INTRODUCTION

This endorsement is intended for businesses that entrust securities to third parties.

This analysis is of the 06 22 edition. Material changes are bolded, but format changes that do not affect coverage are not highlighted.

ELIGIBILITY

Coverage can be added to any Insurance Services Office (ISO) Commercial Crime or Government Crime Coverage Form or Policy. Although there are no restrictions on who can be the custodian or depository, the rating plans only include formulas for financial institutions and public officials acting as custodians. No alternative rating options are available.

SCHEDULE

The endorsement schedule includes fields for the Custodian’s and/or Depository’s name, premises address, insurance limit per occurrence, and deductible amount per occurrence.

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.

INSURING AGREEMENT

This optional insuring agreement provides coverage for loss of or damage caused by theft, disappearance, or destruction of securities. It applies only when the securities are inside the custodian’s premises, are taken outside by the custodian or its employee, or are stored in a depository where the custodian has deposited them for safekeeping.

LIMIT OF INSURANCE

The insurance limit shown on the endorsement schedule is the maximum amount payable for an occurrence.

DEDUCTIBLE

Payment is only made if the loss exceeds the deductible shown on the schedule. Even in that case, the payout will not exceed the insurance limit per occurrence specified on the endorsement schedule.

EXCLUSIONS

1. Applicable to All Insuring Agreements:

a. Acts of Employees, ERISA Plan Officials, Manager, Directors, Trustees, or Representatives

This exclusion has been revised to clarify that neither the custodian nor the depository is regarded as the authorized representative of the named insured.

Removing the custodian and depository from the term representative also excludes them from this clause, meaning their actions are included.

2. Applicable to Specific Insuring Agreements:

a. Exchanges or Purchases

When a loss happens due to securities being relinquished through a purchase or exchange.

b. Premises

When a loss occurs in any premises occupied by the insured.

c. Property Owned or Held as Collateral

This applies when the loss pertains to securities owned by the custodian or depository, or those held in trust by either of them for more than 30 days.

d. Voluntary Parting of Title to or Possession of Property

Loss incurred by the insured or anyone acting on their authority resulting from fraud or dishonesty, which causes them to voluntarily surrender title or possession of property.

NOTE: The exclusion for Transfer or Surrender of Property has been eliminated due to the 06 22 edition, which added an exclusion for Kidnap, Ransom, Extortion, and Other Unlawful Demands.

CONDITIONS

2. Additional Conditions Applicable to Specific Insuring Agreements:

Change of Depository

If the custodian switches depositories, the named insured must notify the insurance company within 30 days. During this period, automatic coverage is provided at the new depository but only for 30 days.

This condition applies only when one depository is replaced in its entirety by another. If only some of the covered securities are transferred from the current depository to a new, unlisted location, there is no coverage at the new depository.

Example: Obligatory Brokers is the custodian for Mike the Butcher, who has a commercial crime policy including CR 04 10–Securities Deposited With Others.

Obligatory holds $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: All of Mike’s securities are transferred to Better Trust. If a loss occurs within 30 days of this transfer, coverage applies, even though Better Trust is not listed as a depository.

Scenario 2: Obligatory is cautious and transfers only 25% of Mike’s securities to Better Trust. If a loss occurs at Better Trust, it is not covered.

DEFINITIONS

The following definitions are added to F. Definitions in the Coverage Form or Policy.

Custodian

This is the party listed on the endorsement schedule.

A custodian can be anyone or anything, ranging from a pawnbroker to a bank. It can also be an individual, as there is no requirement that it must be a commercial organization.

Custodian’s premises

This refers to the interior space of a building section occupied by the custodian or depository. It is covered as a premises only if it is located at the address specified on the endorsement schedule.

Depository

This refers to the depository on the endorsement schedule. There is no additional definition or explanation.