Summary: The crime program from Insurance Services Office (ISO) was updated in 2013. While many changes were made for clarification, there are some new sections. This article reviews the changes in both the discovery, CR 00 22 08 13, and loss sustained, CR 00 23 08 13, forms. The language in the two policies is identical in many areas; where the policies differ is noted.

There are now seven insuring agreements: employee theft, forgery or alteration; theft of money and securities, inside the premises; robbery or safe burglary, inside the premises; outside the premises; computer fraud and funds transfer fraud, and money orders and counterfeit money. Computer fraud and funds transfer fraud have been combined. The insured chooses which of the agreements is needed, and the declarations page is marked accordingly. The policy provides coverage where a limit is shown on the declarations.

Topics covered:

Definitions

Insuring agreement one—employee theft

Insuring agreement two—forgery or alteration

Insuring agreement three—inside the premises—theft of money and securities

Insuring agreement four—inside the premises—robbery or safe burglary of other property

Insuring agreement five—outside the premises

Insuring agreement six—computer and funds transfer fraud

Insuring agreement seven— money orders and counterfeit money funds transfer fraud

Limit of insurance/deductible

Exclusions applicable to the entire policy

Exclusions applicable to employee theft coverage

Exclusions applicable to other coverages

Conditions

Language specific to the loss sustained form only

Language specific to discovery form only

Remaining conditions

Definitions

 The defined terms come at the end of the policy. They are treated first here because the reader needs an understanding of the terms to better comprehend the policy. In the policy, any word in quotation marks is a defined term. Many of the terms are the same as they were in the prior policies. Changes in the new forms will be discussed here.

 F.Definitions

1."Computer program" means a set of related electronic instructions, which direct the

operation and function of a computer or devices connected to it, which enable the computer or devices to receive, process, store or send "electronic data".

2."Computer system" means:

a.Computers, including Personal Digital Assistants (PDAs) and other transportable or handheld devices, electronic storage devices and related peripheral components;

b.Systems and applications software; and

c.Related communications networks; by which "electronic data" is collected, transmitted, processed, stored or retrieved.

3."Counterfeit money" means an imitation of "money" which is intended to deceive and to be taken as genuine.

4."Custodian" means you, or any of your partners or "members", or any "employee" while having care and custody of property inside the "premises", excluding any person while acting as a "watchperson" or janitor.

5."Discover" or "discovered" means the time when you first become aware of facts which would cause a reasonable person to assume that a loss of a type covered by this Policy has been or will be incurred, regardless of when the act or acts causing or contributing to such loss occurred, even though the exact amount or details of loss may not then be known.

"Discover" or "discovered" also means the time when you first receive notice of an actual or potential claim in which it is alleged that you are liable to a third party under circumstances which, if true, would constitute a loss under this insurance.

Analysis

 The term "client" was removed from the 2006 forms, and "banking premises" was removed from the 2013 form. The definition of "counterfeit" specifically refers to money only. The definition notes that the counterfeit has to be an item that is intended to deceive and to be taken as genuine. The intent to deceive is not always so easy to prove. If a customer of a bank unwittingly gets a bundle of counterfeit twenty dollar bills and then innocently passes them onto the insured bank, where is the intent to deceive? The customer did not intend to deceive the bank, but the bank surely can put in a claim for loss resulting from accepting counterfeit paper currency. More than likely, the insurer will presume that if the insured has accepted counterfeit currency, there was intent to deceive on someone's part and pay the claim.

 Definitions of "computer program" and "computer system" were added in the 2013 edition of the form. A "computer program" is the electronic instructions that allow the computer to operate and perform various functions such as storing and processing data. "Computer system" relates to the hardware, including PDAs and other handheld or transportable devices such as tablets and other related components. Included also are system and application software and related communication networks that collect, transmit, process, store, and retrieve data. This would include a company's proprietary system and internal networks, as well as software purchased for word processing and other common functions.

 "Discover" is defined as when the named insured first becomes aware of information that would cause a reasonable person to believe that a loss that would be covered under this policy has or will occur; the definition was added in the 2006 form. Note that this is different than actual knowledge. Sometimes referred to as "guilty" or "real" knowledge, it differs from presumed knowledge or knowledge that may be imputed to the insured because of his having had information that should have put him on inquiry that would have led to real knowledge. Put another way, actual knowledge is based in fact, whereas constructive knowledge is based on a reasonable belief. Ashcraft v. U.S. Fidelity & Guar. Co., 255 S.W .2d 485 (Ky. App. 1953). (In an action on robbery insurance policy, the court interpreted "actually cognizant" within the policy to mean that the insured must have had knowledge of the occurrence of the act).

 For example, on May 15 an insured is informed by a loyal and trustworthy employee that two other employees are planning to break into the office over some weekend and steal money and other valuables. The insured then observes the employees in question behaving suspiciously. On Monday, August 25, it is discovered that the office has been broken into over the weekend and money and other valuables have been stolen, exactly as the loyal employee had warned. The insured "discovered" the loss May 1—at that point a reasonable person could expect a loss to occur; however, the timing of the loss is unknown. It also includes the receipt of first notice of an actual loss to a third party that would be considered a loss under this policy. Thus, by defining "discover" in the forms, the insurer is clarifying that the insured's duty under an insurance policy to notify the insurer of an occurrence arises when an insured has knowledge of an occurrence or an accident for which he or she might be liable or might be sued. Whether the insured has actual or constructive knowledge is a fact specific inquiry for a jury to determine. However, insureds should note that a delay in notification has been excused only where it appears that the insured had "no knowledge of the occurrence or accident and could not have acquired such knowledge by exercise of reasonable diligence." 13 Couch on Ins. § 192:6.

 6."Electronic data" means information, facts, images or sounds stored as or on, created or used on, or transmitted to or from computer software (including systems and applications software) on data storage devices, including hard or floppy disks, CD-ROMs, tapes, drives, cells, data processing devices or any other media which are used with electronically controlled equipment.