amounts paid, to the insured for deductible amounts, now any remaining sum is for any loss not covered under the policy.
Surrender of personal assets provides that if a demand is directed against someone other than a named insured, the property and expenses of that surrender will be considered property and expenses of the named insured. This provides coverage for that other person's property under this policy. The demand must occur directly as a result of the insured person's association with the named insured. For example, the named insured deals in antiquities and artifacts, and various employees travel the world acquiring said artifacts. An employee is kidnapped on such a trip, and a demand is made for a jade sculpture that a different employee has in his personal collection. The surrender of that asset of another employee is covered because of this clause.
t. Territory
This policy covers loss that you sustain resulting directly from an "occurrence" taking place anywhere in the world, unless modified in the Declarations.
u. 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 proper temporary custody of your "property" will have your rights and duties but only with respect to that "property".
v. Transfer Of Your Rights Of Recovery Against Others To Us
You must transfer to us all your rights of recovery against any person or organization for any loss you sustained and for which we have paid or settled. You must also do everything necessary to secure those rights and do nothing after loss to impair them.
w. Valuation – Settlement
(1) 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 it was surrendered.
(2) Securities
Loss of securities but only up to their market value at the close of business on the day they were surrendered. 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 you first became aware of the loss; or
(ii) Limit of Insurance applicable to the securities.
(3) Property Other Than Money And Securities
(a) Loss of "property" for its replacement cost 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 "property";
(ii) The cost to replace the lost "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 replace the lost "property".
(b) We will not pay on a replacement cost basis for any loss of "property" covered under Paragraph w.(3)(a):
(i) Until the lost "property" is actually replaced; and
(ii) Unless the replacement is made as soon as reasonably possible after the loss.
If lost "property" is not replaced, we will pay on an actual cash value basis.
(c) We will, at your option, pay for loss of such "property":
(i) In the money of the country in which the loss was sustained; or
(ii) In the United States of America dollar equivalent of the money of the country in which the loss was sustained, determined by the rate of exchange published in The Wall Street Journal at the time it was surrendered.
(d) Any "property" that we pay for or replace becomes our property.
Analysis:
The coverage territory of CR 00 41 is worldwide, as it should be considering the fact that many kidnappings occur while an insured's employees are in foreign countries. Coverage is truly worldwide unless indicated in the declarations, which may be added as an endorsement to prevent travel to areas where kidnapping and extortion are rife.
The transfer of rights clause and the subrogation clause are the standard conditions on insurance policies. Rights cannot be transferred without the carrier's permission except in the event of death, and upon death rights and duties are transferred to the legal representative only when that person is acting as legal representative of the estate.
The valuation condition sets out how losses are paid. The first point to the insured is that the insurer will pay no more than the limit of insurance shown in the declarations for the various insuring agreements. Then the insurer proceeds to say how it will pay for loss to money, securities, and other property.
Loss of money is paid for based on its face value. In other words, $20,000 is valued at $20,000. If the money lost has been issued by a country other than the U.S., CR 00 41 will pay at face value in the money issued by that other country or in U.S. dollars at the published rate of exchange.
Loss of securities is paid for based on their market value at the close of business. The insurer may pay for the securities according to their value or it may replace them with like securities. In other words, if the insured loses $20,000 in stock certificates, the insurer will either pay the value of the stock or buy the insured new certificates. Under this latter scenario, the insured must surrender any claim to the securities that were lost, just in case they are recovered. That way, the insurer gets to keep the newly found securities and the insured does not receive duplicate payment for its one loss.
Payment is for the lesser of the cost to replace the property with like kind and quality, the amount actually spent to replace the property, or the limit of applicable insurance. Replacement cost payment is not made however until the lost property is replaced and as soon as reasonably possible. The insured cannot dawdle in replacing property. If property is not replaced, actual cash value is paid. Since actual cash value is not defined it depends on the jurisdiction; in some areas actual cash value can be replacement cost less depreciation, fair market value at the time of loss, or a combination of all possible means to determine actual cash value. The final clause for payment of loss or damage of property other than money and securities has one large change. The option of how the loss is settled is no longer the carrier's option, but the insured's. The payment options are the same, but now the insured gets to decide how that payment is made.
