CR 04 14–UNAUTHORIZED REPRODUCTION OF COMPUTER SOFTWARE BY EMPLOYEES

(July 2019)

INTRODUCTION

This endorsement covers the named insured’s fines and penalties that result directly from employees reproducing computer software without authorization. Coverage applies only when such action violates a licensing agreement with a third-party vendor. The reproduction must be done without the named insured’s knowledge or the knowledge of a partner, member, officer or director, or anyone responsible for complying with the terms of any software licensing agreements.

This analysis is of the 08 13 edition. Changes from the 05 06 edition are in bold print. It does not address changes in format that do not affect coverage.

ELIGIBILITY

This endorsement can be added to the Insurance Services Office (ISO) Commercial Crime or Government Crime Coverage Forms or Policies.

ANALYSIS

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.

A. Insuring Agreement

This insuring agreement pays the financial consequences of violating a software vendor’s listing agreement due to an employee reproducing that computer software without authorization. There is no coverage if the insured, a partner, member, officer or director, or anyone who has responsibility to comply with the licensing agreements terms knows that employees are reproducing the software. The named insured must be legally liable for the loss.

Example: OutHouse Software Applications is a software development firm. An OutHouse representative leaves a copy of its research assistance software with one of Pretty Good’s managers to review. The manager then passes it to the system administrator for her input. The system administrator not only evaluates it, she likes it so much that she installs it onto Pretty Good’s network without telling the manager. The manager does not purchase the software and returns the copy to the representative. A year later, OutHouse discovers that its software is installed on Pretty Good’s network. OutHouse sues Pretty Good for the price of the software ($695) times the number of potential users (359 employees) which totals $249,505. This loss is covered because OutHouse’s policy includes Form CR 04 14.

Note: In the example above, whether coverage applies may be disputed. A business that installed and then had an extended period of use of software it did not purchase might not be able to make a case that the use was not implicitly condoned.

B. Exclusions (08 13 changes)

1. The following exclusions in the commercial and government crime forms do not apply to this endorsement because this coverage is about employee actions:

a. D. 1. c. Acts Committed by Your Employees, Managers, Directors, Trustees, or Representatives.

b. D. 1. c. Acts Committed by Your Officials, Employees, or Representatives

C. Conditions

The Duties in the Event of Loss condition is amended to remove the requirement that the loss be reported to local law enforcement authorities.

D. Definitions

The following is added to the definition of occurrence.

When used in this insuring agreement, occurrence is one act, the total of multiple acts, or a series of acts committed by an employee. The acts are not required to be related but they may be. The employee may commit them alone or in collusion with others. The acts or events are an occurrence if they take place during the policy period or before the policy period.