Beginning in the summer or fall of 2000 in most jurisdictions, the commercial
crime insurance program that was jointly administered by Insurance Services
Office, Inc. (ISO), and the Surety Association of America (SAA) was effectively
replaced by separate ISO and SAA commercial crime insurance programs. The forms
and endorsements of the joint ISO/SAA commercial crime program can--and undoubtedly
will--still be used by individual insurers that elect not to adopt (or to defer
adoption of) the new program. However, in most states, ISO no longer files the
ISO forms and endorsements that were part of the ISO/SAA program on behalf of
its affiliates. Instead, it files the forms and endorsements of the new, separate
ISO program.
What follows is a brief overview of the new ISO commercial crime program
and a summary of key differences between the 2000 edition ISO commercial crime
forms and the prior edition ISO/SAA commercial crime forms.
New Program Overview
There are 10 "coverage" and "policy" forms in the new ISO commercial crime
program, as shown in Exhibit 1. The "coverage" forms are designed for use in
a package policy; the "policy" forms are designed for use as a monoline crime
policy. The difference between them is that the provisions of the common policy
conditions form (IL 00 17) are included in the policy forms, but omitted from
the coverage forms. Incorporating these provisions in the policy forms eliminates
the need for a separate common policy conditions form in monoline crime policies.
Loss Sustained
Forms for Commercial Entities - CR 00 21, Commercial Crime Coverage Form (Loss Sustained Form)
(for use in a package policy)
- CR 00 23, Commercial Crime Policy (Loss Sustained Form) (monoline
crime policy)
- CR 00 29, Employee Theft and Forgery Policy) (Loss Sustained
Form) (monoline crime policy with only two insuring agreements)
| Discovery Forms
for Commercial Entities - CR 00 20, Commercial Crime Coverage Form (Discovery Form) (for
use in a package policy)
- CR 00 22, Commercial Crime Policy (Discovery Form) (monoline
crime policy)
- CR 00 28, Employee Theft and Forgery Policy (Discovery Form)
(monoline crime policy with only two insuring agreements)
|
Loss Sustained
Forms for Governmental Entities - CR 00 25, Government Crime Coverage Form (Loss Sustained Form)
(for use in a package policy)
- CR 00 27, Government Crime Policy (Loss Sustained Form) (monoline
crime policy)
| Discovery Forms
for Governmental Entities - CR 00 24, Government Crime Coverage Form (Discovery Form) (for
use in a package policy)
- CR 00 26, Government Crime Policy (Discovery Form) (monoline
crime policy)
|
Six of the 10 forms are designed for commercial entities: 3 loss sustained
forms and 3 discovery forms. The remaining 4 forms (2 loss sustained forms and
2 discovery forms) are designed for insuring governmental entities. The primary
difference between the commercial and government forms is that there are two
employee theft insuring agreements (per loss and per employee) in the government
forms, whereas the commercial forms include only one (which applies on a per-loss
basis.) Differences between the commercial and government versions of the forms
are summarized in Exhibit 2.
- Two employee theft insuring agreements (per loss and per employee)
in government crime forms
- Employee benefit plan provisions differ somewhat due to the
Employee Retirement Income Security Act (ERISA) exemption for governmental
agencies
- Government forms exclude loss caused by bonded employees and
treasurers or tax collectors
- Government forms include clause that provides for indemnification
to public officials who are required to give individual bonds for
loss through dishonest acts of their subordinates
- Coverage territory in government forms does not include Canada
- No consolidation-merger condition in the government forms
- Definition of "employee" in government forms omits references
to directors, trustees, limited liability company managers, brokers,
commissioned merchants, and consignees, and adds references to officials
- Dishonesty exclusions in government forms omit references to
partners, officers, directors, and limited liability company managers
and add references to officials
- Cancellation as to any employee condition in government forms
refers to officials and other employees authorized to manage employees,
rather than to officers, directors, etc.
- Valuation-settlement condition in government forms makes no
reference to money issued by a country other than the United States
|
Loss sustained versus discovery crime coverage is roughly analogous to occurrence
versus claims-made liability coverage. Under the discovery forms, the crime
coverage provided applies to loss that is discovered during the policy period
or within 60 days after the policy period ends (within 1 year for employee benefit
plans), regardless of whether the loss occurs during the policy period. Under
the loss sustained forms, the crime coverage provided applies to loss that occurs
during the policy period and is discovered within 1 year after the policy period
ends. Coverage under the loss sustained forms also applies to loss that would
have been covered by a prior policy except for the expiration of that previous
policy's discovery period.
All but two of the forms contain seven insuring agreements, as follows.
- Employee Theft
- Forgery or Alteration
- Inside the Premises--Theft of Money and Securities
- Inside the Premises--Robbery or Safe Burglary of Other Property
- Outside the Premises
- Computer Fraud
- Money Orders and Counterfeit Paper Currency
Coverage applies only to the insuring agreements for which a limit of insurance
is shown in the policy declarations. Other insuring agreements can be added
by endorsement.