F. Definitions
1. "Computer program" means a set of related electronic instructions that direct the operations and function of a computer and computer devices connected to it and 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;
c. Terminal devices; and
d. Related communications networks;
by which "electronic data" is collected, transmitted, processed, stored and retrieved.
3. "Detention" means the holding under duress of an "insured person" by anyone:
a. Acting as an agent of or with the tacit approval of any government or government entity; or
b. Acting or purporting to act on behalf of any insurgent party, organization or group; for any reason other than "kidnap".
4. "Electronic data" means information or facts stored as or on, created or used on, or transmitted to or from computer software (including systems and applications software), on hard or floppy disks, CD-ROMS, tapes, drives, cells, data processing devices or any other media which are used with electronically controlled equipment.
Analysis:
Computer system refers to the hardware of the computer; the actual physical box as well as components, software, and necessary communications networks. Computer system refers to the hardware of the computer; the actual physical box as well as components, software, and necessary communications networks. Rare in any major business is the computer that is not networked to other computers or does not have access to the Internet.
Detention pertains to holding an insured person in custody for some reason other than a kidnap ploy. For example, a group of rebels may seize an insured's employee and hold him to protest government or company practices; or, a foreign government may detain an employee because the employee has lost his identification papers, been found at a restricted area or unwittingly violated a local statute. Whatever the reason, the seizure and holding is not based on a desire for ransom as is a kidnap.
Electronic data is the final new term and refers to the actual information stored on the computer system. This includes the organization's records containing facts, figures, and information about the organization, its operations, personnel, etc.
5. "Employee":
a. "Employee" means:
(1) Any natural person:
(a) While in your service;
(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 5.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 excluding, however, any such person while having care and custody of property outside the "premises";
(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 5.a.(2);
(4) Any natural person who is a former official, "employee", director, partner, "member", "manager" trustee or other person retained as a consultant while performing services for you;
(5) Any natural person who is a guest student or intern pursuing studies or duties or
(6) Any natural person employed by an institution merged or consolidated with you prior to the effective date of this policy.
b. Does not mean:
Any agent, broker, factor, commission merchant, consignee, independent contractor or representative of the same general character not specified in Paragraph 5.a.
Analysis:
The definition of employee has some minor changes and eliminated from the exclusion concerning interns any person while having care and custody of property outside the "premises", so that there is no coverage for losses of property in the intern's care and custody outside the premises. The definition emphasizes the point that an employee is a natural person; in other words, a purely legal person such as a corporation cannot be considered an employee of the named insured. The policy also specifies that a leased employee is not the same as a temporary employee.
The policy continues to identify who is not an employee. Agents, brokers, factors, commission merchants, consignees, independent contractors, or similar representatives are not considered employees of the insured. The insured does not have the same control over these individuals as they do over hired employees.
6. "Expenses":
a."Expenses" mean:
(1) Fees and costs of the security firm shown in the Declarations hired to negotiate or secure the release of an "insured person" or determine the validity and severity of an extortion threat;
(2) Fees and costs of independent negotiators;
(3) Fees and costs of independent public relations consultants and/or interpreters;
(4) The cost of hiring security guards to protect an "insured person" or "property" upon the recommendation of the security firm shown in the Declarations;
(5) Travel costs and accommodations incurred by you or an "insured person";
(6) Salary, commissions and other financial benefits paid by you to an "insured person". Such compensation applies at the level in effect on the date of the "kid-nap", "detention", or "hijack" of the "insured person" and ends upon the earliest of:
(a) Up to 30 days after their release if the "insured person" has not yet re-turned to work;
(b) Discovery of their death;
(c) 120 days after the last credible evidence following abduction that they are still alive; or
(d) 60 months after their abduction;
(7) Hospitalization and medical service fees and costs, including psychiatric care and cosmetic or plastic surgery of an "insured person" within 24 months following their release;
(8) Fees and costs of independent forensic analysts;
(9) Interest costs paid by you for any loan from a financial institution taken by you to pay a ransom demand or extortion threat;
(10) Personal financial losses of an "insured person" as a result of their inability to attend to their own personal financial matters due to their "kidnap", "detention" or "hijack";
(11) Reward money paid by you to an "informant" which leads to the arrest and conviction of parties responsible for loss covered under this policy;
(12) Court costs and attorney fees you incur in defense of a suit brought by the surviving spouse or beneficiary of an "insured person" resulting directly from "kidnap", "detention" or "hijack"; and
(13) Any other reasonable expenses incurred by you with our written consent.
b. Does not include:
(1) Any costs incurred by you to recall or destroy any of your products or goods as a result of an extortion threat to contaminate, pollute or render substandard such products or goods.
