Chapter 6 - Textbook Questions

factors relating to personal property that can help business owners determine the potential for loss from a criminal act

• convertibility

• value

• portability

methods used by criminals which can result in loss to real and personal property

• Forced entry into the building

• Forced entry into protected enclosures

• Unforced entry into building or protected enclosures

• Forced opening of building and protected enclosures

• Vandalism and malicious acts

• Espionage

• Shoplifting

• Employee theft

Main function of physical and electronic protection devices

to restrict unauthorized access to property

Insurers provide rate credits when certain property protection systems are installed. Identify other factors which would increase the amount of the credit available to insureds

• alarms monitored

• watchman or security guard service provided

what is the purpose of a perimeter protection system

To control access to the premises when the business is closed

what is meant by partial perimeter protection and state disadvantages of such systems

• Partial protection: when only the openings to the building are protected

• Disadvantages:

  • Forced entry through walls or ceilings will not be detected

  • Stay behind thieves will not be detected until they leave the premises

What is meant by complete perimeter protection and identify kinds of physical and electronic perimeter protection devices which can be effective in restricting access to the insured's premises

• A complete perimeter protection system: protects all openings into the building, including enclosing walls, ceilings and floors

• Kinds of physical protection: locks and bars or screens

• Electronic protection: magnetic contact switches and glass breakage alarms

main purpose of area protection services

To restrict unauthorized entry into areas where valuable property is being stored

key disadvantaged common to motion detection systems

Frequency of false alarms caused by movement of drapes, banners, signs…

Infrared devices are most commonly used in intrusion detection devices located in commercial buildings. ow do they work and what are the advantages?

• Infrared detectors: passive devices which transmit signals. They are not motion detectors. They sense the body heat of an intruder as he moves through the area under surveillance. This change in the areas normal heat profile causes the alarm to trigger

• Advantages:

  • Can be installed to provide several patterns of coverage

  • A number of detection units can be operated from one master device

  • Particularly suitable for use in areas where moving fans, drapes or falling object would activate other types of motion detector devices and cause nuisance alarms

Advantages of cameras and closed circuit television when used as a means of area protection

• Hold-up fraud deterrent value

• Assist police in identification and conviction of criminals

• Reduce shoplifting

purpose of point protection is to protect

Provides direct security for individual items

types of items that would normally require point protection

• Safes

• Vaults

• Chests

• Filing cabinets

• Display cases

• Expensive equipment

ways in which alarm systems can be controlled

• Locally supervised alarm controls

• Central station supervised alarm controls

Which system provides the most effective means of alarm control

central station supervised

purpose of an alarm system

To detect any breach or attempt to breach the physical security of the premises and to provide a warning signal so that effective and immediate response can be instituted

How alarm systems are usually transmitted

through leased telephone lines

what is meant by line security

ability of the telephone line to withstand tampering

Receiving point of alarm signal affects the level of protection provided by it. Level of supervisory service provided by: central station service

• Highest level of supervisory service

• It monitors all opening and closing times of the premises, automatically activates the alarm system at closing time, screens after hours users and provides a report for the subscriber, provides immediate notice to police when an alarm is received and dispatches a company rep to the premises immediately after the police are informed

Receiving point of alarm signal affects the level of protection provided by it. Level of supervisory service provided by: monitoring station service

Same as central station service but instead of a company rep, the owner is called to open the premises

Receiving point of alarm signal affects the level of protection provided by it. Level of supervisory service provided by: emergency station service

• Owner turns the system on and off

• Once it is on, the alarm condition is centrally monitored and police are alerted if the alarm should sound

Receiving point of alarm signal affects the level of protection provided by it. Level of supervisory service provided by: digital communicator service

• Owned turns the system on and off

• When alarm is activated, it is sent along the subscriber's standard telephone system to the alarm control center.

• Alarm control center responds by calling the police immediately

Disadvantages of local alarm systems

• Alarm rings on premises only… neighbors or passers-by must be depended on to notify policy

• Can be easily tampered with

What does it mean when a decide has received a ULC approved rating?

Means that the device has met the minimum standards set by ULC for such devices

Some business owners believe that the installation of sophisticated intrusion detection devices on the premises eliminates the need to purchase insurance coverages. Discuss how you would deal with this point of view.

• Physical electronic protection systems are not always 100% effective, 100% of the time

• Because of this, you must look beyond the installation of such protection and explore an additional dimension of protection for your valuables - insurance

Your client is insured under a Broad Form commercial property insurance policy. As this policy provides coverage against theft, he is of the opinion that there is no need to purchase separate crime insurance coverage(s). Discuss.

