What Does Commercial Crime Insurance Cover?

Commercial crime insurance protects businesses from financial losses due to criminal acts like employee theft, forgery, robbery, and electronic crime. It safeguards assets such as money, securities, and other property. Despite internal controls, businesses can suffer substantial losses from dishonest employees or external criminals. This insurance helps companies recover from such financial impacts.

Core Coverages of Commercial Crime Insurance

Commercial crime insurance policies are written on a “named perils” basis, meaning coverage is triggered only when a loss falls within specific crime categories. These policies address fundamental risks, forming the basis of a business’s protection against criminal activity.

Employee Dishonesty Coverage

Employee dishonesty coverage protects businesses from financial losses caused by dishonest acts committed by employees, encompassing theft of money, securities, or other property, embezzlement, fraud, and unauthorized money transfers that directly harm the business. For example, if a cashier skims money from a cash register, this coverage would help reimburse the loss.

This coverage often includes temporary employees, seasonal laborers, contractors, volunteers, and board members. Policies may specify per-person, per-position, or per-incident limits for these losses. Coverage may be denied if the business retains an employee after a claim for their actions, and a subsequent claim arises from the same individual.

Forgery or Alteration Coverage

Forgery or alteration coverage addresses losses from the fraudulent manipulation of financial instruments, including the forgery or alteration of checks, drafts, promissory notes, or similar instruments issued by or drawn upon the insured’s accounts. For example, if someone forges a business’s signature on a check or alters its amount, the resulting financial loss would be covered.

Theft, Disappearance, and Destruction of Money and Securities Coverage

Theft, disappearance, and destruction of money and securities coverage protects against losses of these assets both on and off the business premises. Money and securities include cash, checks, and other negotiable financial instruments. For losses inside the premises, coverage applies to assets within the business’s location or a banking premise, such as cash stolen from a safe or a bank’s safe deposit box. When money and securities are outside the premises, such as during transit, coverage applies if they are in the care and custody of a messenger or an armored car company and are lost due to theft, disappearance, or destruction.

Robbery and Safe Burglary of Other Property Coverage

Robbery and safe burglary of other property coverage focuses on the loss of property other than money and securities due to violent or forcible acts. Robbery refers to the unlawful taking of property from a person by force or threat of force, or by causing fear. For instance, if a business is held at gunpoint and valuables are taken, this coverage would apply. Safe burglary covers the loss of property from a safe or vault due to forcible entry, typically requiring visible evidence. This coverage also often extends to damage to the business premises or the safe itself that results from an actual or attempted robbery or safe burglary.

Additional Coverages and Endorsements

Beyond core protections, commercial crime insurance can be enhanced with additional coverages and endorsements. These address specialized or evolving criminal risks, helping businesses face diverse threats in today’s digital and interconnected environment.

Computer Fraud Coverage

Computer fraud coverage protects against financial losses from the fraudulent use of a computer to cause a transfer of money, securities, or other property. This involves instances where a hacker manipulates a computer system to divert funds from an insured’s accounts or premises. For example, if a criminal breaches a company’s computer system and fraudulently transfers funds, this coverage applies. This coverage does not typically extend to data breaches or social engineering attacks, which are distinct risks.

Funds Transfer Fraud Coverage

Funds transfer fraud coverage addresses losses from fraudulent instructions given to a financial institution to transfer money or securities from insured accounts. This occurs when a criminal, often impersonating an authorized party, sends fraudulent instructions that cause a bank to initiate an unauthorized wire or ACH transfer. For instance, if a hacker dupes a bank into wiring money from a company’s account, this coverage responds. This coverage is distinct from social engineering fraud because it involves fraudulent instructions directly to the financial institution, rather than tricking an employee into making the transfer.

Money Orders and Counterfeit Currency Coverage

Money orders and counterfeit currency coverage protects against losses when a business, in good faith, accepts counterfeit money orders or currency. This includes unknowingly receiving fake currency during a transaction or accepting a money order that later proves fraudulent and is not honored. This coverage is useful for businesses that frequently handle cash or accept money orders as payment.

Social Engineering Fraud

Social engineering fraud, also known as impersonation or fraudulent instruction coverage, covers losses when an employee is tricked into voluntarily transferring funds or property due to fraudulent impersonation. This scam often involves criminals posing as legitimate vendors, executives, or clients, using tactics like phishing emails or fake invoices to deceive an employee into making an unauthorized transfer. For example, if an employee is convinced by a fraudulent email to wire funds to a supposed new vendor bank account, this coverage responds. It is a unique risk because it involves a “voluntary parting” of funds by the employee, rather than a direct theft or computer system breach.

Client’s Property Coverage

Client’s property coverage protects against the loss of a client’s property while in the care, custody, or control of the insured business. This coverage applies to businesses that routinely handle or store client property. For example, if a cleaning company’s employee steals from a client’s premises, or if a business holds a client’s assets in escrow, this coverage applies to the client’s financial loss.

Common Exclusions

While commercial crime insurance offers broad protection, policies contain specific exclusions that define what is not covered. Understanding these limitations is important for businesses to identify potential gaps in their insurance portfolio.

Indirect or Consequential Losses

Indirect or consequential losses are excluded from commercial crime policies. The policy will not cover losses not directly resulting from the criminal act, such as loss of business income, reputational damage, or other financial impacts downstream from the initial crime. For example, if embezzlement leads to business interruption, lost profits are not covered under this exclusion.

Legal Expenses

Legal expenses are excluded, unless explicitly added back into the policy through a specific endorsement. This means costs associated with legal defense, litigation, or other legal actions from a crime incident are not covered by the standard crime policy.

Data Breach or Cyber Liability Events

Data breach or cyber liability events are not covered by commercial crime insurance policies. These losses, including theft of sensitive data, trade secrets, client lists, or intellectual property, or costs to notify affected customers, are addressed by separate cyber insurance policies. While some commercial crime policies cover certain digital crime aspects like fraudulent money transfers, they do not replace comprehensive cyber liability coverage.

Acts of War or Governmental Action

Acts of war or governmental action are standard exclusions in many insurance policies, including commercial crime coverage. Losses from events such as declared or undeclared war, civil unrest, rebellion, or property seizure or destruction by governmental authority are not covered.

Trading Losses

Trading losses, arising from legitimate but unsuccessful trading or investment activities, are excluded. This ensures the policy does not cover losses due to market fluctuations, poor investment decisions, or other financial risks inherent in trading, as these are not considered criminal acts against the business.

Inventory Shortages

Inventory shortages are excluded unless there is direct, verifiable evidence of theft. This prevents claims for unexplained inventory discrepancies or losses proven only through inventory or profit/loss computations, without specific evidence of a criminal act. For example, general shrinkage without proof of employee theft is not covered.

Losses from Unauthorized Access to Computer Systems

Losses from unauthorized access to computer systems are excluded unless specifically covered under a computer fraud or similar endorsement. While computer fraud covers fraudulent transfers, unauthorized access not directly leading to a covered transfer of funds or property may not be included in a standard crime policy.

Losses from Acts Committed by Partners or Members of an LLC

Losses from acts committed by partners or LLC members are excluded from employee dishonesty coverage. These individuals are considered owners or principals, and the policy covers acts against the business, not those committed by its owners.