Crime Insurance - A coverage review

Most businesses need crime insurance, yet it is often overlooked and not discussed in detail. While an open-perils property policy may cover theft, it often excludes or sharply limits coverage for money and securities. Under a named-perils property policy, theft is typically excluded altogether. Employee theft is excluded under all property policies, so businesses with employees who handle money should carry crime insurance.

Crime insurance must be carefully structured, with limits matched to your specific exposures.

Even after a thorough review, some risks may remain uninsured, making additional coverage necessary.

The Form

The standard policy is the Commercial Crime Coverage Form written on a loss-sustained basis. That means the loss must occur during the policy term and be discovered within one year after the policy expires. This makes strong audit controls essential for timely detection.

The standard commercial crime form includes eight optional coverages. Each must be selected individually, and each requires its own limit of insurance. Those limits should reflect the highest values at risk.

The coverage offered by the form includes:

• Employee theft

• Forgery or alteration

• Theft of money and securities inside the premises

• Robbery or safe burglary inside the premises

• Robbery or theft outside the premises when in custody of a messenger or armored car service

• Computer fraud

• Funds transfer fraud

• Counterfeit money or money orders

Employee Theft — is the most common source of claims. Review the policy’s definition of “employee” carefully, as independent contractors and volunteers may be excluded unless added by endorsement.

Coverage does not apply to losses involving an employee whose prior dishonest acts were known to you. This includes conduct that occurred before hire. Ignoring known misconduct—or forgiving dishonest acts during employment—can void coverage for that employee. This reflects the duty of utmost good faith.

Forgery — coverage protects against losses from forged or altered checks, bank drafts, and promissory notes drawn on your account. Although some banks may offer protection, carrying your own coverage lets your insurer handle disputes, helping preserve your banking relationship.

Inside-the-Premises Coverage — for theft, robbery, and safe burglary applies to money and securities kept at your premises.

Money, Securities, and other property outside the premises — coverage applies when items are in the custody of a messenger or armored car service. A messenger may be an employee assigned to transport the property. The policy limits coverage for precious metals, stones, pearls, and furs; if you have those exposures, a salesman’s floater is usually more appropriate.

Computer Fraud — coverage applies only to events that originate inside your premises. That distinction is critical because it excludes losses caused by cyber intrusions. Those exposures require cyber insurance.

This coverage also excludes important exposures, including credit card transactions, inventory shortages, and funds transfer losses.

Funds Transfer Fraud — covers losses from sending funds to a fraudulent recipient, but only when the transfer originates within your organization. Losses caused by cyber intrusions or social engineering are not covered. Strong verification procedures are therefore essential.

Counterfeit Money — coverage protects you if you unknowingly accept counterfeit currency or money orders.

Traditional crime coverage has not fully kept pace with cyber risk and e-commerce, leaving significant gaps. A strong crime program should therefore be paired with cyber coverage that complements these protections.

ERISA — Employee Retirement Income Security Act of 1974

The Employee Retirement Income Security Act of 1974 (ERISA) sets minimum standards for most voluntarily established private-sector retirement and health plans. It protects plan benefits by imposing strict duties on plan fiduciaries and guarding against fraud, mismanagement, and improper claim denials.

ERISA bonding requirements:

• Coverage amount: The bond must equal at least 10% of the plan funds handled during the prior reporting year.

• Required limits: The minimum bond is capped at $500,000. If the plan holds non-qualifying assets, the limit may increase to as much as $1,000,000 for plans with employer securities.

• No deductibles: ERISA does not allow deductibles or retentions on the required bond amount.

Commercial crime policies and ERISA

A standalone ERISA bond covers only the employee benefit plan itself. However, many commercial crime policies can be endorsed to satisfy ERISA bonding requirements, allowing you to combine that mandatory protection with broader crime coverage for the rest of the business.

Exclusions

Exclusions may be the most important part of the crime form. As loss exposures have changed, so have the exclusions. The policy excludes loss of confidential information and the resulting financial harm, as well as indirect losses such as lost opportunities or lost income on funds. It also now excludes cyber extortion and ransomware. For that reason, cyber liability coverage remains an important complement to crime insurance.

The Driehaus Difference

Our knowledge of the forms, markets, and appetite for risk by different insurance companies means we can tailor the coverage to your needs. Understanding the synergy between cyber and crime coverage is a strength we can leverage for your protection. Call 5130977-6860 or use our website, www.driehausins.com, to reach us. We want to be your insurance provider.