Category Archives: Forgery

Taylor & Lieberman: Ninth Circuit finds No Coverage under Crime Policy for Client Funds lost in Social Engineering Fraud

By David S. Wilson and Chris McKibbin

In the recent decision of Taylor & Lieberman v. Federal Insurance Company, the Ninth Circuit Court of Appeals affirmed a decision of the U.S. District Court for the Central District of California holding that a business management firm did not have coverage in respect of client funds which it was fraudulently induced to wire overseas.

While the District Court had held that the insured had failed to establish that it had sustained any “direct” loss at all (see our July 14, 2015 post), the Ninth Circuit affirmed the result on other grounds, holding that the insured had also failed to establish that the loss came within the substantive requirements of any of the Forgery, Computer Fraud or Funds Transfer Fraud insuring agreements.

The Facts

Taylor & Lieberman (“T&L”) was an accounting firm which also performed business management and account oversight services for various clients, including the client in issue. Clients’ funds were held in separate bank accounts maintained with City National Bank. Clients granted Powers of Attorney over their accounts to a designated individual at T&L, permitting transactions to be made in the accounts.

A fraudster obtained access to the client’s email account and sent two emails from that account to a T&L employee, as follows:

  • The first email directed the employee to wire $94,280 to an account in Malaysia. The employee did so, and then sent a confirming email to the client’s email account.
  • The next day, the employee received another email from the client’s account directing her to wire $98,485 to an account in Singapore. The employee again complied, and again sent a confirming email to the client’s email account.

The employee then received a third email, purportedly from the client, but sent from a different email address. The employee contacted the client by phone, and discovered that all three emails were fraudulent. T&L was able to recover some of the funds, but had to reimburse its client and incurred a net loss of nearly $100,000.

T&L submitted a claim under each of its Forgery Coverage, its Computer Fraud Coverage and its Funds Transfer Fraud Coverage. The District Court held that each of these coverages required “direct loss sustained by an Insured” and that, as a matter of law, no direct loss had been sustained.

On appeal, the Ninth Circuit did not disturb the finding with respect to direct loss, but affirmed the result on the basis that T&L had failed to establish that the loss came within the scope of any of the insuring agreements.

The Forgery Coverage

The Ninth Circuit quickly dismissed T&L’s contention that this insuring agreement’s requirement of a “Forgery or alteration of a financial instrument” did not require proof of a “Forgery” of a financial instrument, because the insuring agreement required only proof of an alteration of a financial instrument or a free-standing “Forgery” of any document, of any type. The Court held that the insuring agreement plainly required either a “Forgery” or an alteration of a financial instrument.

More substantively, the Court rejected T&L’s contention that the emails to T&L were financial instruments:

Here, the emails instructing T&L to wire money were not financial instruments, like checks, drafts, or the like. See Vons Cos., Inc. v. Fed. Ins. Co. … (C.D. Cal. 1998) (holding that wire instructions, invoices, and purchase orders were not “documents of the same type and effect as checks and drafts.”). And even if the emails were considered equivalent to checks or drafts, they were not “made, drawn by, or drawn upon” T&L, the insured. Rather, they simply directed T&L to wire money from T&L’s client’s account. In sum, there is no forgery coverage.

The Computer Fraud Coverage

The Computer Fraud insuring agreement required T&L to demonstrate “an unauthorized (1) “entry into” its computer system, and (2) “introduction of instructions” that “propogate[d] themselves” through its computer system.” The Court held that the sending of an email, without more, did not constitute an unauthorized entry into T&L’s computer system. Further, the emails were not an unauthorized introduction of instructions that propagated themselves through T&L’s computer system:

The emails instructed T&L to effectuate certain wire transfers. However, under a common sense reading of the policy, these are not the type of instructions that the policy was designed to cover, like the introduction of malicious computer code. … Additionally, the instructions did not, as in the case of a virus, propagate themselves throughout T&L’s computer system; rather, they were simply part of the text of three emails.

The Funds Transfer Fraud Coverage

The Funds Transfer Fraud insuring agreement indemnified against:

fraudulent written, electronic, telegraphic, cable, teletype or telephone instructions issued to a financial institution directing such institution to transfer, pay or deliver Money or Securities from any account maintained by an Insured Organization at such Institution, without an Insured Organization’s knowledge or consent.

