Bảo hiểm - Chapter 27: Crime insurance and surety bonds

Chapter 27Crime Insurance and Surety BondsAgendaISO Commercial Crime Insurance ProgramCommercial Crime Coverage FormFinancial Institution BondsSurety BondsISO Commercial Crime Insurance ProgramCrime insurance coverage can be added to a commercial package policy (CPP), or purchased separatelyThere are five basic crime coverage forms, and each can be written in one of two versions:The discovery version covers a loss that is discovered during the policy period or within 60 days after the policy expires even though the loss may have occurred before the policy’s inception dateThe loss-sustained version covers a loss that occurs during the policy period, and the loss is discovered during the policy period or within one year after the policy expiresExhibit 27.1 ISO Commercial Crime Coverage Forms and PoliciesCommercial Crime Coverage FormMost property crimes against businesses are due to:Robbery: the unlawful taking of property from the care and custody of a person by someone who (1) has caused or threatens to cause that person bodily harm, or (2) has committed an obviously unlawful act witnessed by that personBurglary: the unlawful taking of property from inside the premises by a person who unlawfully enters or leaves the premises, as evidenced by marks of forcible entry or exitSafe burglary: the unlawful taking of property from within a locked safe or vault by someone who unlawfully enters the safe or vault as evidenced by marks of forcible entry upon the exteriorTheft: the unlawful taking of property to the deprivation of the insured includes robbery, burglary, shoplifting, employee theft and forgeryCommercial Crime Coverage FormThe commercial crime coverage form (loss sustained version) is used by private firms and nonprofit organizationsFirms can select from among eight insuring agreementsEmployee theft coverage pays for the loss of money, securities, and other property that results directly from theft committed by an employeeIncludes the theft of other property, besides money and securities, but not computer programs or dataForgery or alteration coverage pays for a loss that results directly from forgery or from the alteration of checks drawn by the insured or the insured’s agentAlso includes drafts, promissory notes, or similar instruments The coverage does not apply to losses that result from the acceptance of forged documentsCommercial Crime Coverage FormInside the premises - theft of money and securities pays for the loss of money and securities inside the premises that result directly from theft committed by a person present inside the premises, or for disappearance, or destructionCoverage also applies to damage to the premises or a vault if related to the actual or attempted theft Inside the premises – robbery or safe burglary of other property pays for the loss or damage to other property inside the premises by the actual or attempted robbery of a custodian, or by safe burglary inside the premisesBurglary loss of other property that is not stored in a safe is not covered. These losses can be covered by an inside the premises – robbery or burglary of other property agreement Commercial Crime Coverage FormThe outside the premises agreement covers the theft, disappearance, or destruction of money and securities outside the premises while in the custody of a messenger or an armored-car companyThe coverage also includes losses due to the actual or attempted robbery of other property outside the premisesThe computer fraud agreement covers the loss of money, securities, and other property if a computer is used to transfer property fraudulently from inside the premises to a person or place outside the premisesThe funds transfer fraud agreement covers the loss of funds that result directly from fraudulent instructions that direct a financial institution to transfer or pay funds from the insured’s accountCommercial Crime Coverage FormThe money orders and counterfeit paper currency coverage pays for losses resulting directly from the good-faith acceptance of counterfeit currencyIncludes money orders that are not paid upon presentationExclusions in the commercial crime coverage form include:Dishonest acts or theft committed by the named insured, partners, or membersKnowledge of dishonest acts of employees prior to the policy periodIndirect lossInventory shortages (applies to employee theft only)There is no coverage for any loss if proof of loss depends on an inventory computation or on a profit and loss computationCommercial Crime Coverage FormThe discovery version form is especially valuable for a business firm that has been in business for several years but is uninsured for employee theft lossesNew coverage written on a discovery version would cover any losses that occurred years earlier but were only discovered during the current policy periodIf the underwriter suspects that large undiscovered losses might exist prior to the policy’s inception date, a retroactive date endorsement can be added to the policyThe endorsement limits coverage to only those losses that occur after the retroactive date and are discovered during the current policy periodCommercial Crime Coverage FormA provision for loss sustained during prior insurance covers a loss that occurred during the term of the prior policy but was discovered only after the discovery period under the prior policy had expiredThis provision enables a business to change insurers without penaltyThere must not be a break in coverageCoverage under the employee theft agreement terminates as to any employee once the insured has knowledge that the employee has committed a theft or dishonest actFinancial Institution BondsFinancial institutions, such as commercial banks and credit unions, use some type of financial institution bond to deal with crime exposuresIn this context, the word “bond” is synonymous with “insurance policy”One widely used form is Financial Institution Bond, Standard Form No. 24The bond contains seven insuring agreements The basic bond coverage includes agreements A, B, C, and FFinancial Institution BondsAgreement A - Fidelity coverage covers losses that result directly from the dishonest or fraudulent acts of employees acting alone or in collusion with others, with the active and conscious purpose of causing the insured to sustain such lossExcludes losses due to trading or loan transactionsAgreement B – On premises coverage covers loss of property on the premises for a broad list of perils, including robbery, burglary, misplacement, mysterious unexplainable disappearance, and theftAgreement C – In-transit coverage covers losses to property in-transit for a broad list of perilsThe property must be in the custody of a messenger or transportation companyFinancial Institution BondsAgreement D - Forgery or alteration coverage covers loss from forgery or alteration of most negotiable instrumentsAgreement E - Securities coverage covers losses to the insured because securities accepted in good faith have been forged, altered, lost or stolenAgreement F – Counterfeit currency coverage covers loss to the insured from counterfeit money Agreement G – Fraudulent mortgages coverage covers loss that results directly from having accepted or acted upon any mortgage on real property that proves defective because of a fraudulent signatureSurety BondsA surety bond is a bond that usually provides monetary compensation if the bonded party fails to perform certain promised actsThe parties to a surety bond include:The principal is the party who agrees to perform certain acts or fulfill certain obligationsThe obligee is the party who receives the proceeds of the bond if the principal fails to performThe surety is the party who agrees to answer for the debt, default, or obligation of the principalSurety bonds are similar to insurance contracts in that both provide protection against specified lossesExhibit 27.2 Comparison of Insurance and Surety BondsTypes of Surety BondsA contract bond guarantees that the principal will fulfill all contractual obligationA license and permit bond guarantees that the principal will comply with all laws and regulations that govern his or her activitiesA public official bond guarantees that public officials will faithfully perform their duties for the protection of the publicA judicial bond guarantees that the principal will fulfill certain obligations specified by lawExhibit 27.3 Comparison of Five Contract Bonds