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The definition of employee among unendorsed crime policy forms varies.In all forms, it includes persons in the regular service of the named insured.In most, it also includes former employees for a period of 30 or 60 days after termination.

The actual positions included within the definition of employee differ as well.Some extend coverage to "noncompensated natural persons." Others extend coverage to directors or trustees, but only while performing acts that fall within the scope of the usual duties of an employee.The key here is to be sure the employee exposures you have meet the definition of employee in the policy.

A key difference between crime forms, however, is how that property is valued.Some forms cover such property on an actual cash value basis while others cover the property on a replacement cost basis without any deduction for physical depreciation.

With the advent of computers and the increasing fraudulent use of them, computer fraud and funds transfer fraud coverages are being purchased more often.Computer fraud coverage applies to loss of or damage to money, securities and other property resulting directly from the use of any computer to fraudulently cause a transfer of that property from inside the premises or banking premises to a person (other than a messenger) or to a place outside those premises.

Funds transfer fraud coverage pays for the loss of funds resulting from fraudulent instructions directing a financial institution to transfer, pay or deliver funds, usually from a transfer account.

Given the global capabilities of computers, policies that cover losses which occur anywhere in the world will certainly be preferred to those that only cover acts committed within the United States, Puerto Rico and Canada.

Most exclusions among crime policies are consistent, but one glaring difference is the insuring agreements to which the exclusions apply.

In most cases, policies will exclude loss resulting from accounting or arithmetical errors or omissions; giving or surrendering of property in any exchange or purchase; fire, however caused, except loss of or damage to money or securities; loss of property contained in any money-operated device that does not have a continuous recording instrument; loss of or damage to motor vehicles or equipment or accessories; vandalism damage to premises; and voluntary parting of title to or possession of property.

But these exclusions typically apply only to money and securities (theft, disappearance or destruction) coverage.

In at least one crime policy, however, all of these exclusions apply to all of the insuring agreements including employee dishonesty.Such a wide application of exclusions severely depletes the coverage afforded, particularly with respect to employee dishonesty coverage.

Some of the coverage deficiencies described above may be resolved through the attachment of endorsements, but in other cases, an entirely different policy form may be needed to achieve the desired level of coverage.

CHARLES COX, a principal of the Orchard Park, N.Y., consulting firm of Aldrich & Cox, writes a regular column for Risk & Insurance®.

May 1, 2005

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