The Court held that the requirements of the insuring agreement were not met:

This coverage is inapplicable because T&L requested and knew about the wire transfers. After receiving the fraudulent emails, T&L directed its client’s bank to wire the funds. T&L then sent emails confirming the transfers to its client’s email address. Although T&L did not know that the emailed instructions were fraudulent, it did know about the wire transfers.

Moreover, T&L’s receipt of the emails from its client’s account does not trigger coverage because T&L is not a financial institution.

As a result, there was no coverage available under the Federal policy.

Conclusion

Following the Fifth Circuit’s decision in Apache (see our October 24, 2016 post), the Ninth Circuit’s decision in Taylor & Lieberman provides another example of a clear trend on the part of the courts to refuse to find coverage for social engineering fraud losses under the “traditional” crime policy coverages (typically, computer fraud and funds transfer fraud coverages, but occasionally, as here, other coverages as well). The proliferation of social engineering frauds has created a new exposure for insureds, and fidelity insurers have responded by creating discrete social engineering fraud coverages. Like Apache, Taylor & Lieberman serves as a cautionary tale to businesses (and to their brokers) of how a business may be exposed to an uninsured loss in the event that it does not maintain such coverage.

Taylor & Lieberman v. Federal Insurance Company, 2017 WL 929211 (9th Cir.)

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Citizens Bank: U.S. District Court rejects contra proferentem reading of Financial Institution Bond in finding No Coverage for Forged USDA Guarantees

By David S. Wilson and Chris McKibbin

On November 16, 2016, the U.S. District Court for the Eastern District of Wisconsin released its decision in Citizens Bank Holding Inc. v. Atlantic Specialty Insurance Co. The Court held that forged business loan guarantees purportedly issued by the U.S. Department of Agriculture (USDA) did not qualify for indemnity under Insuring Agreements D or E of a Financial Institution Bond. The decision is notable in that it reaffirms the interpretive principle that the Bond is not to be interpreted contra proferentem, as it is a product of negotiation between the banking and fidelity insurance industries.

The Facts

Citizens Bank maintained an investment advisory agreement with Pennant Management, Inc. (“Pennant”), a company engaged in acquiring USDA-guaranteed loans on behalf of community banks. Pursuant to this agreement, Citizens Bank began purchasing shares in loan pools administered by Pennant.

In 2013, Pennant entered into a master repurchase agreement with First Farmers Financial LLC (“First Farmers”), a company approved by the USDA as an eligible lender for certain USDA loans. Under the terms of the master repurchase agreement, Pennant, on behalf of its clients, agreed to purchase from First Farmers guaranteed portions of USDA loans and supporting agreements, documents, and instruments, including USDA-issued Assignment Guarantee Agreements (AGAs).

Beginning in 2013, Pennant purchased, on behalf of Citizens Bank, 25 USDA-guaranteed loans purportedly originated by First Farmers. Citizens Bank’s investment in the loan pool totaled $15 million. For each loan, Citizens Bank’s custodian received an original USDA AGA that contained an original ink signature purporting to be that of a USDA state director.

In 2014, Pennant discovered that the First Farmers loans were fictitious and that the signatures on the AGAs were forged. The identified borrowers and collateral were fictitious and the CPA who allegedly audited First Farmers did not exist. First Farmers refused Pennant’s request to repurchase the loans it purportedly originated, and the USDA refused Pennant’s demand to honor the AGAs, reasoning that it had not guaranteed any valid loans. As a result, Citizens Bank lost its investment.

The Coverage

Citizens Bank pursued a claim under Insuring Agreements D (Forgery) and E (Securities) of its Bond, and ultimately moved for summary judgment against its insurer, Atlantic. Before the District Court, Citizens Bank contended that certain provisions of the Bond had to be interpreted contra proferentem. The District Court reviewed the principles for interpreting Financial Institution Bonds and rejected Citizens Bank’s contention, applying the principle, recognized since at least Sharp v. FSLIC in 1988, that the contra proferentem rule “generally does not apply where the policy in question is a standard Bankers Blanket Bond, drafted by representatives from both the banking and insurance industries.”

