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3M invested its employee-benefit plan assets in WG Trading Company.  The investment was structured as a limited partnership in WG Trading.  After it was discovered that the founders of WG Trading were operating a Ponzi scheme, the SEC brought suit, and 3M was able to recover all of the capital contributions that it had invested in WG Trading.  In submitting an insurance claim, 3M argued that it suffered a loss because some of its capital had been invested in “legitimate vehicles and produced legitimate earnings,” which 3M never recovered.  National Union denied coverage on several bases, including that 3M failed to establish “ownership” of those earnings, as required by the policy.  The court agreed and granted National Union’s summary judgment motion.

The policy’s “ownership provision” requires covered losses to be “owned by the Insured, or held by the Insured in any capacity whether or not the Insured is legally liable, or may be property as respects which the Insured is legally liable.”  The court held that even assuming that 3M’s investment generated legitimate earnings that could be quantified and attributed to 3M, those lost earnings were not covered under the policy because 3M did not “own” those earnings at the time they were stolen.  First, the court rejected 3M’s contention that the ownership provision was irrelevant to its claim for coverage under the Employee Dishonesty clause.  Instead, the court concluded that the ownership provision operates to limit coverage afforded under the Employee Dishonesty clause by requiring 3M to have some kind of interest in the property on which the claims are based.  Second, the court concluded that the lost earnings for which 3M sought indemnification did not qualify as property “owned” by 3M.  The court explained that 3M owned only a limited partnership interest in WG Trading; therefore, all earnings were owned by WG Trading up until the point at which they were distributed.  In this context, the court explained that 3M’s “general right to receive distributions from the partnership” does not constitute an ownership of specific earnings prior to distribution.  Finally, the court deemed irrelevant certain ERISA regulations that more broadly construe “own” in terms of investments in limited partnerships, explaining that the purposes of those regulations “is to ensure that fiduciary responsibilities are spread broadly. . . not an attempt to redefine property rights established under state law.”