Form CR 25 19: Add Faithful Performance Of Duty Coverage
1. What the form is
Form CR 25 19, "Add Faithful Performance Of Duty Coverage," is an endorsement to a commercial crime policy, specifically for government entities. Its primary purpose is to modify the Employee Theft Insuring Agreement to include coverage for loss of "money," "securities," and "other property" resulting directly from an employee's failure to faithfully perform their duties as prescribed by law. This coverage is triggered when such failure directly and immediately causes a loss of the insured's covered property. Essentially, it broadens the scope of employee-related loss beyond just "theft" to include losses due to an employee not carrying out their job responsibilities as legally required. This endorsement is typically used with Government Crime Coverage Forms (e.g., CR 00 24, CR 00 25) or Government Crime Policies (e.g., CR 00 26, CR 00 27).
2. Classes of business it applies to
This endorsement is specifically designed for government entities and public officials. It is often required for certain types of public officials or fiduciaries who are legally mandated to provide bonds for the faithful performance of their duties. Real-world examples include:
- Municipalities: A city treasurer who, through neglect of their legally prescribed duties, fails to properly secure public funds, leading to a financial loss for the city.
- Public School Districts: A school district employee responsible for managing funds who fails to follow legally mandated accounting procedures, resulting in a loss of school funds.
- State Agencies: A state government employee whose failure to adhere to statutory requirements in their role directly causes a loss of state assets. For example, the State of Washington uses this endorsement to cover such losses.
- County Governments: A county tax collector who improperly handles tax revenue due to a failure to perform their duties as prescribed by law, leading to a shortfall.
While faithful performance coverage is occasionally seen in the private sector, its predominant use is for public entities and officials.
3. Special considerations
Several important considerations apply when using Form CR 25 19:
- Legal Mandate: The requirement for this coverage often stems from statutes or regulations that mandate public officials or employees in fiduciary roles be bonded for the faithful performance of their duties.
- Scope of "Faithful Performance": The term "failure to faithfully perform his or her duties as prescribed by law" is key. This means the employee's actions (or inactions) must violate a specific legal requirement related to their job, and this violation must be the direct cause of the loss. It is broader than simple negligence but typically does not cover losses due to poor business decisions or errors in judgment unless those decisions also violate a law.
- Relationship to Employee Theft Coverage: This endorsement expands upon the standard Employee Theft insuring agreement. The limit of insurance for this coverage is part of, and not in addition to, the limit shown in the Declarations for Employee Theft.
- Exclusions: Standard crime policy exclusions will still apply unless specifically modified by this endorsement. One notable exclusion added by some versions of this endorsement is for losses resulting from the deprivation or violation of civil rights of any person by an employee.
- Retroactive Date: The endorsement may include a retroactive date, meaning it might only cover losses from occurrences taking place entirely after that specified date, or provide a different limit for losses prior to that date.
Real-world example: If a public official is legally required to deposit all collected fees by the end of each business day but fails to do so, and those undeposited funds are subsequently stolen, this endorsement could cover the loss. However, if the official made a poor investment decision with public funds (where such investments were not legally prohibited but simply unwise), this endorsement might not apply unless the investment itself violated a specific law governing the handling of those funds.
4. Key information for agents and underwriters
- Risk Assessment: Underwriting this coverage requires a thorough understanding of the public entity's operations, the specific duties of its employees (especially those in fiduciary roles), and the legal framework governing those duties. Key factors include the strength of internal controls, audit procedures, and the clarity of legally prescribed duties for employees.
- Pricing: Pricing will reflect the increased scope of coverage beyond simple employee theft. Factors influencing premium include the limit of liability, the number of employees, the nature of their duties, and the entity's loss history.
- Coverage Gaps: Agents should ensure clients understand that this endorsement does not cover all types of employee errors or misconduct. It specifically applies to failures to perform duties *as prescribed by law*. It's crucial to distinguish this from general errors and omissions liability.
- Underwriting Guidelines: Underwriters will look for evidence of strong internal controls, regular audits, and clear job descriptions that outline legal responsibilities. They may also review applicable statutes and regulations to understand the scope of "faithful performance" for the specific public entity. The financial health and stability of the government entity can also be a consideration.
- Related Forms: This endorsement modifies base crime coverage forms such as CR 00 20 (Commercial Crime Coverage Form - Discovery Form) or CR 00 21 (Commercial Crime Coverage Form - Loss Sustained Form), but is specifically designed for use with their government entity counterparts (e.g., CR 00 24, CR 00 25, CR 00 26, CR 00 27).
- ERISA Considerations: While standard commercial crime policies often address ERISA compliance for employee benefit plans, government plans may have different requirements or exemptions. The faithful performance endorsement itself is generally focused on the duties prescribed by law for government employees in their public capacity.
Agents should clearly explain that this coverage is an enhancement and that the specific terms, conditions, and exclusions of the underlying crime policy and this endorsement must be carefully reviewed to determine the full scope of coverage.