The Court then considered coverage under Insuring Agreement E(1), which indemnified for:

 Loss resulting directly from the Insured having, in good faith, for its own account or for the account of others: … acquired, sold, delivered, or given value, extended credit or assumed liability, on the faith of any original Written document that is a:

 (a)   Certificated Security … [or]

 (g)   corporate, partnership or personal Guarantee …

 which … bears a handwritten signature of any … guarantor … that is a Forgery.

Citizens Bank asserted that the forged AGAs qualified as certificated securities, or as corporate or personal guarantees. Atlantic took the view that the AGAs did not fall within either category of documents.

The Court first determined that the AGAs were not certificated securities. The Bond defined a “Certificated Security” as:

 a share, participation or other interest in property of, or an enterprise of, the issuer or an obligation of the issuer, which is:

 (a)        represented by an instrument issued in bearer or registered form;

 (b)        of a type commonly dealt in on securities exchanges or markets or commonly recognized in any area in which it is issued or dealt in as a medium for investment; and

 (c)        either one of a class or series or by its terms divisible into a class or series of shares.

Citizens Bank contended that an AGA “is a ‘class’ of obligation ‘issued by the USDA’ in ‘registered’ form and ‘commonly recognized’ as a ‘medium of investment’ in the secondary market for USDA guaranteed loans.” Atlantic responded that the Bond defined guarantees and certificated securities separately, and that the documents in issue were self-identified as guarantees. Further, an AGA was not a share, nor was it divisible into shares.

The Court held that a reasonable insured would not expect the AGAs to qualify as certificated securities under the Bond, observing that, while one could try to classify an AGA as a certificated security by separating each of the terms used in defining the document, “such terms must be viewed in context of the Bond as a whole and not in isolation.” As the AGAs were labeled as guarantees, and fit within the definition of “guarantee” used in the Bond, it was not reasonable to accept that the parties intended such documents to also qualify as certificated securities.

The Court then considered whether the AGAs were “corporate, partnership or personal” guarantees. Citizens Bank contended that they represented (i) corporate guarantees, because the USDA acts in a corporate capacity in providing loan guarantees; and (ii) personal guarantees, because the USDA, as a political body, is an artificial “person” akin to a corporation or partnership. The Court rejected these arguments, holding that the USDA is a government agency and not a corporation. As the types of guarantees in Insuring Agreement E(1)(g) expressly included only corporate, partnership or personal guarantees, accepting Citizens Bank’s definition would be “unreasonable as it would render those expressly included terms superfluous.” As a result, the AGAs did not fall within Insuring Agreement E(1).

The Court then considered coverage under Insuring Agreement D, which indemnified for, inter alia, loss resulting directly from forgery of, on, or in any Letter of Credit. “Letter of Credit” was defined as:

 an engagement in writing by a bank or other person made at the request of a customer that the bank or other person will honor drafts or other demands for payment upon compliance with the conditions specified in the Letter of Credit.

Citizens Bank contended that the USDA acted as a “bank” by facilitating the transmission of funds to lenders and borrowers, and also argued that the USDA was an “other person”, on the basis that that term encompassed human beings, corporations and partnerships.

The Court held that the AGAs were not letters of credit:

 The Court finds that a reasonable insured in Citizens Bank’s position would not expect the [AGAs] to qualify as letters of credit under the terms of the Bond. For one, the [AGAs] are labeled as guarantees and clearly fit within the definition of a guarantee as used in the Bond and for which coverage is provided under Insuring Agreement E. That other instruments, for example certificates of deposit, may qualify for coverage under multiple insuring agreements does not mean that a document expressly labeled as a guarantee — a term defined in the Bond — should be treated as an instrument with an entirely different definition.

 Even if the Court were to ignore this unambiguous label, it would nevertheless find that a USDA [AGA] does not satisfy the definition of a letter of credit. … the USDA is neither a “bank” nor an “other person.” [emphasis added]

Conclusion

Citizens Bank is notable for three reasons. First, the holdings by the Court regarding Insuring Agreements D and E(1) will undoubtedly be of interest to fidelity professionals dealing with claims involving government-issued guarantees. Second, the Court expressly reaffirmed the principle that Financial Institution Bonds are not to be interpreted contra proferentem, as they are effectively products of joint authorship.

Third, the Court took a robust approach to interpreting the Bond, exemplified by its observation that:

 This failure of the contracting parties to consider government guarantees explains why Citizens Bank has pressed a highly creative interpretative stratagem, urging a microscopic focus on the dictionary or statutory definitions of individual words. … Such an approach, however, runs contrary to the general rule that interpretation must take into account the whole of the contract.

