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Federal Court Upholds Ruling in Favor of Insurance Company in Claim Theft Case

A federal appeals court recently upheld a summary judgment by a lower court, stating that an insurance company’s business unit was right to deny coverage under a crime policy issued to a company.

Business Insurance reported that the 6th U.S. Circuit Court of Appeals in Cincinnati agreed with a U.S. District Court ruling that Federal Insurance Co., a unit of Chubb Ltd., did not have to cover a claim from Construction Contractors Employer Group L.L.C. since the latter had originally discovered the loss when it began outsourcing its day-to-day operations to another company, AlphaCare Services Inc. and before taking out the policy.

On April 2002, Construction Contractors chose AlphaCare Services Inc. in Toledo as its subcontractor to handle the day-to-day operations for its “subscribers,” which consisted of regional construction firms. In July 2012, John R. Moon, AlphaCare’s co-owner, told Construction Contractors his company did not have enough money to meet its obligations, despite the fact that Construction Contractors’ subscribers were making their payments on time and regularly fulfilling their obligations.

It was later learned that Moon transferred more than $900,000 from Construction Contractors’ account and into AlphaCare’s account while charging Construction Contractors another $30,000 for health care premiums. According to the Court’s ruling, another $1 million was still unaccounted for. Moon later admitted he falsified Construction Contractors’ financial statements and that his company was facing serious tax issues. The Department of Justice charged him with conspiracy and wire fraud.

In January 2013, Construction Contractors was issued a crime coverage insurance policy from Federal Insurance that would cover losses up to $1 million from March 2013 to July 2013. The policy defined a single or multiple acts by the same employee as a single loss and excluded coverage for losses that occurred before the policy’s issue date or when the details and amount of the loss could be determined. According to Insurance Business Canada, four months after the policy was issued, Construction Contractors learned that Moon had misappropriated the missing $1 million by having the subscribers write out the checks to Construction Contractors while using AlphaCare’s account number.

Construction Contractors filed a claim to recover the $1 million, but was denied. The company sued Federal Insurance for breach of contract in U.S. District Court. Federal Insurance moved for summary judgment and won. Construction Contractors appealed the decision, but the appeals court upheld the lower court’s ruling, stating that the plaintiff company discovered the loss before taking out the policy.

The experienced attorneys at Montfort, Healy, McGuire & Salley, LLP offer a wide range of advice on insurance-related disputes for businesses, cities and individuals. Call (516) 747-4082 for more information.

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