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Question 1Fidelity Bonds and Commercial Crime Coverages

What is the primary purpose of a fidelity bond?

  1. To cover liability arising from bodily injury on the insured's premises
  2. To guarantee repayment of a commercial loan if the borrower defaults
  3. To indemnify an employer for direct financial loss caused by dishonest acts of its employees Correct answer.
  4. To protect a contractor's customer if the contractor fails to complete a project

Explanation

A fidelity bond is a form of insurance that reimburses an employer for direct financial loss caused by employee dishonesty. It protects the insured's own assets rather than guaranteeing performance to a third party.

Question 2Fidelity Bonds and Commercial Crime Coverages

How does a fidelity bond differ from a surety bond?

  1. A fidelity bond protects the insured against its own loss, while a surety bond guarantees the insured's performance to a third party. Correct answer.
  2. A fidelity bond involves three parties, while a surety bond involves only two parties.
  3. A fidelity bond is issued for a fixed term and cannot be cancelled, while a surety bond can be cancelled at any time.
  4. A fidelity bond covers only public officials, while a surety bond covers only private employees.

Explanation

A fidelity bond is insurance purchased by an employer to protect itself from employee dishonesty. A surety bond is a three-party guarantee under which the surety answers for the principal's performance to the obligee.

Question 3Fidelity Bonds and Commercial Crime Coverages

Under commercial crime employee theft coverage, the employee's dishonest act must be committed with which required intent?

  1. Intent to help a coworker, regardless of loss to the employer
  2. Intent to damage the employer's reputation, regardless of financial gain
  3. Intent to conceal a company accounting error, regardless of personal benefit
  4. Intent to cause the employer a loss and to obtain a financial benefit for the employee or another person Correct answer.

Explanation

Employee theft coverage requires dishonest acts committed with intent to cause the insured a loss and to obtain financial benefit for the employee or another person. The benefit need not flow to the employee who committed the act.

Question 4Fidelity Bonds and Commercial Crime Coverages

Which loss is covered by the Employee Theft insuring agreement of a commercial crime policy?

  1. Money stolen by a vendor's driver during a delivery to the insured
  2. A director's breach of fiduciary duty that reduces company profits
  3. A customer's necklace stolen from the insured's store by an unknown burglar
  4. Money stolen by a bookkeeper who diverts customer payments to a personal account Correct answer.

Explanation

Employee Theft covers theft of money, securities, or other property by an employee acting alone or in collusion with others. The bookkeeper's diversion of customer payments is a direct theft by an employee.

Question 5Fidelity Bonds and Commercial Crime Coverages

A commercial crime policy written on a discovery form covers which losses?

  1. Losses discovered during the policy period that occurred before the policy period, subject to any retroactive date Correct answer.
  2. Only losses that both occur and are discovered during the policy period
  3. Losses discovered after the policy period if they occurred during the policy period, with no need for extended discovery
  4. Only losses that occur after the policy period, regardless of when discovered

Explanation

A discovery form responds to loss discovered during the policy period, even if the loss occurred earlier, subject to any applicable retroactive date. An extended discovery period may extend the time after expiration in which to discover a covered loss.

Question 6Fidelity Bonds and Commercial Crime Coverages

Safe burglary coverage generally requires which condition?

  1. The safe must be located outside the insured's premises.
  2. The safe must be left unlocked during business hours.
  3. The theft must be committed by an employee with access to the safe.
  4. Entry into the safe or vault must involve force with visible marks or opening by an unauthorized key or combination Correct answer.

Explanation

Safe burglary coverage generally requires entry into a safe or vault by actual force with visible marks, or by opening it with an unauthorized key or combination. The requirement distinguishes safe burglary from simple employee theft.

Question 7Fidelity Bonds and Commercial Crime Coverages

The Forgery or Alteration insuring agreement responds to loss from which event?

  1. A forged check or an altered financial instrument used to obtain money or property Correct answer.
  2. A computer hacker's unauthorized transfer from the insured's bank account
  3. A customer's slip and fall in the insured's lobby
  4. An employee's theft of office equipment after hours

Explanation

Forgery or Alteration covers loss caused by the forgery or alteration of checks, drafts, promissory notes, or similar instruments. The forged or altered instrument must be used to obtain money, securities, or property.

