State X hired Build-Right Construction to build a bridge. State X required that

Question

State X hired Build-Right Construction to build a bridge. State X required that construction be completed within 2 years after the contract was signed. Les Johnson is the president of Build-Right. State X required that Build-Right's promise to perform be guaranteed by a third party. Build-Right purchased a performance bond from Rock Solid Indemnity. The bond requires Rock Solid to be responsible if Build-Right does not have the project completed on time. In this scenario, which party is the obligee and which party is the principal?

Smith is Manager of ABC Department Store. Jones, ABC's Security Director, visited Smith to ask some questions. During questioning, Smith admitted that he stole $10,000 in merchandise. He was disciplined, but not fired. The loss was not reported to the insurer. Six weeks later, Smith was observed on a surveillance camera stealing over $50,000 in jewelry from ABC. ABC immediately reported the loss to its crime insurer. Which ISO crime coverage condition may prevent ABC from collecting for this loss?

Explanation / Answer

Answer to Part (I)

State X has hired Build-Right Construction to build a bridge within 2 years. To secure the performance by Build-Right State X required a third-party guarantee. Build-Right purchased a performance bond from Rock Solid indemnity which guarantees performance of the contract by Build-Right within 2 years. The three parties involved are

Work involved – Construction of Bridge or an obligation

State X – The awarder of the contract and recipient of the final work or obligation and known as Obligee

Build-Right – Primary party who will be performing under the contract i.e, building the bridge and is knows as Principal

Rock Solid Indemnity – Indemnifies the performance of Build-Right (Principal) to State X (Obligee) and is known as Surety

Answer to Part (II)

ISO offers commercial crime coverage on a loss sustained and discovery basis. This is an all-inclusive policy which covers the firm from losses from through

The firm may purchase a policy to cover all or any of the above risks

The coverage of a loss due to employee dishonesty is triggered by the coverage clause (Condition A) that the coverage applied to loss discovered during the policy period.

In the present case, the Security Director during his routine questioning found that one of the managers Mr Smith has stolen $10000 worth merchandise. Under Clause (2) of the policy an inventory shortage is not covered unless the proof of which to its existence is dependent upon an inventory computation and establishment of such loss by offering the records to insurance company as a proof. Instead of ordering a inventory audit / check to identify the loss and lodge a claim if found correct. Instead, the employee was cautioned and continued in service. That is the firm is acting as its own insurer for this particular employee by continuing him and not reporting the discovery of dishonesty of the employee to insurance company. This prevents the firm from lodging a claim for the theft by the same employee six weeks later.

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