The 6th U.S. Circuit Court of Appeals in Cincinnati ruled Monday that
Chubb business unit Federal insurance Co. was justified in denying coverage for a crime policy on the basis that any loss caused by a single employee is considered a single loss under the policy.
The federal appeals court’s decision affirms a lower court’s comparable summary judgment.
The appeals court also agreed with the lower court that Federal Insurance had justifiably denied Construction Contractors Employer Group L.L.C.’s claim on grounds that the latter had previously discovered the loss.
According to the ruling, Construction Contractors—a unit of Associated General Contractors of Northwest Ohio—performs a number of employment functions for regional construction employers, referred to as “subscribers.”
Construction Contractors subcontracted its daily operations to AlphaCare Services Inc., a firm based in Toledo, in April 2002. In July 2012, Construction Contractors was notified by one of AlphaCare’s owners—John R. Moon—that it did not have enough assets to meet its obligations despite the subscribers fulfilling their obligations with Construction Contractors.
It was only later on that Moon explained that he had been fabricating Construction Contractors' financial statements, and that the company owed considerable tax liabilities.
An investigation later discovered that Moon had wired over $900,000 from Construction Contractors' account to AlphaCare's. The investigations also found that Moon charged Construction Contractors for an additional $30,000 worth of health care premiums. According to the ruling, another $1 million was still unaccounted for.
Construction Contractors later purchased a crime coverage insurance policy from Federal Insurance in January 2013. Federal issued the insurance, which extended coverage from March 2013 to July 2013, insuring up to $1 million in covered losses.
The policy explicitly stated that all losses sustained from a single act or number of acts of the same employee will be treated as a single loss. It also stated that it excluded coverage for loss sustained prior to the purchase of coverage, as well as those where the exact amount of money lost or details is unknown.
Much later after the policy was effected, Construction Contractors learned that Moon had misappropriated the remaining $1 million through check theft, by having subscribers write checks to Construction Contractors while using AlphaCare's account number.
Construction Contractors submitted a claim for the $1 million check theft to Federal Insurance, but the latter denied the claim. Construction Contractors then filed suit in U.S. District Court in Toledo charging breach of contract.
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