Citizens Bank militates against an interpretive approach which seeks to generate coverage by “stitching together” definitions of individual words and phrases to try to fit the circumstances of a loss within coverage, and in favour of an approach whereby courts give effect to the wording of the Bond, read as a whole. The latter approach is consistent with the interpretive methodology used by U.S. courts generally, and is expressly mandated by the Supreme Court of Canada as the “primary interpretative approach” to be taken in our country.

Citizens Bank Holding Inc. v. Atlantic Specialty Insurance Co., 15-CV-782 (E.D. Wis. November 16, 2016) [Note: this decision does not appear to be accessible online; please contact us if you would like a copy.]

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Tesoro Refining: Fifth Circuit analyzes scope of “Unlawful Taking” and “Forgery” in Commercial Crime Policy’s Employee Theft Coverage

By David S. Wilson, Chris McKibbin and Stuart M. Woody

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 of Tesoro’s Credit Department, Leavell, managed Enmex’s account.

By late 2007, Enmex’s credit balance had grown to $45 million, and Leavell (and Tesoro’s auditors) became concerned about Enmex’s ability to pay down the outstanding debt.  In discussions with Tesoro’s auditors in December 2007, Leavell represented that the Enmex account was secured by a $12 million letter of credit (LOC).

Between December 2007 and March 2008, a series of documents purporting to be LOCs (and, in one case, a security agreement) were created in Leavell’s password-protected drive on Tesoro’s server.  Leavell provided these to the auditors as evidence of Enmex’s creditworthiness.

By September 2008, the Enmex balance had reached almost $89 million.  In October 2008, a document purporting to be a new $24 million LOC was created on Leavell’s drive.  A PDF version of this document, with a Bank of America logo added, was created a few days later and saved in the Credit Department’s shared folder.

In December 2008, Tesoro presented the $24 million LOC to Bank of America, which confirmed that the LOC was not valid.  Tesoro ceased selling fuel to Enmex, and was not paid for some of the fuel it had already sold.  Tesoro submitted a crime claim to National Union, alleging that Leavell had forged the LOCs and the security agreement, resulting in Tesoro’s loss.

The Employee Theft Coverage

The insuring agreement provided that:

We will pay for loss of or damage to “money”, “securities” and “other property” resulting directly from “theft” committed by an “employee”, whether identified or not, acting alone or in collusion with other persons.

For the purposes of this Insuring Agreement, “theft” shall also include forgery.

“Theft” was defined as “the unlawful taking of property to the deprivation of the insured.”  Unlike some other forms of the theft coverage, National Union’s insuring agreement defined “theft” to include forgery.

Interpreting the Insuring Agreement

Tesoro contended that the District Court erred in holding that an “unlawful taking”, whether by forgery or by other means, was required to create coverage under this insuring agreement.  In Tesoro’s view, the sentence in the insuring agreement addressing forgery created coverage for losses from any employee forgery, irrespective of whether there was any unlawful taking by the employee.

National Union contended that the employee theft insuring agreement always required proof that an “unlawful taking” had occurred, irrespective of the form of that taking.  National Union took the position that the term “include”, as used in the sentence addressing forgery, meant that a forgery that is within the category of “theft” is covered, but the insuring agreement does not create coverage for acts of forgery wholly distinct from “theft”.

The Court accepted National Union’s interpretation, holding that:

Tesoro’s interpretation isolates the sentence addressing forgery from its context.  Context is key and can in part be provided by a document’s title… This insuring agreement is titled “Employee Theft”… When an “Employee Theft” insuring agreement contains a sentence explaining that “theft”, a defined term, shall also include forgery, that sentence is making clear that a forgery that leads to “theft” is covered.

The Court also noted that Tesoro’s proposed interpretation would nullify the “Acts of Employees” exclusion when applied to the Forgery or Alteration insuring agreement.  Such an interpretation would result in the policy excluding all employee forgery involving commercial paper from the Forgery or Alteration insuring agreement, while covering all forms of employee forgery under the Employee Theft insuring agreement.