Question 8Fidelity Bonds and Commercial Crime Coverages

What does the Computer Fraud insuring agreement cover?

  1. Theft of money, securities, or other property resulting from unauthorized access to a computer system Correct answer.
  2. Physical theft of a laptop from an employee's desk
  3. An employee's unauthorized use of a company vehicle
  4. Loss caused by a power failure that erases accounting records

Explanation

Computer Fraud covers theft of money, securities, or other property resulting from unauthorized entry into, or access to, a computer system. The loss must flow from the computer-related theft, not from ordinary property damage or vehicle misuse.

Question 9Fidelity Bonds and Commercial Crime Coverages

A commercial crime policy with a 60-day extended discovery period expires on June 30. The insured discovers an employee theft on July 25 and the theft occurred in May. How does the policy respond?

  1. The loss is covered only if the employee is still employed on July 25.
  2. The loss is not covered because the theft occurred before the policy period ended.
  3. The loss is not covered because discovery after expiration is always excluded.
  4. The loss is covered because it was discovered within the extended discovery period and occurred during the policy period. Correct answer.

Explanation

An extended discovery period gives the insured additional time after expiration to discover losses that occurred during the policy period. Because the May theft occurred during the policy period and was discovered within the 60-day extension, it is covered.

Question 10Fidelity Bonds and Commercial Crime Coverages

An employee receives an email that appears to come from a regular vendor and, following the instructions, wires payment to a fraudulent bank account. Which commercial crime coverage is designed for this loss?

  1. Money Orders and Counterfeit Currency
  2. Employee Theft
  3. Computer Fraud
  4. Social Engineering Fraud Correct answer.

Explanation

Social Engineering Fraud coverage addresses losses in which an employee is deceived into transferring money or property by a fraudulent instruction that appears to come from a trusted party. The employee voluntarily follows the instruction because of the deception.

Question 11Fidelity Bonds and Commercial Crime Coverages

The Funds Transfer Fraud insuring agreement typically covers loss resulting from which situation?

  1. A customer's check returned for insufficient funds
  2. An employee's unauthorized personal use of a company credit card
  3. A bank teller's theft of cash from a drawer
  4. A fraudulent instruction to a financial institution to transfer funds from the insured's account without the insured's knowledge or consent Correct answer.

Explanation

Funds Transfer Fraud covers loss from a fraudulent instruction directing a financial institution to transfer funds from the insured's account. The key element is that the insured did not know of or consent to the transfer.

Question 12Fidelity Bonds and Commercial Crime Coverages

Money is taken by robbery from the insured's reception area during business hours. Which commercial crime insuring agreement is most directly applicable?

  1. Inside the Premises-Theft of Money and Securities Correct answer.
  2. Outside the Premises
  3. Computer Fraud
  4. Employee Theft

Explanation

Inside the Premises-Theft of Money and Securities covers theft of money and securities from the insured's premises, including robbery. The loss occurred inside the insured's reception area during business hours.

Question 13Fidelity Bonds and Commercial Crime Coverages

Two employees conspire to steal $50,000 in a single scheme. The policy has a $10,000 deductible. How is the deductible applied?

  1. Not at all, because collusion removes the deductible
  2. Once for each employee's share of the proceeds
  3. Once, because the conspirators' acts are treated as one loss Correct answer.
  4. Twice, because two employees were involved

Explanation

A deductible generally applies to each loss, not to each person involved. A single scheme carried out by two conspirators is treated as one loss, so the deductible is applied once.

Question 14Fidelity Bonds and Commercial Crime Coverages

An employee theft limit of $100,000 is shown on a commercial crime policy. Three separate thefts by different employees occur during the year, each $40,000. How does the limit generally apply?

