(July 2019)
This endorsement is designed for businesses that entrust securities to others.
This analysis is of the 08 13 edition. Changes from the 08 07 edition are in bold print. It does not address changes in format that do not affect coverage.
Coverage can be added to any Insurance Services Office (ISO) Commercial Crime or Government Crime Coverage Form or Policy. There are no rules that specify the parties that may be the custodian or the depository but the rating plans provide rating formulas for only financial institutions and public officials as custodians. No other rating options are available.
The endorsement schedule has spaces to enter the Custodian’s name, the address of its premises, the limit of insurance per occurrence and the deductible amount per occurrence. It also has spaces to enter the same information for the Depository.
This is an endorsement to the ISO Commercial Crime or Government Crime Coverage Forms and Policies and is subject to their conditions, definitions, and exclusions. The only changes are those within this endorsement.
This optional insuring agreement covers loss of or damage due to theft, disappearance or destruction of securities. This coverage applies only when the securities are inside the custodian’s premises; when the custodian or its employee takes the securities outside the custodian’s premises; or when the securities are in a depository where the custodian had deposited them in order to keep them safe.
1. The exclusion for Acts of Employees, Manager, Directors, Trustees, or Representatives is amended to reflect that neither the custodian nor the depository is considered to be the named insured’s authorized representative.
By removing the custodian and the depository from the term representative, they are also being removed from this exclusion. That means that acts of the custodian and the depository are covered.
a. When a loss occurs because the securities are relinquished in a purchase or an exchange
b. When the loss is at a premises occupied by the named insured
c. When the loss is to securities that are owned by the custodian or depository owns or that are held in trust by either of them for more than 30 days
d. Loss of or damage to securities relinquished to someone outside the premises or financial institution premises (was banking premises in the 08 07 edition) because of unauthorized instructions or various types of threats.
The threat could be to take any of the following or similar actions:
· Bodily harm to a person
· Damage any property
· Place a denial of service attack into any computer system (was “the named insured’s” in the 08 07 edition)
· Place any type of malicious instruction, such as a virus, into any computer system in order to destroy, (was “the named insured’s” in the 08 07 edition) damage, or corrupt computer programs or electronic data that is a part of the computer system.
· Damage the named insured’s services or products by contaminating or polluting them or in some other way causing them to become less than acceptable.
· Any of the following that would be used, released or given to others:
This exclusion does not apply if the securities were outside the custodian’s premises but in the custodian’s care and custody or that of its employee and the named insured did not know about a threat. It also does not apply if the named insured knew about the threat but the loss and threat were not related.
Note: Losses due to unauthorized instructions are very difficult to insure. However, threat coverage is available under CR 04 03–Extortion-Commercial Entities, CR 04 04–Extortion-Government Entities, or CR 00 40–Kidnap/Ransom and Extortion Coverage Form.
Related Articles:
CR 04 03–Extortion–Commercial Entities and CR 04 04–Extortion–Government Entities
CR 00 40–Kidnap/Ransom and Extortion Coverage Form and CR 00 41–Kidnap/Ransom and Extortion Policy
e. Loss that results from title or possession of the securities being voluntarily given away.
This condition is added to E. Conditions in the Coverage Form or Policy:
If the custodian changes depositories, the named insured has up to 30 days to notify the insurance company of the change. This means that automatic coverage applies at the new depository for 30 days. This condition applies to only one depository being replaced by another. If only some of the covered securities are moved from the current depository to a new, unlisted location, there is no coverage at the new depository. However, if all the securities are moved from a covered depository to a new one, coverage applies at the new depository for up to 30 days.
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Example: Obligatory Brokers is the custodian for Mike the Butcher. Mike has a commercial crime policy with CR 04 10–Securities Deposited With Others attached. Obligatory has $500,000 of Mike’s securities deposited with Lockem and Losem Trust Company. Obligatory has been approached by Better Trust Company to work with them. Scenario 1: Obligatory moves all of Mike’s securities to Better Trust. If a loss occurs within 30 days of the move, coverage applies even though Better Trust is not listed as a depository. Scenario 2: Obligatory is cautious and moves only 25% of Mike’s
securities to Better Trust. If a loss
occurs at Better Trust, there is no coverage. |
These three definitions are added to F. Definitions in the Coverage Form or Policy.
1. Custodian is the party listed on the endorsement schedule.
There is no limitation with respect to whom or what a custodian can be. It could be anyone from a pawnbroker to a bank. It could also be an individual because there is no requirement that it be a commercial entity.
2. Custodian’s premises is the interior of a part of a building that the custodian or depository occupies. This is only a premises if located at the address listed on the endorsement schedule.
3. Depository is whatever is listed as a depository on the endorsement schedule. There is no further definition or explanation.