Recognizing Theft and Dishonest Acts

Understanding Property Classifications and Crime Policy Definitions

Commercial crime insurance policies provide distinct insuring agreements tailored to specific crime perils. To understand how coverage applies, you must first recognize that insurance definitions for crime perils are specific policy definitions and may differ from statutory criminal law definitions. A business cannot rely on everyday conversational terms or statutory criminal codes to determine whether a policy responds to an incident.

Crime policies group covered items into three distinct categories: money, securities, and other property. Standard commercial crime forms define money to include currency, coins, and bank notes in current use, plus travelers checks, register checks, and money orders held for sale to the public. Securities are defined to include specified negotiable and nonnegotiable instruments or contracts representing money or property, but not money itself. Standard ISO commercial crime forms define other property as tangible property other than money and securities that has intrinsic value.

To insure theft of money or securities, check for an applicable insuring agreement, such as inside-the-premises theft of money and securities or outside-the-premises coverage. An inside-the-premises robbery or safe burglary agreement covers eligible other property only when its stated conditions are met. Knowing the exact category of property taken is essential because specific insuring agreements limit protection to certain classes of property.

Comparing Theft, Burglary, and Robbery

In standard commercial crime forms, theft means the unlawful taking of property to the insured's deprivation. Theft is a broad umbrella term that encompasses robbery, burglary, larceny, and other unlawful takings of property. Because of this wide scope, a commercial crime agreement covering theft generally reaches more types of stealing than an agreement limited to robbery or burglary, subject to its other terms.

Standard ISO commercial crime forms do not provide a general burglary definition or a standalone burglary insuring agreement; if another policy covers burglary, check its requirements for entry, exit, and visible evidence of force. When a crime policy requires evidence of forcible entry or exit for burglary, look for the visible marks specified in its definition. Visible marks made by tools or other means of force can establish forcible entry or exit if they meet the policy's burglary definition. Entering through an unlocked door without force does not establish forcible entry, although visible evidence of forcible exit could still satisfy a burglary definition. Visible marks of forcible exit may satisfy a burglary definition if the applicable policy expressly allows forcible exit.

Robbery includes unlawfully taking property from a person's care and custody by causing or threatening that person bodily harm. Standard crime definitions also recognize certain obviously unlawful acts witnessed by that person. Robbery requires that the taking occurs in the presence of a person. For example, a thief pulling a weapon and demanding money from an employee is an example of robbery. In contrast, a pickpocket taking a wallet without the victim realizing it at that moment does not meet the policy definition of robbery because it lacks the threat of harm, the infliction of harm, or an observed unlawful act.

Safe burglary has its own strict conditions. Safe burglary includes taking property from within a locked safe or vault by unlawfully entering the safe or vault, with the required visible marks of forcible entry. Taking property from within a safe or vault requires the specified visible marks of forcible entry upon the exterior of the safe or vault; unlawfully taking the entire safe or vault from the premises is a separate way to meet the safe burglary definition. Safe burglary can also include unlawfully taking an entire safe or vault from inside the insured's premises. Opening a safe with its correct combination or a key, without the required evidence of forcible entry, does not qualify as safe burglary.

Recognizing Policy Roles: Custodians, Messengers, and Watchpersons

Commercial crime forms define the specific roles of people who handle property, and these titles determine when coverage applies. Under the standard ISO definition, a custodian is you, your partner or member, or an employee while having care and custody of property inside the premises, except while acting as a watchperson or janitor. However, a custodian does not include a person acting as a watchperson or a janitor under commercial crime forms. A person acting as a janitor is not a custodian under the standard definition, but that person may qualify while performing a separate custodial role.

A watchperson is a person the insured retains specifically to have care and custody of property inside the premises and who has no other duties. This narrow status means general staff or workers performing cleaning or maintenance do not qualify as watchpersons.

Under the standard ISO definition, a messenger is you, your partner or member, or an employee while having care and custody of property outside the premises. Outside-the-premises robbery coverage can apply when property is unlawfully taken from a messenger by force, threat of bodily harm, or another act meeting the policy's robbery definition. Additionally, outside-the-premises extortion coverage may apply when the insured surrenders property away from its premises because of a covered threat of bodily harm to a person held captive.

Employee Theft, Forgery, and Mysterious Disappearance

Employee theft, historically called employee dishonesty, covers loss of money, securities, and other property committed by an employee. This coverage protects against unlawful taking whether the employee acts alone or in collusion with others. Under standard commercial crime forms, an employee generally includes a natural person the insured directly compensates and has the right to direct and control. The definition can also include specified temporary or leased workers and volunteers. However, independent contractors and brokers generally are not employees under standard commercial crime forms unless a policy provision brings them within the employee definition.

An employee's theft of merchandise is generally addressed by employee theft coverage, not a premises burglary agreement, even if it occurs after business hours. An employee's theft of inventory over several months may be covered by employee theft insurance if the insured can establish the loss and meet the policy's other terms. However, employee theft coverage does not cover inventory shortages where the only proof of loss is an inventory computation or a profit and loss statement. Furthermore, under standard commercial crime conditions, coverage for theft by a particular employee terminates when a person specified in the policy learns that the employee has committed theft or another dishonest act.

Policy forms differ in how they handle timing. Under a discovery-form commercial crime policy, employee theft generally must be discovered during the policy period or an applicable extended discovery period; a loss-sustained form uses different timing rules. After discovering a suspected crime loss, follow the policy's notice duties, including prompt notice to the insurer and notice to police when the policy requires it.

Forgery is the signing of the name of another person or organization with the intent to deceive. Alteration is a fraudulent, material change made to a genuine instrument such as a check, draft, or promissory note. Forgery or alteration coverage generally applies to covered checks, drafts, promissory notes, or similar written payment instruments made or drawn by or upon the insured, or by someone acting as the insured's agent. This coverage applies when an unauthorized person signs the insured's name to a company check to obtain funds unlawfully, or when a third party changes the payable dollar amount on an authentic check drawn by the insured. Forgery or alteration coverage generally does not apply to counterfeit currency or fake checks accepted by the insured from customers.

Mysterious disappearance means the unexplained loss of property without evidence of theft, burglary, or robbery. Do not assume an unexplained disappearance is covered theft: check the applicable crime insuring agreement and its exclusions, because some agreements expressly cover disappearance while others require proof of theft. An unexplained inventory shortage found during an audit, without independent evidence of theft, generally does not establish a covered employee-theft loss.