As their titles indicate, there are two forms for commercial entities that
contain only two insuring agreements: employee theft and forgery. These forms
are designed for insureds that elect to purchase these two coverages only. They
differ from the other forms only in that the other insuring agreements and the
provisions that pertain to them have been omitted.
Key Differences between ISO and ISO/SAA Crime Forms
The ISO and ISO/SAA crime forms have many, many provisions in common. However,
there are some differences as well. The key differences between the 2000 edition
ISO commercial crime forms and the ISO/SAA commercial crime forms are summarized
in Exhibit 3.
| Organization
and Structure. The ISO program is structured to require fewer
forms and endorsements than the ISO/SAA program. For example, the ISO
program offers 7 popular crime coverages in a single form, whereas the
ISO/SAA program consists of 19 separate coverage forms. Also, the coverages
themselves are grouped differently in the two programs. For example,
the "outside the premises" insuring agreement in the ISO forms provides
coverage comparable to that provided under Section 2 (but not Section
1) of three different ISO/SAA forms. Employee Theft versus Employee Dishonesty Coverage. The ISO program
offers "employee theft" coverage rather than the "employee dishonesty"
coverage of the ISO/SAA program. The ISO forms omit the requirement
in the ISO/SAA forms that dishonest acts must be committed with the
"manifest intent" of causing the insured to suffer a loss. ERISA Compliance. The ISO forms include
all the provisions necessary to insure employee benefit plans in compliance
with ERISA simply by naming the plans as insureds; there is no need
for an endorsement. Under the ISO/SAA program, an ERISA compliance endorsement
must be added to the policy to achieve the same result. Clients' Property. The ISO forms exclude
property of a client while at the client's premises, unless coverage
is added by endorsement. The ISO/SAA forms cover clients' property unless
coverage is excluded by endorsement. Termination of Extended Period to Discover
Loss. The extended period to discover loss in the all the ISO
forms expires on the inception of replacement insurance, regardless
of whether the replacement insurance covers loss sustained prior to
its effective date. In the ISO/SAA program, this provision applies only
to discovery coverage, and the extended discovery period terminates
on the inception of similar insurance that covers the loss in whole
or in part. Inventory Shortage Exclusion. The inventory
shortage exclusion that applies to employee theft coverage under the
ISO program allows the insured to offer inventory information to support
the amount of a loss if the insured establishes that a loss has occurred
without reliance on this information. Trading and Warehouse Receipts Coverage. The ISO forms exclude loss from trading and warehouse receipts, unless
coverage is added by endorsement. The ISO/SAA forms provide coverage
for loss from trading and warehouse receipts unless coverage is excluded
by endorsement. Replacement Cost Coverage. The ISO
forms value covered property other than money and securities at replacement
cost, with no deduction for depreciation. Under the ISO/SAA forms, valuation
of covered property other than money and securities is at its actual
cash value. Leased Property. The ISO forms specifically
extend coverage to leased property. The ISO/SAA forms do not mention
leased property, although they specify that coverage applies to property
owned or held by the insured or for which the insured is legally liable. Automatic Coverage for Mergers and Acquisitions. The ISO forms for commercial entities grant 90 days' automatic coverage
with respect to employees or premises acquired in an acquisition or
merger, compared with 60 days of automatic coverage in the ISO/SAA forms. Requirement To Report All Losses. The
ISO forms omit the requirement found in the deductible provision in
the ISO/SAA employee dishonesty forms that the insured report all losses,
including those under the deductible. Coverage Territory. In the ISO forms
the coverage territory for most coverages is the United States, its
territories and possessions, Puerto Rico, and Canada (except that, in
the government crime forms, Canada is not included). In the ISO/SAA
forms, the coverage territory for most coverages is the United States,
U.S. Virgin Islands, Puerto Rico, the Canal Zone, and Canada. Limited Liability Company Members and Managers. The ISO forms address the status of limited liability company members
and managers in various provisions throughout the forms. The ISO/SAA
forms do not. |
Conclusion
Although they do offer some real coverage improvements, in general, the new
ISO commercial crime forms are not dramatically different from the ISO/SAA commercial
crime forms with respect to the coverage provided. The biggest differences between
the two programs are in organization and structure.
ISO's new commercial crime program is sleek and streamlined compared to the
joint ISO/SAA program it is designed to replace. It should be significantly
more convenient for all concerned (insurers, agents, and insureds) because the
most popular coverages are available under a single form. Also, the new program's
simplified rating approach should meet with approval from agents and insurers.
For some insurers, at least, the most important convenience offered by the
new ISO program is the inclusion of employee dishonesty and forgery coverages--two
very important crime coverages that, under the joint ISO/SAA program, were filed
with regulators only by the SAA. The availability of these coverages in the
new ISO program allows insurers that do not write surety bonds or financial
institution bonds, and therefore have no need for other services from the SAA,
to deal exclusively with ISO in filing their commercial crime insurance programs
with state regulators.
The Surety Association of America (SAA) (ISO's partner in the joint ISO/SAA
commercial crime program) has also introduced a new commercial crime insurance
program. Look for a report on the SAA's new crime protection policy in a future
IRMI Insights article.