FCL Fidelity Blog

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C.S. McCrossan Inc.: Eighth Circuit applies Crime Policy’s Authorized Representative Exclusion in finding No Coverage for loss caused by Insured’s Property Manager’s Employee

On August 6, 2019 the Eighth Circuit Court of Appeals released its decision in C.S. McCrossan Inc. v. Federal Insurance Company.  The decision addresses a host of coverage issues, including the application of the “Authorized Representative” exclusion and the definitions of “Subsidiary” and “Contractual Independent Contractor.”  The case is instructive for fidelity claims and underwriting professionals, as well as brokers and corporate risk managers.   The Facts C.S. McCrossan Inc. (“McCrossan”) maintained a subsidiary, Blakeley Properties, LLC (“Blakeley”).  One of McCrossan’s owners also owned a separate company, Stewart Properties, LLC (“Stewart”).   Blakeley and Stewart owned commercial rental properties.  Through intermediate

CP Food: U.S. District Court finds No Coverage under Crime Policy for Insured’s Vicarious Liability for Theft of Customers’ Funds

In the recent decision of CP Food & Beverage, Inc. v. United States Fire Insurance Company, the U.S. District Court for the District of Nevada held that coverage was not available under a crime policy where the insured’s employees had defrauded the insured’s customers through misuse of customer credit cards.  The decision makes important findings regarding the appropriate test for “direct loss” causation in a crime policy, and reaffirms the general principle that crime policies are not intended to indemnify insureds for their vicarious liability arising from employees’ theft of third parties’ property. The Facts CP Food & Beverage Inc.

Teva: Supreme Court of Canada rejects Fictitious or Non-Existing Payee Defence in finding Collecting Banks Liable for Employee Cheque Fraud

Jump To: The Facts | The Tort of Conversion and the Bills of Exchange Act | The Conclusion On October 27, 2017 the Supreme Court of Canada released its long-awaited decision in Teva Canada Ltd. v. TD Canada Trust. In a 5:4 decision, the Supreme Court held that two banks that accepted fraudulent cheques procured by a dishonest employee were strictly liable in conversion to the employer, and could not establish the “fictitious or non-existing payee” defence afforded by subsection 20(5) of the Bills of Exchange Act. The decision is a welcome development for Canadian fidelity insurers who seek to

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

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

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

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

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

Taylor, Bean & Whitaker: U.S. District Court applies Alter Ego doctrine to deny coverage in respect of both Majority Shareholder and Colluding Subordinate Employees

A recent decision of the U.S. District Court for the Middle District of Florida, In Re Taylor, Bean & Whitaker Mortgage Corporation, provides a helpful illustration of how to assess coverage where an insured’s alter ego allegedly colludes with subordinate employees who are not, themselves, directing minds of the insured. The Facts The insured, Taylor, Bean & Whitaker Mortgage Corporation (“TBW”), had been a leading wholesale mortgage lending firm, but collapsed in 2009 due to massive fraud directed by its majority shareholder, Lee Farkas. Farkas removed over $87 million from TBW, primarily by siphoning money out of TBW into various