  1. Only the first theft is covered because the limit is exhausted.
  2. The three thefts share a single $100,000 annual aggregate, so only $100,000 is payable.
  3. Each theft is a separate loss subject to the $100,000 limit, so the full $120,000 is potentially payable. Correct answer.
  4. The limit is reduced by each loss until the policy term ends, regardless of separate acts.

Explanation

The employee theft limit generally applies to each loss rather than as an annual aggregate. Separate thefts by different employees are separate losses, each subject to the stated limit.

Question 15Fidelity Bonds and Commercial Crime Coverages

Under a commercial crime policy's valuation condition, how is a loss of money generally valued?

  1. At its book value
  2. At its replacement cost
  3. At its face value Correct answer.
  4. At its market value on the date of loss

Explanation

Money is normally valued at face value under the valuation condition. Securities and other property may be valued differently, but money itself is not subject to replacement cost or book value.

Question 16Fidelity Bonds and Commercial Crime Coverages

For purposes of employee theft coverage, which person generally qualifies as an 'employee'?

  1. An independent contractor who never works on the insured's premises
  2. A former employee acting more than 90 days after termination
  3. A customer who enters the premises to buy goods
  4. A temporary worker while under the insured's direction and control Correct answer.

Explanation

The employee definition generally includes temporary or leased workers while they are under the insured's direction and control. Customers and independent contractors are not employees for this coverage.

Question 17Fidelity Bonds and Commercial Crime Coverages

An employee persuades the insured to invest $80,000 in a fake supplier contract, and the insured voluntarily transfers the funds. Which exclusion most directly bars coverage?

  1. War and military action
  2. Voluntary parting with title or possession Correct answer.
  3. Nuclear hazard
  4. Wear and tear

Explanation

Crime policies commonly exclude loss caused by the insured's voluntary surrender of money or property. The insured chose to transfer the funds based on the employee's false story, so the voluntary parting exclusion is the most direct barrier.

Question 18Fidelity Bonds and Commercial Crime Coverages

An insured reports an inventory shortage found only by comparing book records with a physical count. No evidence identifies a specific theft. How does employee theft coverage respond?

  1. It excludes the shortage because inventory computation alone does not establish a covered theft. Correct answer.
  2. It covers the shortage as counterfeit currency.
  3. It covers the shortage only if the amount exceeds the deductible.
  4. It covers the shortage because inventory records are business property.

Explanation

Employee theft coverage generally excludes inventory shortages shown only by computation or comparison of records. The insured must establish that a covered theft actually occurred.

Question 19Fidelity Bonds and Commercial Crime Coverages

The Money Orders and Counterfeit Currency insuring agreement would cover which loss?

  1. An employee's theft of a company laptop
  2. Loss from accepting counterfeit currency in exchange for goods Correct answer.
  3. A customer's forged endorsement on a payroll check
  4. A hacker's alteration of an electronic payroll file

Explanation

Money Orders and Counterfeit Currency coverage responds when the insured accepts counterfeit paper currency or money orders in good faith. It does not cover ordinary property theft or electronic file alteration.

Question 20Fidelity Bonds and Commercial Crime Coverages

A financial institution bond's Fidelity insuring agreement is most similar to which commercial crime coverage?

  1. Computer Fraud
  2. Employee Theft Correct answer.
  3. Inside the Premises-Theft of Money and Securities
  4. Forgery or Alteration

Explanation

The Fidelity insuring agreement of a financial institution bond covers dishonest or fraudulent acts of employees, much like commercial crime Employee Theft coverage. The bond form adds financial-institution-specific terms and conditions.

Question 21Fidelity Bonds and Commercial Crime Coverages

Under a financial institution bond, Insuring Agreement A (Fidelity) requires that the employee act with which state of mind?

  1. Negligence in handling the insured's funds, even without dishonest intent
  2. Manifest intent to cause the insured a loss and to obtain an improper financial benefit for the employee or another person Correct answer.
  3. Reckless disregard for the insured's procedures, even without a financial benefit
  4. Intent to improve the insured's financial statements, even without personal gain

Explanation

Fidelity coverage requires dishonest or fraudulent acts committed with the manifest intent to cause the insured a loss and to obtain a financial benefit for the employee or another person. Negligence or mere recklessness does not satisfy the manifest intent standard.

