New ISO Financial Institutions Program Targets Employee Theft

Insurance Services Office introduced a revised insurance policy form aimed at protecting financial institutions from employee dishonesty, forgery and other related risks. The previous wording triggering coverage, “manifest intent,” invited courts to travel in too many directions, according to Robert O’Lausen, manager of specialty commercial lines, ISO. He said the old language begged the question, “How do you prove that somebody manifestly intended to cause a loss? You would have to get inside the person’s head to do that. And that is where the courts started to diverge.”

Policy forms designed to protect financial institutions have stayed relatively unchanged since the 1970s. According to Domenick Yezzi, ISO’s vice president of specialty commercial lines, only a slight change occurred this time as well. “The main thing we changed here is we are now using ‘specific intent’ instead of ‘manifest intent’ to trigger coverage.” ISO pulled out the term “specific intent” from a law dictionary to clarify the form.

Coverage is now triggered in one of two ways: the employee either caused the bank to sustain a loss or the employee managed to get a financial benefit from it. However, in dealing with loans or trading losses there must be both. Yezzi explained, “The reason for that is because people could just do something like give a loan to somebody they felt sorry for even though nothing warranted giving that person the loan.” In a case like that, neither intent to cause a loss nor intent to benefit is present; it’s just a bad loan with no dishonesty involved.

ISO also extended coverage to substitute checks, vandalism and malicious mischief. Moreover, ISO added coverage for desktop forgery or publishing with regard to counterfeit checks and updated the computer fraud protection involving ATMs and the Internet.

The Financial Institutions Program consists of five separate policies. These include a crime policy for banks and savings institutions available in aggregate and non-aggregate form, a computer crime policy, a kidnap/ransom and extortion policy and in-transit delivery of property.

ISO will expand the program in the future to include policies and advisory rating information for other financial institutions.

The Financial Institutions Program includes policy forms and endorsements, underwriting rules, loss costs experience and a schedule rating plan. The primary design covers banks and savings institutions, though some policy forms can be written for any financial institution. ISO has filed the program for regulatory approval in all U.S. jurisdictions.