What Is Commercial Crime Insurance?

Commercial crime insurance protects businesses from financial losses from criminal acts. This type of business insurance safeguards a company’s assets from internal and external criminal activity. It differs from general property or liability insurance, which do not cover crimes like employee theft or fraud.

Core Coverage Areas

Commercial crime insurance policies cover various criminal acts that cause financial loss. Employee theft, also known as employee dishonesty, is a common coverage area. It addresses direct financial losses from dishonest employee acts.

Forgery or alteration is another significant coverage area. This protects against losses from forged checks, drafts, promissory notes, or other financial instruments. Policies may cover unauthorized signing or changing of these documents, including legal fees for defense against lawsuits related to forged instruments.

Computer fraud coverage addresses losses from fraudulent entry or alteration of data or computer programs. This includes fraudulent transfers of money, securities, or other property via computer. Funds transfer fraud protects against losses from fraudulent instructions to a financial institution to transfer money from the business’s account.

Policies also cover losses of money and securities both inside and outside the premises. Inside the premises coverage protects against theft, disappearance, or destruction of money and securities while on business property. Outside the premises coverage extends this protection to losses of money and securities while in transit or away from the business location.

Many commercial crime policies include coverage for losses from accepting counterfeit money or forged checks from customers. This protects businesses from financial harm when they unknowingly receive fraudulent currency or instruments.

Covered Parties and Loss Types

Commercial crime insurance defines “employee” broadly, extending beyond traditional full-time staff. It can include part-time, temporary, and leased employees, as well as directors or officers acting within their duties. Owners, partners, or the insured organization itself are generally excluded, though some policies may include certain LLC members or partners via endorsement.

Some policies extend coverage to losses caused by non-employees, known as third-party coverage. This protects a business if a criminal act by an independent contractor or freelancer causes a loss. Third-party coverage can also protect clients against losses from theft by an insured’s employee.

Commercial crime policies cover only direct financial losses caused by a criminal act. The loss must be a direct result of the crime, such as stolen cash or fraudulent transfers. The policy requires the business to have been deprived of its own property.

Consequential losses are excluded from coverage unless added through an endorsement. These indirect losses include lost business income, investigative costs beyond the direct loss, or legal expenses not directly related to defending against a forged instrument claim.

Policy Structures

Commercial crime insurance policies are structured in two primary ways: the discovery form or the loss sustained form. A discovery form policy covers losses discovered during the policy period, regardless of when the criminal act occurred.

A loss sustained form policy covers losses that both occurred and were discovered during the policy period. It may also include an extended discovery period for losses that occurred during the policy period but were discovered later.

Policies can offer coverage on a single or blanket basis. Single coverage provides a separate limit for each type of crime or for specific named employees. Blanket coverage provides a single, overarching limit that applies to all covered crimes or employees.

All commercial crime policies include deductibles and policy limits. The deductible is the amount the business must pay out-of-pocket before coverage begins for a covered loss. Policy limits represent the maximum amount the insurer will pay for a covered loss.