Question 22Fidelity Bonds and Commercial Crime Coverages

An employee approves a large loan to a friend's struggling business in exchange for a future promise of a job. The loan defaults and the bank suffers a loss. In analyzing fidelity coverage, what is the key issue?

  1. Whether the borrower signed a promissory note
  2. Whether the employee had a manifest intent to obtain a benefit and to cause the bank a loss Correct answer.
  3. Whether the loan exceeded the bank's capital
  4. Whether the loan was approved during business hours

Explanation

Fidelity coverage turns on the employee's manifest intent to cause the insured a loss and obtain a financial benefit. The existence of a loan and the time of approval are secondary to that intent analysis.

Question 23Fidelity Bonds and Commercial Crime Coverages

A loss sustained commercial crime policy has a retroactive date of January 1, 2020. A theft occurred in 2019 but was discovered in 2024 during the policy period. How is the loss treated?

  1. Covered because the retroactive date applies only to computer fraud.
  2. Not covered because the policy is written on a loss sustained basis.
  3. Covered because discovery occurred during the policy period.
  4. Not covered because the loss occurred before the retroactive date. Correct answer.

Explanation

A retroactive date bars coverage for loss that occurred before that date. Even though the theft was discovered during the policy period, it happened in 2019, before the January 1, 2020 retroactive date.

Question 24Fidelity Bonds and Commercial Crime Coverages

A commercial crime policy contains a prior insurance clause. What is the purpose of this clause?

  1. To prevent the insured from recovering twice for the same loss from successive policies Correct answer.
  2. To require the insured to notify all prior insurers of a loss
  3. To increase the limit when the insured buys other insurance
  4. To allow the insured to select the policy with the highest limit

Explanation

A prior insurance clause coordinates coverage when a loss discovered under the current policy was also covered by earlier insurance. It prevents duplicate recovery and accumulation of limits for the same loss.

Question 25Fidelity Bonds and Commercial Crime Coverages

When does employee theft coverage for a particular employee typically terminate under a commercial crime policy?

  1. Only when the employee is formally convicted of a crime
  2. When the insured learns of a dishonest act committed by that employee Correct answer.
  3. When the employee requests removal from the bond
  4. At the end of the policy period, regardless of any dishonest act

Explanation

Coverage for a particular employee usually terminates when the insured learns of a dishonest act committed by that employee. A conviction is not required, and the termination can occur before the policy period ends.

Question 26Fidelity Bonds and Commercial Crime Coverages

Under a commercial crime policy, the term 'theft' generally includes which act?

  1. Counterfeiting of currency received at the insured's counter
  2. Unauthorized access to the insured's computer system
  3. Forgery of a check drawn on the insured's account
  4. Embezzlement of funds by a bookkeeper Correct answer.

Explanation

Theft is a broad defined term that includes robbery, burglary, larceny, embezzlement, and other wrongful takings. Forgery, counterfeiting, and computer intrusion are addressed by separate insuring agreements rather than by the theft definition.

Question 27Fidelity Bonds and Commercial Crime Coverages

Which item is considered 'money' under a commercial crime policy?

  1. Currency and coins in current use Correct answer.
  2. Postage stamps held for resale
  3. A collection of rare coins held for investment
  4. Corporate bonds held in a brokerage account

Explanation

Money is generally defined as currency, coins, and bank notes in current use and having a face value. Collectible coins, securities, and stamps are not treated as money under the standard definition.

Question 28Fidelity Bonds and Commercial Crime Coverages

Under a commercial crime policy, which event meets the definition of robbery?

  1. A person threatens a cashier with a weapon and takes cash Correct answer.
  2. A burglar enters a closed store at night and takes goods
  3. A customer leaves without paying for merchandise
  4. An employee secretly removes cash from a register

Explanation

Robbery requires the unlawful taking of property from a person by threat of force or violence. Secret removal by an employee is theft, failing to pay is not robbery, and unlawful entry of a closed premises is burglary.

