Chris McKibbin, Author at Fidelity Blog

Pestmaster: Ninth Circuit affirms Fidelity Insurer’s Intent on Scope of Computer Fraud and Funds Transfer Fraud Coverages

In our January 6, 2015 post, we analyzed the decision of the U.S. District Court for the Central District of California in Pestmaster Services, Inc. v. Travelers Casualty and Surety Company of America and its implications for the interpretation of the Computer Fraud and Funds Transfer Fraud coverages. On July 29, 2016, the Ninth Circuit Court of Appeals released a brief opinion affirming the District Court’s interpretations of these coverages. The Facts Pestmaster, a pest control business, was insured under a Travelers Wrap+ policy. In 2009, Pestmaster hired a payroll company, Priority 1, to handle its payroll and payroll tax

Aqua Star: U.S. District Court applies “Authorized Entry” Exclusion to claim under Computer Fraud Coverage

On July 8, 2016, the U.S. District Court for the Western District of Washington released its decision in Aqua Star (USA) Corp. v. Travelers Casualty and Surety Company of America. The decision offers guidance to fidelity insurers with respect to the application of the “authorized entry” exclusion found in the base wording of many commercial crime policies (sometimes referred to as the “authorized access” exclusion), and illustrates how this exclusion may operate in the context of a social engineering fraud loss. The Facts The insured, Aqua Star (USA) Corp. (“Aqua Star”), is a seafood importer that had a pre-existing relationship with a

Telamon: U.S. District Court finds Insured’s Vice-President to be Independent Contractor falling outside Crime Policy’s Employee Theft Coverage

In Telamon Corp. v. Charter Oak Fire Ins. Co., the U.S. District Court for the Southern District of Indiana held that a Vice-President of Major Accounts who provided management and marketing services to a telecommunications company was not an “Employee” within the meaning of the employee theft coverage afforded by its Travelers Wrap+ policy, but rather an independent contractor. The Facts The insured, Telamon Corporation (“Telamon”), is a telecommunications company headquartered in Indiana. Telamon installed telecommunications equipment for customers such as AT&T. The alleged defaulter, Juanita Berry, operated a one-person telecommunications consulting company, J. Starr Communications, Inc. (“J. Starr”). Pursuant

Western Alliance Bank: U.S. District Court dismisses Creditor Bank’s Claim under Debtor’s Commercial Crime Policy

On February 18, 2016, the U.S. District Court for the Northern District of California released its decision in Western Alliance Bank v. National Union Fire Insurance Company of Pittsburgh, Pa. The Court dismissed a creditor bank’s direct action against a fidelity insurer for indemnity in respect of alleged thefts by the debtor insured’s employees of assets over which the bank held a security interest. The decision reinforces the first-party nature of commercial crime coverage and is consistent with other recent U.S. and Canadian case law on “third party direct actions” against fidelity insurers. The Facts Sorrento Networks GmbH (“Sorrento”) carried

EMCOR Group: Fourth Circuit applies Prior Insurance Provision to Restrict Coverage under Commercial Crime Policy

In EMCOR Group, Inc. v. Great American Insurance Company, the Fourth Circuit Court of Appeals applied a prior insurance provision in a Commercial Crime Policy to restrict coverage to only the immediate prior year that the insured maintained fidelity coverage, rather than the previous five years, as asserted by the insured. The decision highlights the importance of properly analyzing and applying prior insurance provisions in loss-sustained forms in multi-year loss scenarios. The Facts EMCOR is a construction and building maintenance company. In 2005, it reported a $10 million employee dishonesty loss to Great American in respect of allegedly fraudulent acts

St. Paul Croatian: U.S. District Court applies Termination Provision to Claim on Credit Union’s Fidelity Bond

On January 14, 2016, the U.S. District Court for the Northern District of Ohio released its decision in National Credit Union Administration Board v. CUMIS Insurance Society, Inc., following a trial that focused on the issue of the application of the termination provision in a fidelity bond issued to a credit union. The Court held that, based on facts known to the president of the credit union’s Board of Directors, the provision applied to terminate coverage. The decision is significant in that knowledge of the manager’s dishonesty was effectively imputed to the president, even though the president was not aware

Frazier Industrial: U.S. District Court analyzes Scope of Commercial Crime Policy’s Employee Theft Coverage in Bid-Rigging Scheme

Guest Co-Author: John Tomaine The recent decision of the U.S. District Court for the District of New Jersey in Frazier Industrial Company v. Navigators Insurance Company provides a useful example of judicial analysis of the Employee Theft coverage in the context of a bid-rigging scheme between an insured’s employee and an outside contractor. The Court analyzed the plain wording of the Commercial Crime Policy in issue to find that, although kickbacks paid to the employee by the contractor represented a covered Employee Theft loss, the portion of the excess payments retained by the contractor was not covered. The Facts Frazier Industrial

D2 Contracting: B.C. Supreme Court accepts Bank’s Contractual and Statutory Defences to Forged Cheque Claim under Canada’s Bills of Exchange Act

The recent decision of the British Columbia Supreme Court in D2 Contracting Ltd. v. Bank of Nova Scotia provides useful guidance for fidelity claims and subrogation professionals on dealing with cheque fraud losses arising from forged drawer signatures. The Court’s decision demonstrates the necessity of ensuring that the insured’s bank has been notified of suspected fraud or irregularities immediately upon such issues being discovered. The Facts D2 Contracting Ltd (“D2”) was a contractor operating on Vancouver Island. D2 had two principals, Copeman and Cooper. In January 2006, D2 opened an account with the Bank of Nova Scotia (“BNS”) and agreed

Nine Thirty FEF Investments: New York Appellate Division applies Financial Institution Bond’s Securities Broker Exclusion to Madoff Ponzi Losses

In United States Fire Insurance Company v. Nine Thirty FEF Investments, LLC, the New York Supreme Court, Appellate Division, held that Financial Institution Bonds did not cover losses sustained in a Ponzi scheme orchestrated by Bernie Madoff. Drawing on its own recent decision in Jacobson Family Investments, Inc. v. National Union Fire Insurance Company of Pittsburgh, Pa. (which we discussed in our June 23 post), the Court held that the Securities Broker exclusion brought the loss outside the Bonds’ Outside Investment Advisor coverage, notwithstanding the insureds’ argument that the coverage and the exclusion could not both operate without resulting in

3M: U.S. District Court applies Ownership Provision in finding No Coverage for Loss of Undistributed Limited Partnership Earnings in Investment Fraud

Guest Co-Author: John Tomaine [Editors’ note: Our guest co-author John Tomaine is the owner of John J. Tomaine LLC, a fidelity insurance and civil mediation consultancy in New Jersey. After over thirty-one years with the Chubb Group of Insurance Companies, he retired as a Vice President in 2009. He is an attorney admitted in Connecticut and New Jersey, and holds a Master’s Degree in Diplomacy and International Relations. He is available to serve as an expert witness in fidelity claim litigation and to consult on fidelity claim and underwriting matters. He will be a speaker at the FSLC’s Fall 2015 meeting

About Chris McKibbin