The New ISO Commercial Crime Program Hits the Streets

New Program Overview

There are 10 "coverage" and "policy" forms in the new ISO commercial crime program, as shown below. 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.

ISO Commercial Crime Forms and 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 below.

Differences between Government and Commercial Crime Forms

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 below.

Differences between ISO and ISO/SAA Crime Forms

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, US 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 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 Expert Commentary article.