(Article from Insurance Law Alert, June 2017)
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The Eighth Circuit ruled that a crime policy does not cover the loss of returns that the policyholder allegedly earned on certain investments, but lost due to the fraud of its investment advisors. 3M Co. v. National Union Fire Ins. Co. of Pittsburgh, PA, 2017 WL 2347105 (8th Cir. May 31, 2017).
3M invested its employee-benefit plan assets in WG Trading Company. The investment was structured as a limited partnership interest in WG Trading. After it was discovered that WG Trading’s founders had engaged in fraudulent activity, 3M submitted a claim under a crime policy, arguing that 3M 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. A Minnesota federal district court agreed and granted National Union’s summary judgment motion. See October 2015 Alert. Last month, the Eighth Circuit affirmed.
3M argued that it was entitled to coverage under an Employee Dishonesty provision that covers the loss of money, securities or “other property” caused by theft or forgery. 3M contended that the Employee Dishonesty clause is not subject to the policy’s general “ownership” requirement because it refers to “other property” (rather than “insured property”). Rejecting this argument, the court explained: “Although the Employee Dishonesty provision does not expressly state whose other property is covered, it is entirely unreasonable to interpret the provision as extending coverage under the Policy to other property that is not insured property.”
Alternatively, 3M argued that the ownership requirement was satisfied because it had a limited partnership interest in WG Trading. The court dismissed this argument as well, stating that “up until the point at which the earnings were distributed to the partners, the stolen earnings were property of WG Trading – not property of 3M.”