Extra Salary Payments Illegally Obtained by Employee Not Covered by Fidelity Policy


In R&J Enterprizes v. General Cas. Co. of Wisconsin, ___ F.3d ___, 2010 WL 5111677 (8th Cir. (Iowa) December 16, 2010), the Eighth Circuit Court of Appeals rejected an insured’s claim that an employee dishonesty provision in a commercial marketplace policy covered more than $100,000 in extra salary paid to an employee who overstated his hours worked on timecards. The provision stated that the insurer would pay for losses resulting from the dishonest acts of employees with the intent to “obtain financial benefit (other than salaries … or other employee benefits earned in the normal course of employment).”

The insured filed a suit for declaratory relief and breach of contract. Applying Iowa law, the district court granted summary judgment for the insurer, and the Eight Circuit affirmed. The court held that the policy language unambiguously excluded coverage for unauthorized salary amounts obtained by the insured’s employees. The court explained: “Unearned salaries and commissions are nevertheless still salaries and commissions and therefore belong to the generic category of employee benefits that are normally earned in the course of employment.”

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