Question 29Fidelity Bonds and Commercial Crime Coverages

Under a financial institution bond, Insuring Agreement B (On Premises) responds to which loss?

  1. Robbery or burglary of property while on the institution's premises Correct answer.
  2. Loss of property while in transit
  3. Employee theft of funds
  4. Forgery of a customer's signature on a check

Explanation

Insuring Agreement B covers property loss on the institution's premises caused by robbery, burglary, theft, false pretenses, or mysterious disappearance. Employee dishonesty, forgery, and transit losses are handled by other insuring agreements.

Question 30Fidelity Bonds and Commercial Crime Coverages

A financial institution bond's Insuring Agreement D (Forgery or Alteration) is primarily intended to cover which loss?

  1. Loss from a forged check or an altered draft Correct answer.
  2. Loss from a loan default
  3. Loss from counterfeit currency
  4. Loss from employee dishonesty

Explanation

Insuring Agreement D responds to loss caused by forgery or alteration of checks, drafts, and similar instruments. Employee dishonesty, counterfeit currency, and loan defaults are addressed or excluded elsewhere in the bond.

Question 31Fidelity Bonds and Commercial Crime Coverages

Insuring Agreement E (Securities) under a financial institution bond generally covers which loss?

  1. Loss from counterfeit or forged securities, or securities stolen from the institution Correct answer.
  2. Loss of securities due to a decline in market value
  3. Loss from a loan secured by securities
  4. Loss from trading in securities

Explanation

Insuring Agreement E covers securities lost through forgery, counterfeiting, theft, or similar events. Market declines, trading losses, and loan losses are not covered by that agreement.

Question 32Fidelity Bonds and Commercial Crime Coverages

A company's controller is carrying $20,000 in cash to a bank when an armed robber takes the bag. Which commercial crime insuring agreement is the most direct fit?

  1. Computer Fraud
  2. Employee Theft
  3. Forgery or Alteration
  4. Outside the Premises Correct answer.

Explanation

The Outside the Premises insuring agreement covers money and securities while being carried by a messenger outside the insured's premises. The taking is by an outsider, so Employee Theft does not apply, and no forged instrument or computer access is involved.

Question 33Fidelity Bonds and Commercial Crime Coverages

A fidelity bond covering 'faithful performance' differs from a commercial crime employee theft coverage mainly because the faithful performance bond...

  1. covers only money, not securities
  2. requires a showing of employee dishonesty
  3. may respond to an employee's negligent failure to perform duties without dishonest intent Correct answer.
  4. is limited to forgery losses

Explanation

A faithful performance bond can respond when an employee fails to perform required duties, including through negligence. Employee theft coverage, by contrast, requires a dishonest or fraudulent act.

Question 34Fidelity Bonds and Commercial Crime Coverages

In a commercial crime policy, the single loss limit of insurance is best described as...

  1. the maximum payable only for employee theft claims
  2. the amount deducted from each loss before payment
  3. the total maximum payable for all losses during the policy period
  4. the maximum the insurer pays for all loss arising from one event or one employee's conduct Correct answer.

Explanation

The single loss limit caps the amount payable for one loss, which may include all loss from one event or one employee's conduct. The aggregate limit caps all covered losses in the policy period, and the deductible is a separate retention.

Question 35Fidelity Bonds and Commercial Crime Coverages

After paying a covered employee theft loss, an insurer recovers part of the stolen money from the employee. Under the standard recoveries condition, how is the recovery generally applied?

  1. The recovery is applied to the loss, and the insurer is reimbursed for its payment Correct answer.
  2. The recovery is paid to the employee's coworkers
  3. The recovery is ignored if the claim was already paid
  4. The insured keeps the entire recovery in addition to the claim payment

Explanation

Recoveries reduce the loss before or after payment, and the insurer is entitled to reimbursement of amounts it paid. Any recovery above the paid loss and expenses generally belongs to the insured.

Question 36Fidelity Bonds and Commercial Crime Coverages

A commercial crime policy has an other insurance condition making it excess over any other valid and collectible insurance. If another policy covers the same loss on a primary basis, how do the two policies respond?

