What Are the Two Major Sections of Commercial Crime Policies?

Commercial crime policies protect businesses from financial losses due to criminal activities. These policies safeguard assets from internal and external threats not covered by standard property insurance, helping businesses recover from dishonest acts.

Employee Dishonesty Coverage

Employee Dishonesty Coverage, also known as employee theft insurance or a fidelity bond, protects businesses from financial losses caused by dishonest acts of their employees. This coverage addresses internal criminal acts like theft of money, securities, or other property, along with fraud, forgery, and embezzlement. The intent behind such acts must be to cause the insured a loss or to gain an improper financial benefit for the employee or a third party.

The definition of “employee” can extend beyond traditional payroll staff to include temporary workers, seasonal laborers, leased employees, and volunteers. Businesses should understand this definition to ensure all relevant personnel are covered. Policies operate on either a “loss discovered” or “loss sustained” basis, meaning coverage is triggered when the loss is found during the policy period, regardless of when it occurred, or when the loss both occurred and was discovered within the policy period.

Businesses must notify the insurer promptly after discovering a loss, usually within 30 to 60 days, and provide proof of loss within a few months. Employee dishonesty policies feature an aggregate limit, the maximum amount the insurer will pay for all losses from dishonest acts during the policy period, regardless of the number of employees involved or separate incidents. Losses based solely on inventory shortages, without direct evidence of employee theft, are excluded.

Coverage for Non-Employee Crime

The second major section of commercial crime policies addresses losses caused by criminal acts by non-employees. This category includes specific coverages protecting a business from external threats, which is important as standard property insurance policies have limited protection against such acts.

Loss Inside Premises – Robbery or Safe Burglary

This coverage protects against the loss of money and securities from within business premises due to actual or attempted robbery or safe burglary. Money and securities include currency, checks, and other negotiable instruments. Coverage extends to damage caused to the premises, safes, or vaults during such an event.

Loss Outside Premises

This coverage protects against the loss of money and securities while outside business premises and in the care of a messenger or armored vehicle service. It applies when assets are in transit, providing financial recovery for theft, disappearance, or destruction during transport.

Forgery or Alteration

Forgery or Alteration coverage addresses losses resulting from the forgery or alteration of checks, drafts, promissory notes, or similar written instruments drawn upon the insured’s accounts. This includes instances where someone forges a signature or modifies the amount on a legitimate document. It can also provide coverage for legal expenses incurred if the business is sued for refusing to pay on a forged or altered instrument.

Computer Fraud

Computer Fraud coverage protects against losses of money, securities, and other property resulting directly from the fraudulent use of a computer to transfer funds or property. This involves unauthorized entry into a computer system or network to manipulate data. It is distinct from data breaches and focuses on direct financial loss caused by the fraudulent transfer, rather than data theft.

Funds Transfer Fraud

Funds Transfer Fraud coverage addresses losses of money and securities resulting directly from fraudulent instructions to a financial institution to transfer funds. This occurs when criminals impersonate legitimate parties to trick a business into authorizing a wire transfer to an unauthorized account. This coverage is important due to increasing electronic transactions and social engineering schemes.