What Is Crime Coverage in Commercial Insurance?

Commercial crime coverage is a specialized form of business insurance designed to protect companies from financial losses arising from criminal activities. Its purpose is to mitigate the financial impact of crimes that can disrupt operations and threaten solvency. Such policies are a crucial component of a comprehensive risk management strategy for any organization.

What is Commercial Crime Coverage

Commercial crime coverage provides protection against financial losses directly resulting from criminal acts. This insurance addresses risks like theft, fraud, forgery, and embezzlement that are often not covered by standard commercial property or general liability policies. It reimburses businesses for direct losses of money, securities, or other tangible property due to these criminal activities.

The coverage shields a business from financial detriment caused by dishonest actions. Businesses that handle cash, manage inventory, or process digital transactions are particularly susceptible to such risks. Commercial crime insurance helps a company recover from significant financial setbacks, protecting its balance sheet and long-term viability.

Types of Covered Perils

Commercial crime insurance covers a range of specific criminal acts that can result in financial loss for a business. One common peril is employee dishonesty, which protects against loss of money, securities, or other property directly caused by theft or forgery committed by an employee. This coverage is important because internal threats can be difficult to detect and prevent, even with strong internal controls.

Forgery or alteration coverage addresses losses resulting from the forgery or alteration of checks, drafts, promissory notes, or similar written promises, orders, or directions to pay money. This applies when an unauthorized individual counterfeits or modifies a financial instrument, causing the business to incur a loss.

Computer fraud covers losses of money, securities, or other property resulting directly from the use of any computer to fraudulently cause a transfer of property from inside or outside the premises. Funds transfer fraud is closely related, providing coverage for losses due to fraudulent instructions sent to a financial institution directing them to transfer money or securities from the insured’s account. These digital threats are increasingly prevalent as businesses rely more on electronic transactions.

Coverage for money and securities inside the premises protects against loss of money and securities by theft, disappearance, or destruction while on the insured’s premises or within a banking premises. Similarly, money and securities outside the premises covers loss of money and securities by theft, disappearance, or destruction while in transit or away from the premises in the care of a messenger.

Robbery coverage addresses the unlawful taking of property from another person by force or threat of force, while burglary refers to the unlawful taking of property from within a locked premise. These perils protect against losses of tangible property, including inventory, equipment, or cash. Losses from counterfeit currency also fall under policies.

Policy Structure and Key Provisions

Commercial crime policies are structured with several key provisions that define how coverage operates and the extent of protection provided. Coverage limits specify the maximum amount the insurer will pay for a covered loss, which can apply per occurrence or as an aggregate limit over the policy period. These limits represent the ceiling of the insurer’s liability for a claim.

A deductible is the amount of loss that the insured must bear before the insurer begins to pay. This amount is subtracted from the covered loss, and it applies separately to each distinct loss event. The definition of “employee” within the policy is also significant, as it determines who is considered an insured person for the purpose of employee dishonesty coverage.

Policies operate on either a “loss discovered” or “loss sustained” basis. A loss discovered form covers losses discovered during the policy period, regardless of when the criminal act actually occurred. A loss sustained form, conversely, covers losses sustained during the policy period. The “loss discovered” form is preferred because it offers broader protection for past, undiscovered criminal acts.

Some policies also include a discovery period provision, which is a period of time after the policy expires during which losses that occurred during the policy period but were discovered later can still be reported. This extension provides additional time for businesses to uncover and report hidden criminal activity. Understanding these contractual parameters is important for policyholders to effectively manage their risk exposure.

Common Exclusions

Commercial crime insurance policies contain specific exclusions that delineate situations, types of losses, or circumstances not covered. Indirect or consequential losses, such as business interruption or loss of potential income resulting from a criminal act, are excluded. The policy focuses on direct financial losses of money, securities, or other property, rather than secondary financial impacts.

Losses that are not directly caused by a criminal act are also excluded. For instance, inventory shortages that can only be proven by an inventory computation, rather than direct evidence of theft, are not covered. This exclusion aims to prevent claims based on discrepancies that could arise from administrative errors or other non-criminal factors.

Certain types of data breaches or the theft of intellectual property, trade secrets, or client lists may also be excluded, as these risks are addressed by specialized cyber liability insurance policies. Losses caused by employees after the insured had prior knowledge of a crime committed by that specific employee are not covered. This encourages businesses to act promptly upon discovering dishonest behavior.

Reporting a Loss

When a business discovers a potential criminal loss, initiating a claim under a commercial crime policy requires adherence to specific procedural steps. The first action is to promptly notify the insurer of the suspected loss, within days or weeks after discovery. This initial notification allows the insurer to begin their assessment and guide the policyholder through the subsequent steps.

Following notification, the business must provide the insurer with detailed proof of loss, within a set period. This proof includes comprehensive financial records that substantiate the amount and nature of the loss. Police reports should also be filed and submitted if the criminal act involved law enforcement.

The business is expected to cooperate fully with the insurer’s investigation. Maintaining meticulous records and evidence of the loss is important, as the insurer will require verifiable documentation to process the claim.