There was no “Unlawful Taking” by Leavell

Tesoro further contended that, even if it was required to prove an “unlawful taking” under the Employee Theft coverage, it could still do so, insofar as Leavell’s conduct met the requirements of the Texas criminal offence of theft (in particular, theft by deception).  The Court did not endorse Tesoro’s equating of the policy’s “unlawful taking” requirement with any act constituting a theft under state criminal law, but accepted it arguendo for the limited purpose of determining whether summary judgment could be properly granted in favour of National Union.

The Court noted that proving theft by deception would require Tesoro to show that the forged security documents were a substantial or material factor in inducing it to continue selling fuel to Enmex.  The Court held that the available evidence did not support that conclusion.  Indeed, Tesoro had continued selling fuel to Enmex during periods in which it knew that the receivable was not secured.  Thus, Tesoro could not demonstrate that it was induced to do anything differently as a result of the alleged deception.  On that basis, the Court held that summary judgment had been properly granted to National Union.

Conclusion

For those Employee Theft coverages that include forgery within the meaning of theft, the Fifth Circuit’s decision in Tesoro Refining provides guidance as to how to interpret and apply the provision, including ascertaining whether the alleged forgery actually induced the insured to do anything it would not have done in the absence of the forgery.  The Court’s finding on causation is significant, notwithstanding that it came in the context of analyzing the Texas criminal offence of theft by deception.

As a general observation, we suggest that caution be exercised in relying on criminal law provisions and concepts as an interpretive guide to fidelity policies.  In Tesoro Refining, the Court made it clear that it was analyzing the Texas provision solely because Tesoro had advanced the argument as a basis for denying summary judgment to National Union.  Other courts in the United States and Canada have cautioned against too easily equating fidelity coverage concepts and criminal law concepts.  In Iroquois Falls Community Credit Union Limited v. Co-operators General Insurance Company, for example, the Court of Appeal for Ontario overturned the motions court’s grant of summary judgment to an insured credit union, specifically rejecting the holding that the credit union had to have notice of criminal conduct before it was obligated to put its insurer on notice. 

More broadly, the Court’s overall interpretive approach (reading and interpreting the policy as a whole, including the headings and related insuring agreements and exclusions) is of assistance to fidelity insurers in rebutting arguments which seek to create ambiguity by interpreting a particular sentence (or even a subset of words within a sentence) without regard to the intended scope of coverage as evidenced by the headings and related insuring agreements and exclusions in the policy.

Tesoro Refining & Marketing Company LLC v. National Union Fire Insurance Company of Pittsburgh, Pennsylvania, 2016 U.S. App. LEXIS 13838 (5th Cir.)

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Tesoro Refining: U.S. District Court analyzes scope of “Unlawful Taking” and “Forgery” under Employee Theft Coverage in Commercial Crime Policy

By David S. Wilson and Chris McKibbin

On April 7, 2015, the U.S. District Court for the Western District of Texas released its decision in Tesoro Refining & Marketing Company LLC v. National Union Fire Insurance Company of Pittsburgh, Pennsylvania. The decision analyzes what constitutes “unlawful taking” for the purposes of the Employee Theft coverage, and also provides guidance with respect to the forgery clause now found in some forms of that coverage.

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 alleged defaulter, Leavell, was the manager of Tesoro’s Credit Department and managed Enmex’s account. The District Court found that:

  • By late 2007, Enmex’s credit balance had grown to $45 million, and Leavell (and Tesoro’s auditors) became concerned about Enmex’s ability to pay down the outstanding debt. In discussions with Tesoro’s auditors in December 2007, Leavell represented that the Enmex account was secured by a $12 million letter of credit (LOC).
  • Between December 2007 and March 2008, a series of documents purporting to be LOCs and, in one case, a security agreement, were created in Leavell’s password-protected drive on Tesoro’s server, and were provided to the auditors as evidence of Enmex’s creditworthiness.
  • By September 2008, the Enmex balance reached almost $89 million. In October, a document purporting to be a new $24 million LOC was created on Leavell’s drive. A PDF version of this document, with the addition of a Bank of America logo, was created a few days later in the Credit Department’s shared folder.
  • In December 2008, Tesoro presented the $24 million LOC to Bank of America, which confirmed that the LOC was not valid.
  • Tesoro alleged that Leavell had forged the LOCs and the security agreement.

