What Is Theft? Crime Coverage Terminates for Certain Employees Uber & Lyft Insurance Update The Drones are Coming

What is “Theft”?

“When I use a word,” Humpty Dumpty said in rather a scornful tone, “it means just what I choose it to mean — neither more nor less.”  “The question is,” said Alice, “whether you can make words mean so many different things.”  “The question is,” said Humpty Dumpty, “which is to be master — that’s all.”

Insurance is often a very Humpty- Dumpty world. Policies define words and that’s what the word means. End of discussion. But what happens when the word isn’t defined? A word that’s often not defined, “theft,” was the subject of a dispute between Liberty Mutual and its insureds Donald and Sonja Wirth.

The Wirths’ son took their pickup truck and trailer without their permission and wrecked both in a one-car collision. (Sadly, the Wirths’ son was killed in the accident.) The Wirths reported the vehicles stolen to the police and submitted a claim for the damage to their auto insurer, Liberty Mutual. The policy included “other than collision” coverage, but did not include collision. Liberty Mutual denied coverage.

The Wirths admitted that the policy did not include collision coverage but they argued that “other than collision” included coverage for loss arising from theft and that this loss was caused by their son’s theft of the car.

The auto policy lists ten different caus- es of loss that are considered “other than collision,” including theft and larceny.

Liberty argued that “theft” and “larce- ny” should be given the meaning found in the NY Penal Code, which would require plaintiffs to establish their son’s criminal intent. The lower court disagreed. It ruled that the common usage of the words was much broader and was the proper stan- dard. That view was upheld on appeal.

I’m surprised that Liberty didn’t pay the collision loss without an argument. I’d guess that every personal lines producer has seen losses involving collision damage to a stolen car paid by the insurance com- pany under the “other than collision” cov- erage. Liberty could have put a definition of theft and larceny in the policy. Since it didn’t, a reasonable definition that affirms coverage for the insured is used. Theft was the proximate cause of the loss. But I’m glad the dispute arose. It gave me a chance to quote from the writings of Lewis Carroll!

Crime Coverage Terminates for Certain Employees

The old saying was “Insurance compa- nies giveth in the big print and taketh away in the small.” Today, hiding an exclusion in the fine print is not permitted. Insurance regulations in most states man- date a standard type-size for the entire pol- icy, but the problem of reduction of cov- erage elsewhere in the policy wording remains.

A good example is a new Travelers crime policy. It includes a broadening of coverage on one hand, combined with a reduction on the other.

First let’s look at the broadened cover- age. ISO employee theft coverage provides that coverage for any employee is termi- nated when the insured learns of a dishon- est or fraudulent act by that employee, whether or not the act involved the employer and whether or not the employee was employed by the insured at the time. ISO’s wording is:  Termination As To Any Em- ployee This Insuring Agreement termi- nates as to any “employee”: (1) As soon as: (a) You; or (b)  Any of your partners, “members”, “managers”, officers, directors, or trustees not in col- lusion with the “employee”; learn of “theft” or any other dis- honest act committed by the “employee” whether before or after becoming employed by you.  (“You” and “your” mean the in- sured. “Members” and “man- agers” refer to those holding such positions with a limited li- ability company.)

Read literally, that could end coverage for a 50-year-old employee as soon as the insured learns that he stole a candy bar when he was a teenager. Insurers that use their own forms rather than ISO’s, often stipulate that the dishonest act must involve a minimum dollar amount before the employee’s coverage is terminated. Sometimes the amount is as little as $1,000. Travelers’ new form increases the waiver amount to $25,000.

In addition, the Travelers form pro- vides that termination will occur 60 days after discovery by the insured if the dis- honest act was not related to the employee’s employment by the insured. These are worthwhile improvements.

Now for the bad news. The ISO crime form termination is triggered only when those we might designate as “upper man- agement” learn of the dishonest act. The Travelers form terminates coverage for knowledge by a much larger group of employees; knowledge by any employee with managerial or supervisory responsi- bility, not just “upper management,” trig- gers termination. The exact wording of the exclusion is: This Crime Policy terminates as to any Employee: a. as soon as the Insured’s part- ner, any of the Insured’s Manage- ment Staff Members or any Employee with managerial or su – pervisory responsibility (empha- sis added) not in collusion with the Employee becomes aware of any dishonest or fraudulent em- ployment related act involving an amount in excess of $25,000…

In a large firm, that can be a huge number of people whose knowledge can cost their firm to lose coverage. It’s doubt- ful if many of them understand what’s at stake. A supervisor might well overlook a dishonest act, not wanting to squeal on a fellow employee—unintentionally costing the employer its coverage.