• Items such as money, furs, jewelry and property in the custody of sales representatives are excluded from coverage under the Broad Form

• Businesses having such property have an exposure to crime losses which can only be covered by crime insurance

Key coverage areas addressed by all crime insurance riders

• Property covered

• Perils insured

• Location of property covered

• Persons causing the loss

The general meaning given to burglary in crime insurance riders

In crime insurance, the general meaning given to "burglary" involves the wrongful taking of property from within the premises by a person who has unlawfully entered or exited such premises, such entry or exit to be evidenced by marks of force

Coverages provided by the Stock and Equipment Burglary Rider

The Stock and Equipment burglary insures stock and equipment against actual or attempted burglary, robbery of a watchman, vandalism or malicious acts committed on the same occasion. Damage to the interior of the premises, showcases or show windows is also insured when due to any of the above perils.

3 coverages provided by the Safe Burglary Rider

• The unlawful taking of insured property from a locked vault or safe

• The unlawful taking of the safe from within the premises

• Resultant damage to premises and property inside the premises insured

Who would be a good prospect for the 'Damage to building by Burglary or Robbery' rider?

• Tenants who have assumed responsibility for burglary or robbery damage to the portion of the premises they occupy

• Owners of buildings who do not have this coverage under their commercial property insurance policy

Identify two coverages provided by the above rider.

• Actual or attempted burglary or robbery

• Vandalism or malicious acts committed on the same occasion.

Identify three coverages for each Insuring Agreement contained in the Inside/Outside Robbery rider.

• Inside/Outside Robbery

• Actual or attempted robbery of a custodian on the premises, including damage caused to the premises by such actual or attempted robbery.

• Kidnapping

• Theft from window display area inside the premises while the premises are open for business by a thief or an accomplice having broken the window at the time of the theft.

• Actual or attempted robbery of a custodian away from the premises while engaged in his/her regular duties in connection with insured property within Canada or the US.

• Theft from within the home of a custodian not exceeding the limit of insurance or $500, whichever is less,

• Theft from a night depository safe provided by a bank or trust company for the use of its customers.

How is the definition of robbery under the Inside/Outside Robbery rider different from that provided for in criminal law?

In criminal law, a robbery involves the wrongful taking of property from the possession of another against their will, accomplished by means of force or fear. The definition of robbery under the Inside/Outside Robbery rider goes beyond the criminal law definition of robbery to include other acts.

Robbery policies provide coverage only where property is taken from a custodian. Who is qualified to be a custodian?

A custodian includes the Insured(s), their partner(s) or any employee authorized by them to have the care and custody of insured property.

What kinds of persons are not deemed to be custodians under the policy?

Persons acting as a guard, janitor, porter or watchman are not "custodians."

Discuss the provisions of the following Conditions:

• Condition 1. Canadian Currency Clause

all losses under the policy will be paid in Canadian funds.

Discuss the provisions of the following Conditions:

• Condition 2. Cancellation

insured entitled to 30 days notice when insurer elects to cancel policy. However, in the event of non-payment of premium, insurer can cancel after 15 days notice.

Discuss the provisions of the following Conditions:

• Condition 4. Changes

any changes requested by the Insured are effective only when consented to by the Insurer

Discuss the provisions of the following Conditions:

• Condition 6. Duties in the Event of a Loss

The Insured is required to notify the Insurer of any loss as soon as possible. Within 120 days of its discovery, a sworn proof of loss must be provided to the Insurer. If the loss involves securities, the Insured must take all reasonable means to prevent their negotiation, sale of conversion. If the loss is in violation of a law, it must also be reported to the police. Insureds must, if required by the Insurer, submit to an examination under oath and provide the Insurer with a signed statement of their answers.

Discuss the provisions of the following Conditions:

• Condition 13. Policy Period, Territory

coverage is provided only for losses which occur during the policy period shown in the declaration and within Canada or the US

Discuss the provisions of the following Conditions:

• Condition 14. Records

The Insured's records be maintained for the purpose of verifying the amount of any loss. A claim which cannot be substantiated as to amount will not be paid.

Discuss the provisions of the following Conditions:

• Condition 14. Valuation

The value of securities is limited to their actual cash value at the close of business on the business day immediately preceding discovery of the loss. Other property is subject to settlement on an actual cash value basis. Any disputes involving valuation will be settled by arbitration.

What purpose is serviced by the continuous until cancelled provision which is normally endorsed to this policy (3D)?

This ensures that there are no gaps in coverage.

Identify two characteristics of Employee Dishonesty Insurance which differentiate it from other kinds of property insurance.

• Amount of loss difficult to predict.

• Losses may be undiscovered, or discovered only after a significant period of time.

Losses insured by this Insuring Agreement are those "resulting directly from one or more Fraudulent dishonest Acts committed by or an Employee, acting alone or in collusion with others." What two conditions are necessary to be present to constitute a Fraudulent or Dishonest Act?

• That there was clear intent to cause the Insured to sustain a loss.

• That there was clear intent to obtain financial benefit, other than those earned during the course of employment, for the employee or any other person or organization.

Provide examples of persons qualifying as an employee under the terms of this coverage.