  1. Both policies share the loss equally
  2. The other primary insurance pays first, and the commercial crime policy pays any excess Correct answer.
  3. The commercial crime policy pays first
  4. Neither policy pays because coverage is duplicated

Explanation

An other insurance clause determines the order of payment when more than one policy covers the same loss. If the crime policy is excess, the primary policy pays first and the crime policy responds only above that payment.

Question 37Fidelity Bonds and Commercial Crime Coverages

Under a commercial crime policy, the 'change of ownership' condition is intended to...

  1. cancel coverage immediately upon a merger
  2. increase the limit of liability after a merger
  3. address coverage when the insured merges with or acquires another entity, often requiring the insurer's consent for the new entity to be covered Correct answer.
  4. automatically extend coverage to any new subsidiary without notice

Explanation

The change of ownership condition addresses mergers, consolidations, and acquisitions. Coverage for a new or acquired entity is generally not automatic and may require notice to the insurer or an endorsement.

Question 38Fidelity Bonds and Commercial Crime Coverages

A commercial crime policy covers theft of securities. Which measure generally applies to value the lost securities?

  1. The amount the insured paid for the policy limit
  2. Their face value only, even if market value is higher
  3. Their market value at the time and place of loss, or another valuation method stated in the policy Correct answer.
  4. Their original purchase price regardless of current value

Explanation

The valuation condition typically values securities by market value at the time of loss or by a specified method such as the closing price on a stated date. Original cost, face value, and the policy limit are not automatic measures.

Question 39Fidelity Bonds and Commercial Crime Coverages

Under a commercial crime policy, the term 'securities' generally includes which item?

  1. Real property held for investment
  2. Currency and coins in current use
  3. Negotiable instruments or contracts representing money or other property Correct answer.
  4. Office equipment owned by the insured

Explanation

Securities include negotiable and nonnegotiable instruments or contracts that represent money or other property, such as stocks, bonds, and similar instruments. Currency is money, and office equipment and real property are not securities.

Question 40Fidelity Bonds and Commercial Crime Coverages

A financial institution bond's Counterfeit Currency insuring agreement covers loss from...

  1. counterfeit money accepted by the institution in good faith Correct answer.
  2. securities that decline in value
  3. employee theft
  4. forged checks

Explanation

The Counterfeit Currency agreement covers loss when the institution accepts counterfeit money in good faith. Forged checks fall under Forgery or Alteration, employee theft under Fidelity, and market declines are not covered.

Question 41Fidelity Bonds and Commercial Crime Coverages

A financial institution bond excludes loss from loans or extensions of credit. Under the standard exception, when may a loan loss be covered?

  1. Whenever the loan is secured by real estate
  2. Whenever the loan was approved by a manager
  3. When the loss is caused by an employee's dishonest act and the employee receives a financial benefit Correct answer.
  4. Whenever the borrower defaults for any reason

Explanation

Loan losses are broadly excluded, but the exclusion has a narrow exception for losses caused by employee dishonesty where the employee obtains a financial benefit. Borrower default, managerial approval, or real estate collateral does not remove the exclusion.

Question 42Fidelity Bonds and Commercial Crime Coverages

Which loss is commonly excluded under a financial institution bond as a trading loss?

  1. A loss from employee theft of cash
  2. A loss from trading in securities, commodities, or currencies Correct answer.
  3. A loss from robbery on the premises
  4. A loss from a forged check

Explanation

Financial institution bonds commonly exclude trading losses, whether the trading occurred in fact or only in theory. Forged checks, on-premises robbery, and employee theft of cash are within other insuring agreements.

Question 43Fidelity Bonds and Commercial Crime Coverages

A bookkeeper steals funds that the insured holds in trust for a client. How is this treated under employee theft coverage?

  1. No coverage applies because the funds belong to a client
  2. Coverage applies only if the client also insures the funds
  3. Coverage is limited to the client's deductible
  4. Coverage applies because the insured held the funds in a covered capacity Correct answer.

Explanation

Employee theft coverage generally extends to money and securities held by the insured in any capacity, including client funds in the insured's custody. The fact that a client owns the funds does not by itself defeat coverage.