Other insurers handle this issue differ- ently. Federal Insurance Company (Chubb) uses this termination provision: No coverage will be available under this Coverage Section for: Loss caused by an Em- ployee which is sustained by an Insured: (a) after an Insured be- comes aware of a Theft, For- gery, or other fraudulent or dishonest act committed by such Employee while employed with an Insured; (b) after an Ex- ecutive or Insurance Represen- tative acquires at any time knowledge of fraud or dishon- esty, involving Money, Securi- ties or other property valued at twenty-five thousand dollars ($25,000) or more, committed prior to employment with an Insured; or (c) more than sixty (60) days following the termi- nation of such Employee. (Insured means the insured or- ganization.)

An insurance practitioner’s life is not an easy one. There are plusses and minuses to this provision, too. The group whose knowledge triggers the termination of an employee’s crime coverage is much small- er—which is good—but there’s no dollar waiver for dishonest acts involving the employer; the $25,000 waiver appears to apply only to acts not involving the employer. If the employee took postage stamps for personal use and the employer overlooks it when it is discovered, the employee’s crime coverage is instantly end- ed unless the insured obtains the insurer’s agreement to continue coverage.

A client told me a few years ago that he’d received a strange letter from a pris- oner in a federal penitentiary. The writer complimented my client on not being prej- udiced against ex-convicts as evidenced by his hiring of Jim Jones who had been a fel- low inmate at the prison. (The name has been changed.) We asked the insurance company to continue coverage for the new employee. Unfortunately, we were turned down. My client felt he had no choice but to discharge the new employee. (My client wasn’t aware of the crime coverage impli- cations of the letter. I was at his office to discuss renewal quotes we’d received and he mentioned it because he thought it was such a strange letter.)

I didn’t know it at the time, but New York State subscribes to a federal program that provides up to $25,000 in fidelity cov- erage for people who may have difficulty obtaining work because they can’t be bonded due to a variety of reasons, includ- ing previous criminal conviction. We might have been able to get coverage for this employee to apply excess over the fed- erally provided $25,000. Next time, I’ll know better—and so will you.

Uber & Lyft Insurance Update

The insurance coverage pot keeps boil- ing for Uber, Lyft and the other ride-shar- ing entrepreneurs. Here’s an intersting graphic from Lyft’s blog. Some interesting points: • No coverage until the app is turned on—a driver turns the app on to indi- cate that the car is available to pick up passengers.  • Coverage between the time the app is turned on and the time the driver is notified of a match is contingent. That is, Lyft’s policy responds only if the driver’s policy doesn’t. (Lyft seems to be acknowledging that there may be an argument over coverage with the driver’s personal auto insurer.) • Coverage limits between the time the app is turned on and the time the driver is notified of a match is just $50,000/$100,000 for bodily injury and $25,000 for property damage lia- bility. No collision coverage. No un/under-insured motorist coverage. • Coverage from the match notification until the passenger is dropped off is commercial auto coverage for $1,000,000 liability including un/under-insured motorists. $50,000 auto physical damage coverage with a $2,500 deductible is included, but unlike the liability and UIM cover- age, physical damage coverage is con- tingent on the driver’s insurance not responding. (Uber’s website has a similar diagram. It shows the same coverage and limits except that the contingent collision deductible is $1,000. 6 )

Having one policy that covers both personal use and use while driving for a TNC (transportation network company, such as Uber, Lyft, etc.) is a much better solution. Several companies are going in that direction. We’ll see how it plays out.

The Drones are Going to do Insurance Inspections

Three insurance companies (AIG, State Farm and USAA) have received FAA approval to use drones to inspect proper- ties. They won’t be peeking in your win- dows just yet, however. The insurers can fly drones over private property only with permission from an authorized party. Flights also must stay away from airports and most urban areas, take place during daytime and, in many areas, stay at least 500 feet from all non-consenting persons, vehicles and structures.

Insurers feel that drones will be most useful to inspect catastrophe areas where adjusters can’t get access. They will also be useful to inspect damage that is not easily viewed from the ground, such as hail dam- age to a roof.

We can expect that the uses will expand. Insurers may request consent to use a drone to take pictures and visually measure an applicant’s property. And the legal limits of what’s permissible may expand as we have more experience with drones.

Scratch insurance inspector from the list of occupations available to the next generation.