Chris McKibbin, Author at Fidelity Blog

3M: Eighth Circuit applies Crime Policy’s Ownership Condition in finding No Coverage for Loss of Undistributed Limited Partnership Earnings in Investment Fraud

JUMP TO: THE FACTS | THE OWNERSHIP CONDITION | THE CONCLUSION Guest Co-Author: John Tomaine On May 31, 2017, the Eighth Circuit Court of Appeals released its decision in 3M Company v. National Union Fire Insurance Company of Pittsburgh, PA. The Court affirmed the decision of the U.S. District Court for the District of Minnesota (see our October 13, 2015 post), which had applied a crime policy’s ownership condition in ruling that the insured did not have coverage for the loss of investment earnings incurred when an investment entity in which it had a limited partnership interest collapsed due to the entity’s principals’ Ponzi scheme. The

Khazai Rug: Court of Appeals of Kentucky applies Crime Policy’s Inventory Exclusion to Alleged Employee Theft Loss

JUMP TO: THE FACTS | THE INVENTORY EXCLUSION | THE CONCLUSION The inventory exclusion precludes an insured from proving an employee theft loss solely by reliance on inventory calculations, independent of other proof of actual employee theft. A recent decision of the Court of Appeals of Kentucky, Khazai Rug Gallery, LLC v. State Auto Property & Casualty Insurance Company, provides a good example of the application of the inventory exclusion, and makes important findings with respect to whether it is appropriate to infer a connection between a demonstrated instance of employee theft and another similar instance for which there is insufficient independent evidence. The Facts

Commercial Ventures: U.S. District Court holds that Insured’s Co-Owner and President is not an “Employee” under Crime Policy

Several recent decisions, such as Telamon Corporation v. Charter Oak Fire Insurance Company (see our March 13, 2017 post), have highlighted the importance of assessing the precise legal status of an alleged defaulter’s work relationship vis-à-vis the insured as part of a proper coverage analysis. The decision of the U.S. District Court for the Central District of California in Commercial Ventures, Inc. v. Scottsdale Insurance Company provides another example of the courts considering this challenging issue. In Commercial Ventures, the Court dealt with an alleged defaulter who was both a minority owner and the President of the insured, and specifically

Taylor & Lieberman: Ninth Circuit finds No Coverage under Crime Policy for Client Funds lost in Social Engineering Fraud

In the recent decision of Taylor & Lieberman v. Federal Insurance Company, the Ninth Circuit Court of Appeals affirmed a decision of the U.S. District Court for the Central District of California holding that a business management firm did not have coverage in respect of client funds which it was fraudulently induced to wire overseas. While the District Court had held that the insured had failed to establish that it had sustained any “direct” loss at all (see our July 14, 2015 post), the Ninth Circuit affirmed the result on other grounds, holding that the insured had also failed to

InComm: U.S. District Court holds that Computer Fraud Coverage does not respond in Prepaid Debit Card Scheme

Guest Co-Author: John Tomaine On March 16, 2017, the U.S. District Court for the Northern District of Georgia released its decision in InComm Holdings, Inc. v. Great American Insurance Company. The Court held that Great American’s computer fraud coverage did not respond where holders of prepaid debit cards used multiple simultaneous telephone calls to exploit a coding error in the insured’s computer system, thereby fraudulently increasing the balances on the cards. The Court also applied the recent appellate decisions in Apache (see our October 24, 2016 post) and Pestmaster (see our August 4, 2016 post) in holding that the loss scenario

Telamon: Seventh Circuit finds Insured’s Vice-President to be Independent Contractor falling outside Crime Policy’s Employee Theft Coverage

On March 9, 2017, the Seventh Circuit Court of Appeals released its decision in Telamon Corporation v. Charter Oak Fire Insurance Company. The decision affirms the ruling of the U.S. District Court for the Southern District of Indiana, which had held that the insured’s Vice-President of Major Accounts was not an “employee” within the meaning of a crime policy, as her services were provided to the insured by an outside entity pursuant to a series of consulting services agreements (see our April 25, 2016 post for more detail). The Facts Juanita Berry worked for Telamon from 2005 to 2011. Her

Citizens Bank: U.S. District Court rejects contra proferentem reading of Financial Institution Bond in finding No Coverage for Forged USDA Guarantees

On November 16, 2016, the U.S. District Court for the Eastern District of Wisconsin released its decision in Citizens Bank Holding Inc. v. Atlantic Specialty Insurance Co. The Court held that forged business loan guarantees purportedly issued by the U.S. Department of Agriculture (USDA) did not qualify for indemnity under Insuring Agreements D or E of a Financial Institution Bond. The decision is notable in that it reaffirms the interpretive principle that the Bond is not to be interpreted contra proferentem, as it is a product of negotiation between the banking and fidelity insurance industries. The Facts Citizens Bank maintained

Hantz Financial Services: Sixth Circuit enforces Suit Limitation Provision in finding No Coverage under Financial Institution Bond

On November 9, 2016, the Sixth Circuit Court of Appeals released its decision in Hantz Financial Services, Inc. v. American International Specialty Lines Insurance Co., affirming the U.S. District Court for the Eastern District of Michigan’s grant of summary judgment in favour of National Union in a claim advanced on a Financial Institution Bond. As we discussed in our September 29, 2015 post, the District Court held that no coverage was available to the insured, Hantz Financial Services, Inc. (“Hantz”), for losses resulting from its employee’s perpetrating a fraud on its clients, as such losses were indirect. The District Court

Apache Corporation: Fifth Circuit holds that Commercial Crime Policy’s Computer Fraud Coverage does not extend to Social Engineering Fraud Loss

On October 18, 2016, the U.S. Court of Appeals for the Fifth Circuit released its opinion in Apache Corporation v. Great American Insurance Company. This is one of the first appellate decisions to consider coverage for a social engineering fraud loss under “traditional” commercial crime policy wording since the widespread introduction of social engineering fraud endorsements. In holding that the loss did not trigger indemnity under the Computer Fraud coverage, the Fifth Circuit adopted the interpretive approach to Computer Fraud coverage taken by the Ninth Circuit in Pestmaster Services v. Travelers (which we discussed in our August 4, 2016 post)

Tesoro Refining: Fifth Circuit analyzes scope of “Unlawful Taking” and “Forgery” in Commercial Crime Policy’s Employee Theft Coverage

In our April 14, 2015 post, we analyzed the decision of the U.S. District Court for the Western District of Texas in Tesoro Refining & Marketing Company LLC v. National Union Fire Insurance Company of Pittsburgh, Pennsylvania and its implications for what constitutes “unlawful taking” for the purposes of the Employee Theft coverage. The Fifth Circuit Court of Appeals recently affirmed the District Court’s grant of summary judgment in favour of National Union. The Facts The insured (“Tesoro”) was a refiner and marketer of petroleum products. In 2003, Tesoro began selling fuel to Enmex, a petroleum distributor, on credit. The manager

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