A federal appeals court upheld coverage for a $32m theft loss under a business crime policy this week.1 The theft by the employee took place over years and involved an elaborate scheme accomplished primarily by altering many transactional and financial documents related to grain sales.  

The insurer argued that this elaborate scheme was not “theft” because it did not involve a physical taking of the property. The court disagreed finding: 

Cargill’s insurance policy provided coverage for employee ‘theft,’ which was defined in the policy as ‘the unlawful taking of property to the deprivation of the Insured.’ Additionally, the insured’s loss must have resulted ‘directly from’ employee theft to be covered by the policy.

‘Taking’ is not defined in the policy, but both parties rely on the same definition: ‘[t]he act of seizing an article, with or without removing it, but with an implicit transfer of possession or control.’ Taking, Black’s Law Dictionary (11th ed. 2019). Raising several arguments about how Backis’s control over the grain sales was not a ‘taking’ of the grain, National Union contends that her fraudulent conduct did not amount to a theft. We disagree. Backis took implicit control over the grain such that her conduct constituted an unlawful taking. She exercised her authority to direct the transfer and sale of the grain. See Sherwin-Williams Co. v. Beazley Ins. Co., No. 18-02964, (D. Minn. July 23, 2020) (concluding that a reasonable jury could find that an employee’s control over its employer’s invoice approvals amounted to employee theft). She also lied to Cargill and manipulated its financial records to induce the company to ship its grain to Albany. See Cumulus Invs., LLC v. Hiscox, Inc., 520 F. Supp. 3d 1141, 1151 (D. Minn. 2021) (concluding that employees’ lies, falsification of documents, and manipulation of financial data constituted an ‘unlawful taking’ of the investors’ money). It is true that Backis never physically seized the grain, but a ‘taking’ includes the ‘implicit transfer’ of control, and National Union concedes that under this definition, a physical seizure was not necessary. As found by the Report, Backis ‘controlled the pricing and recordkeeping elements of the sale’ of the grain, and if not for Backis’s misrepresentations, Cargill would have sent only a minimal amount of grain to Albany. This exercise of control amounted to an unlawful taking under the insurance policy.

Business crime policies are important. The crimes are often committed by trusted employees with access to money and financial documents. The policyholder had employed the employee for 30 years and was obviously trusted. That once trusted employee is now living in a federal prison. 

Crime policies often have duties that require immediate action and notice to the insurer once a suspected crime has been committed. The valuation of these losses is often complex and requires accountants to determine the amount of the loss.  

My experience has been that the larger the crime loss, the more the insurer looks closely at policy provisions trying to come up with excuses not to pay the claim. 

Thought For The Day 

The papers said it was a crime of passion and he told me there wasn’t no passion to it.

—Cormac McCarthy, “No Country for Old Men”

1 National Union Fire Ins. Co. of Pittsburgh v. Cargill, No. 21-3141 (8th Cir. Mar. 7, 2023).