Question 44Fidelity Bonds and Commercial Crime Coverages

A commercial crime policy commonly excludes loss of which property?

  1. Office equipment owned by the insured
  2. Property owned by a government entity, unless covered by endorsement Correct answer.
  3. Securities held for customers
  4. Money owned by the insured

Explanation

Commercial crime forms commonly exclude government-owned property unless it is specifically covered by endorsement. The insured's own money and office equipment, and customer securities held by the insured, are not excluded on that basis.

Question 45Fidelity Bonds and Commercial Crime Coverages

A company suffers a covered employee theft, and its customers learn of the theft and reduce future orders, causing lost profits. How does a commercial crime policy treat the lost profits?

  1. They are covered under the employee theft limit
  2. They are generally excluded as indirect or consequential loss Correct answer.
  3. They are covered if the insured reports them within 30 days
  4. They are covered as direct loss of money

Explanation

Commercial crime policies cover direct loss of covered property, not lost profits or other indirect consequences of a theft. The reduced future orders are consequential damages and are generally excluded.

Question 46Fidelity Bonds and Commercial Crime Coverages

An insured settles a lawsuit brought by a customer whose funds were stolen by the insured's employee. The customer alleges the insured was negligent in supervising the employee. Under a commercial crime policy, what is the general treatment of the insured's legal liability to the customer?

  1. It is automatically covered as employee theft
  2. It is generally excluded because the policy covers direct loss, not legal liability to third parties Correct answer.
  3. It is covered under the forgery insuring agreement
  4. It is covered only if the employee is prosecuted

Explanation

Commercial crime coverage responds to direct loss of covered property, not to the insured's liability to third parties for damages. The customer's claim against the insured for negligent supervision is therefore generally outside the insuring agreements.

Question 47Fidelity Bonds and Commercial Crime Coverages

The 'discovery' condition in a commercial crime policy requires that...

  1. the insurer discover the loss before the policy expires
  2. the loss occur during the policy period only
  3. the insured discover the loss during the policy period in which coverage applies Correct answer.
  4. the insured report the loss within 24 hours

Explanation

Commercial crime policies are generally written on a discovery basis, so coverage is triggered when the insured discovers the loss during the policy period. The loss itself may have occurred earlier, subject to any retroactive date.

Question 48Fidelity Bonds and Commercial Crime Coverages

A burglar enters the insured's closed office at night and takes office equipment. Which commercial crime insuring agreement is the most direct fit?

  1. Forgery or Alteration
  2. Inside the Premises-Robbery or Safe Burglary of Other Property Correct answer.
  3. Employee Theft
  4. Inside the Premises-Theft of Money and Securities

Explanation

The insuring agreement for robbery or safe burglary of other property covers non-money property such as office equipment taken by burglary on the premises. The money and securities agreement is limited to money and securities, and employee theft and forgery do not apply.

Question 49Fidelity Bonds and Commercial Crime Coverages

A commercial crime policy's 'proof of loss' condition typically requires the insured to...

  1. wait for a criminal conviction before filing
  2. hire a public adjuster
  3. submit a sworn statement with evidence supporting the claim within a specified time Correct answer.
  4. pay the deductible to the insurer

Explanation

The proof of loss condition requires the insured to provide a detailed, often sworn, statement and supporting documentation within a stated period after discovery. A criminal conviction, payment of the deductible to the insurer, and hiring an adjuster are not conditions of the proof of loss.

Question 50Fidelity Bonds and Commercial Crime Coverages

A fidelity bond is often described as suretyship rather than ordinary insurance because...

  1. the bond never pays claims
  2. the bond is issued only to individuals
  3. the surety may seek reimbursement from the employee or principal responsible for the loss Correct answer.
  4. the bond covers only property insurance perils

Explanation

A fidelity bond is a form of suretyship in which the surety guarantees the faithful performance of another and may have rights against the responsible party. That reimbursement right distinguishes a surety arrangement from ordinary insurance, where the insurer generally has no such personal right against the wrongdoer.