(2) Loss of earnings and any other costs incurred by you as a result of an interruption to your business.
Analysis:
This definition is very wide in scope and detail. The definition goes beyond describing specific fees and costs by noting that "any other reasonable expenses incurred by the named insured" are considered legitimate expenses that will be paid under the provisions of CR 00 41. The amount of paid expenses is limited by the limits set on the declarations page, but the variety of items considered as expenses is quite expansive.
CR 00 41 does not consider as covered expenses the costs incurred by the named insured in recalling products or goods as a result of a contamination threat. So for example, if the insured receives a threat that its headache tablets have been or will be contaminated, and the insured recalls the tablets from the market, CR 00 41 will not pay for that type of loss. Also not considered as covered expenses are the loss of earnings the named insured may suffer from business interruption. These types of expenses are better covered under other type of policies.
7. "Guest" means any person:
a. Visiting your "premises" or the residence of a director, trustee, partner, "member", "manager", official, "employee" or proprietor (if the Insured is a sole proprietorship); or
b. Traveling with a director, trustee, partner, "member", "manager", "employee" or proprietor (if the Insured is a sole proprietorship) in a motor vehicle, aircraft or water craft; for business or social purposes.
8. "Hijack" means the holding under duress of an "insured person" while traveling in a motor vehicle, aircraft or watercraft for any reason other than "kidnap".
9. "Informant" means a person, other than an "insured person" providing information not otherwise obtainable, solely in return for a reward offered by you.
10. "Insured person" means:
a. A director, trustee, partner, "member", "manager", official, "employee", proprietor (if the Insured is a sole proprietorship) of any Insured, unless excluded in the Declarations;
b. A "relative", "guest" or resident in the household of an "insured person" defined in Paragraph 10.a.; and
c. A"messenger".
11. "Kidnap" means the involuntary abduction by force or otherwise of an "insured person" for the purpose of demanding money or other consideration in exchange for their release.
12. "Manager" means a natural person serving in a directorial capacity for a limited liability company.
13. "Member" means an owner of a limited liability company represented by its membership interest, who, if a natural person, also may serve as a "manager".
14. "Messenger" means a natural person designated by you to have care and custody of "property" outside the "premises".
15. "Occurrence" means:
a. An act or series of related acts involving one or more persons; or
b. An act or event, or a series of related acts or events other than in Paragraph 15.a.
However we will not pay for any loss resulting from "kidnap", alleged "kidnap", an extortion threat, "detention" or "hijack" which is part of a series of related acts that began prior to the effective date of this insurance.
16. "Premises" means any building you occupy in conducting your business and the residence of any "insured person".
17. "Property" means money, monetary instruments, securities and items of tangible property.
18. "Relative" means a spouse, child, step-child, legally adopted child, foster child, spouse of a married child, grandchild, brother, sister, parent, adoptive parent, stepparent, grandparent, brother-in-law, sister-in-law, parent-in-law and grandparent-in-law.
Analysis:
The remaining definitions have minor changes. CR 00 41 offers coverage for expenses incurred by the named insured as a result of a hijack. The obvious example is the hijacking of a plane. However, note that the policy makes a distinction between a hijack and a kidnap in that a kidnap requires a demand for money or other consideration. In other words, if a group takes over a plane in which an insured person is riding and demands a ransom, CR 00 41 does not consider that to be a hijacking. If a group takes over a plane in which an insured person is riding and demands to be flown to Cuba or Iran, that is a hijack. Of course, if the insured has any expenses as a result of either a kidnap or a hijack, CR 00 41 offers to pay those expenses.
An "informant" is defined on the policy since the money paid to informants can be paid by CR 00 41. However, the insured should note that reward money paid to an informant is paid as expenses only if the information provided by the informant leads to the arrest and conviction of parties responsible for a loss covered by CR 00 41. In other words, if an informant gives unreliable information or information that does not lead to an arrest and conviction, the reward paid to the informant is not covered by CR 00 41.
Includes copyrighted material of Insurance Services Office, Inc., with its permission.