The Employee Theft Coverage

Tesoro had initially sought to advance a claim under the Forgery coverage of its commercial crime policy with National Union, but loss resulting from forgery by employees was excluded unless the loss resulted from forgery of commercial paper “made or drawn by or drawn upon” the insured. Thus, Tesoro tried to fit the loss within the Employee Theft coverage instead, asserting that Leavell’s alleged conduct represented a “theft” which had caused a loss to Tesoro (i.e., its inability to recover funds on the LOCs). The insuring agreement provided that:

We will pay for loss of or damage to “money”, “securities” and “other property” resulting directly from “theft” committed by an “employee”, whether identified or not, acting alone or in collusion with other persons. For the purposes of this Insuring Agreement, “theft” shall also include forgery.

“Theft” was in turn defined as “the unlawful taking of property to the deprivation of the insured.” Notably, National Union’s insuring agreement includes forgery, unlike some other forms of the theft coverage.

On cross-motions for summary judgment, Tesoro advanced two arguments in support of coverage. First, Leavell’s alleged conduct represented an “unlawful taking” of either Tesoro’s money or its property (fuel sold to Enmex on credit). Second, Leavell’s alleged conduct represented a “forgery” and was, on National Union’s wording, covered employee theft. The Court rejected both arguments.

1. There was no “unlawful taking” by Leavell

Tesoro asserted that Leavell’s alleged misconduct had induced it to continue to sell fuel to Enmex, on the mistaken belief that the account was adequately collateralized. National Union pointed out that no money or fuel had been taken by Leavell, and that the fuel had all gone to Enmex. Tesoro countered that, as “unlawful taking” was not defined in the policy, it was broad enough to encompass Leavell’s alleged misconduct. The Court rejected this contention, holding that, at a minimum, “unlawful taking” requires that an employee seize or otherwise exercise control over an article, such that possession or control of the article is transferred without the owner’s authorization or consent.

While Leavell’s misrepresentations may have led Plaintiff to continue selling the fuel to Enmex on credit despite its outstanding debt, his misrepresentations did not exert control over the fuel such that possession or control of the fuel was transferred by virtue of the misrepresentations themselves. Stated differently, Leavell’s alleged forgeries did not transfer possession or control of the fuel — the fuel was transferred only upon its subsequent sale by Plaintiff to Enmex. …

 

Interpreting “theft” under the policy to be satisfied by any dishonesty that results in deprivation to the insured would read the language defining “theft” as an “unlawful taking” out of the policy, which the Court may not do. [emphasis in original]

As such, the “unlawful taking” requirement was not made out.

2. The “forgery” clause is not a stand-alone coverage, and a loss must meet the other requirements of the Employee Theft wording

Tesoro also contended that its loss resulted from “forgery” within the scope of the Employee Theft coverage, and that loss resulting from forgery was covered irrespective of whether it met the other requirements of the provision (including, of course, the “unlawful taking” requirement). National Union reasoned that the use of the term “include” meant that the alleged forgery loss had to meet the other requirements of the insuring agreement, i.e., the forgery must constitute an unlawful taking, committed by an employee, to the deprivation of the insured.

The Court accepted National Union’s argument, holding that the provision covers losses resulting from unlawful takings by employees by means of forgery, not simply any loss resulting from an employee’s forgery:

It would be incongruous to interpret the sentence’s use of “include” to place forgery in the same class or category as an unlawful taking, as urged by Plaintiff, such that an act requiring no taking would suffice to show the unlawful taking required for coverage. Plaintiff’s interpretation—that “a forgery always constitutes a theft” under the policy—suggests that language explaining the scope of a covered “unlawful taking” creates a basis for coverage separate and independent from an unlawful taking. The Court finds this interpretation unreasonable.

Conclusions

Tesoro Refining provides valuable guidance as to the scope of “unlawful taking” in Employee Theft wordings, and reinforces fidelity insurers’ intention that the “taking” must be by the employee, rather than any “taking”, by anyone, that is consequent upon an employee’s dishonesty. The Court also endorsed National Union’s position that the inclusion of forgery in the Employee Theft coverage does not create a “stand-alone” forgery coverage, and that the other requirements of the coverage must be established to trigger indemnity.

Tesoro Refining & Marketing Company LLC v. National Union Fire Insurance Company of Pittsburgh, Pennsylvania, 2015 WL 1529247 (W.D.Tex.)

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