"The Termination Provision in Fidelity Insurance Policies: Practitioners Discuss a Split in Authority"


The Capital Bank & Trust decision enforcing a fidelity bond's termination provision reflects the majority rule that there is no fidelity coverage for loss from an employee's acts when the employer knows in advance of the loss of past dishonesty on the part of that employee. Its holding is more sound than that of Waupaca Northwoods, which found the provision ambiguous in a crime policy with respect to knowledge of pre-policy inception dishonesty and thus unenforceable to bar coverage for acts by a known dishonest employee. The difference between these two case holdings illustrates the difference between applying a provision as written, on the one hand, and straining to find ambiguity in order to create coverage, on the other hand. The judge who authored the Waupaca Northwoods decision makes clear his sympathy for an employer who purchased a company that seemed to have two bad apples, one of whom knew of the other's prior termination for knowingly misusing the predecessor company's resources when he rehired the other as a plant manager for the new company. However, while sympathy for an employer (as opposed to an insurer) is not too surprising to insurance coverage practitioners, sympathy does not make for soundly decided precedent.

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Published In: General Business Updates, Conflict of Laws Updates, Finance & Banking Updates, Insurance Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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