• Natural persons hired by the Insured in the ordinary course of his business affairs.

• Directors or trustees of the business who are also actively involved in the business as an officer or employee.

• Persons hired by an intervening employment agency or employer and whose activities are directed and compensated by the Insured.

• Persons who become employees through consolidations or mergers.

This Insuring Agreement of Employee Dishonesty provides the Insured with two different Blanket Bond options. Discuss three key differences between Form A and B:

• Employees Covered

• Form A

  • All employees are covered.

  • Coverage automatically extends to new employees and terminates on those leaving the insured's services.

• Form B

  • Coverage does not have to be purchased for all employees.

  • Different limits can be purchased for different classes of employees.

• Limits of Insurance

• Form A

  • Limit purchased is the maximum payable regardless of the number of employees involved in the loss.

• Form B

  • Limit purchased is available for each employee involved in the loss.

• Discovery Period

• Form A

  • One year from date of expiry

• Form B

  • Two years from date of expiry

What recommendation would you make to a client who wanted to purchase Form B only because of the potential for multiple recoveries? (Commercial Blanket Bond. Bond and Form B)

That if they do purchase Form B, the limits selected should be sufficient to cover their maximum exposure to loss from a single employee.

When a prior fraud of an employee becomes known to the Insured, what is the effect on the coverage provided by this policy?

Coverage ceased to apply from the moment the insured becomes aware of the prior fraud.

Explain how this Insuring Agreement would respond when loss is caused by unidentifiable employees.

If the circumstances clearly support the conclusion that the fraud was committed by an employee and not an "outsider," the policy will pay.

Claims require special handling when a loss under a previous bond is discovered after coverage has been replaced with a new Insurer. Explain how this policy would respond to pay a loss which occurred under a prior bond or policy.

• The new policy will pay if the loss

  • Would have been covered under the previous policy.

  • Can't be claimed under previous bond due to expiration of discovery period

• The amount paid shall be a part of the limits carried previously and shall not be higher than the limit previously carried

Identify the two distinct phases of a risk management program designed to eliminate or reduce losses due to employee dishonesty.

• Pre-Employment Phase

• Post-Employment Phase

Identify two risk management techniques which can be used with each phase. Agreement II - Loss Inside the Premises Coverage

• Pre-Employment Phase

  • Written application.

  • Personal interview.

  • Verify all references.

• Post-Employment Phase

  • Cheques should require two signatures.

  • Ensure employees take holidays.

  • If possible, employees should rotate job positions and responsibilities.

  • Surprise audits should be conducted for all departments.

  • Bank accounts should be rotated periodically and special reconciliations prepared.

Outline the coverages provided for Money and Securities and provide examples of possible claims situations.

• Insures the actual destruction, disappearance or wrongful abstraction of money & securities

• Examples:

• Destruction

  • Improper use of cutting torches may cause fire to contents of safe or vault

  • Thieves may destroy or shred non¬ negotiable securities and other documents having no value to them

• Disappearance

  • Money missing during counting while insured is temporarily away

• Wrongful Abstraction

  • Involves the taking of money or securities by persons having no entitlement to them and can include loss by robbery, safe burglary or theft

State two exclusions applicable to this coverage.

• Money contained in vending machines unless the machine is equipped with a continuous recording instrument.

• Loss by fire to property other than money, securities, a safe or vault.

• Loss of money, securities and other property which has been transferred by any computer on the basis of unauthorized instruction.

Outline the coverages provided for Money and Securities by this Agreement (Loss Outside the Premises Coverage)

Insures the actual destruction, disappearance or wrongful abstraction of money and securities while being conveyed by a messenger, any armoured motor vehicle company or within the living quarters in the home of any messenger

Indicate when the coverages provided by this Agreement would respond. (Money Orders and Counterfeit Paper Currency)

When a money order is not paid upon presentation to the post office or if money taken in the regular course of the Insured's business is found to be counterfeit.

 Provide two examples of claims which would not be covered by this Agreement. (Money Orders and Counterfeit Paper Currency)

• NSF cheques

• Cheques issued on financial institutions which do not exist.

Under what conditions would you recommend that the Insured purchase this coverage? (Depositors Forgery Coverage)

When a significant number of cheques or other negotiable instruments are written.

Describe the basic coverage provided by this Agreement. (Depositors Forgery Coverage)

Coverage is provided for the forgery or alteration of the Insured's cheques, drafts and similar instruments only.

What limits of insurance are generally selected by Insureds who purchase this coverage? (Depositors Forgery Coverage)

The limit generally reflects the business's potential exposure to loss which is usually the same limit selected for the Employee Dishonesty coverage

Provide two examples of risk management techniques which can be used to eliminate or reduce such losses (Depositors Forgery Coverage)

• Use of safety paper for cheques.

• Protection of blank cheques.

• Controlled use of facsimile machines and plates.