Crime Coverage

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Everyone is exposed and everyone wants your stuff! Criminals are incredibly creative, are you protected?

by Jeff Cavignac, CPCU, RPLU, ARM

Crime is a critical, yet often overlooked, coverage for nearly every business.  It is also a growth industry and some of the crimes being committed today did not even exist 10 years ago!

Even if you do not elect to purchase a comprehensive crime policy, you should know what your exposures are so you can effectively manage those exposures.  Listed below are the main crime coverages currently being offered in the marketplace.

Employee Dishonesty – Provides coverage for employee theft of money, securities or property. This is written with a per loss limit, per employee limit, or per location limit and is one of the key coverages provided in crime policies.

Example: A long-time employee responsible for distributing checks has been skimming money for himself every pay period. This employee has been working at your company for 15 years. He has accrued thousands of dollars in falsified reimbursements.

Forgery or Alterations – Insures against loss due to dishonesty in writing, signing, or altering checks, bank drafts and other financial instruments.

Example: One of your clients’ vendors has been receiving monthly checks for services rendered. They have been altering those checks to pay more than what was agreed upon.

Money and Securities – Insures against loss of money and securities from within the insured’s premises or from the insured’s bank/safe depository due to theft, disappearance or destruction.

Example: You keep money on premises for emergencies. You check on your money and it has disappeared.

Third-Party Fidelity – Insures against the theft by an employee while on a customer/client’s site.

Example: You own a construction company and you are doing renovations to a residential property. One of your workers finds an open jewelry box and pockets some expensive items. The owner complains and blames your company for the loss.

Money Order and Counterfeit Money – Insures against loss due to acceptance of a money order that was issued by a post office or express company. It also insures against counterfeit dollars from the U.S. and Canada.

Example: You have been working with a company that has been paying you cash. It turns out they are using counterfeit money. This coverage will reimburse you for all money that was illegally distributed.

Computer Fraud – Covers direct loss of money, securities and other property resulting directly from the use of any computer to fraudulently transfer insured property from inside the insured’s premises or bank premises to a person or place outside of the insured’s premises or bank’s premises.

Example: An employee of a vendor fraudulently gains access to the insured’s computer and changed the bank routing number from the vendor’s routing number to the employee’s bank routing number, causing a large sum of money to be transferred directly to the employee instead of to the vendor.

Funds Transfer Fraud – Covers direct loss of money and securities in the insured’s transfer account on deposit at a financial institution committed by a third party and directly caused by electronic, telephone or fax instruction which purports to have been transmitted by the insured but which was fraudulently transmitted by someone else without the insured’s knowledge or consent.

Example: An unknown party impersonates the insured’s bank, contacts the insured’s funds transfer administrator and convinces them to activate a computer link back to a phony bank. This allows the impersonator to contact the insured’s real bank, pretend to be the insured, and have wire transfers issued that ultimately end up with a foreign bank.

Social Engineering – Covers theft by manipulation, where a third party masquerades as an employee, client or other business contact, in order to trick the insured into surrendering funds or other assets voluntarily. This is the classic “con.”

Example:  The owner of a business walks by his controller’s door.  The controller mentions that he received the owner’s email to wire money to one of their main suppliers and the controller just sent it.  The owner, however, never requested this.

Identity Fraud – Coverage for theft of personal information, such as social security or driver’s license numbers (of clients, employees, etc.) in order to impersonate the insured. This information can be used to obtain credit, merchandise, or services in the name of the victim, or to provide the thief with false credentials. This can be purchased through a commercial policy and can be added as an endorsement to your homeowner’s policy.

Example: You lost your wallet on vacation. Someone gains access to your driver’s license and business credit card. You call in to cancel your card the next morning, but it had already been eight hours since it was lost. Because you signed the back of your card, the thief forged your signature and spent thousands. You reported it to your bank, but there was no evidence that you did not spend the money.

Guests’ Property – Coverage for legal liability arising out of the damage/loss of property belonging to guests of the insured while the property is in a safe deposit box on the insured’s business premises (hotels, motels, inns).

Example: You own a hotel and one of your guests leaves the door open. Someone comes in and breaks open their safe. Their money is stolen. The guests insist that they did not leave the door open.

Pension-Plan Bond Coverage (ERISA) – Insures against funds/property in a pension plan subject to fraud or dishonesty on the part of its administrators, officers and employees. Legally there needs to be coverage for at least ten percent (10%) of the plan, with a maximum of $500,000.

Example: One of the administrators for your company’s pension plan has disappeared…and so has the money in the pension plan!

Conclusion:  Crime coverage is evolving quicker than any other coverage.  While you can buy Crime Insurance relatively inexpensively, this is an exposure that lends itself to being managed and you are far better off avoiding the exposure to begin with than having to rely on your insurance.


A good example of employee dishonesty took place at the Lawrence Family Jewish Community Center in San Diego.  Both the Chief Financial Officer and an Accounts Payable Clerk were convicted of ripping off the organization.  Between the two of them they stole $566,000.  Their plot was simple, they would use the center’s credit card then pay off the bill with the center’s funds and doctor the books to make it look like the expenses were valid.

Another, far more egregious example took place in Dixon, Illinois.  Rita A. Crundwell was the appointed comptroller and treasurer of Dixon from 1983 to 2012. She was also the perpetrator of what is believed to be the largest municipal fraud in American history.

She was fired in April 2012 after it was revealed that she had embezzled more than $53 Million from the city (Dixon is a town of about 16,000 people and has an annual budget of $8 Million to $9 Million).  Crundwell opened a secret bank account in 1990 named RSCDA (Reserve Sewer Capital Development Account), making it appear to be a city account. She was the only signatory. She would have money deposited into another account called the Capital Development Fund, create false state invoices, and then write checks from the fund payable to “Treasurer,” which she would deposit into the RSCDA account. According to federal investigators, this relatively uncomplicated scheme continued for twenty-two years.  On average, Crundwell stole $5 Million per year from the city.