Dear Clients, Colleagues and Confreres:

In this, our last blog for the year, we pass on a smorgasbord of items.

Serious Fraud Office

The Ontario government recently announced the formation of the Serious Fraud Office (“SFO”) to investigate and prosecute complex white collar crime.  The SFO is to work with existing law enforcement agencies to help combat serious or complex fraud claims of all types in Ontario (unlike the IMET division of the RCMP which focuses on capital markets fraud).  The SFO will include investigators and prosecutors to combine their expertise in pursuing financial fraud crimes.  Further details and guidelines are to be published in the future.

Mareva Injunction

In a recent Ontario decision, the test for granting a Mareva injunction was considered in the fraud context. Notwithstanding evidence of potentially fraudulent transactions (which were disputed by the defendants), Justice Pattillo denied a request for a Mareva injunction on the basis that there was no evidence to demonstrate a serious risk that the defendants would dissipate or dispose of assets.  The decision demonstrates that a Mareva injunction will not be granted automatically.  Rather, the court will take a contextual approach and look at all the surrounding circumstances in deciding whether to grant a Mareva injunction as extraordinary relief.  The case is available here.

Direct Loss

The recent decision in Principle Solutions Group, LLC vs. Ironshore Indemnity, Inc., the Court of Appeals for the Eleventh Circuit in Georgia, reflects the divergent stream of cases in the United States when interpreting the direct loss provision in a commercial crime policy.  The majority in this case interpreted the words “loss resulting directly from” to mean the proximate cause between a covered event, and a loss, rather than an immediate link between the two events (as underwriters generally intend).  There are divergent streams of authority on this provision in the United States.  It is not clear at this time whether the decision will be appealed.

All Risk Policy Decision

In an interesting twist, a recent Ontario case awarded the insured recovery of a fraud loss under an all-risks commercial insurance policy.  The insured sold defibrillators to a fraudster posing as a doctor affiliated with a hospital.  The defibrillators were shipped.  The invoices were not paid by the “doctor.” The court found that the insured had not “voluntarily surrendered” the units given the fraudulent intent of the perpetrator.  The insured was awarded the value of the units on this basis.  The decision is available here.

Closing Remarks

Thank you to all our readers.

We wish you and yours the best for the upcoming holiday season, and for a happy, healthy and prosperous 2020.

This year, the FLA is pleased to present its 25th Annual Conference and Anniversary Celebration.  Program Chairs Michael Keeley and Matt Kalin have assembled a series of timely presentations, covering topics as diverse as liability and recovery in respect of email-based claims; disputes arising from the interplay between riders and other policy provisions; and public official blanket bonds and government employee crime coverage forms.  We are also fortunate to be joined by Timothy Russell, Supervisory Special Agent with the FBI’s Criminal Cyber Squad, who will present on Current Cyber Threats and Trends.  As always, the annual Fidelity Law Update will provide a comprehensive review of key coverage decisions over the past year.  The program concludes with a panel discussion on the evolution of fidelity law and practice over the past 25 years.

  • To register, or for more information, click here.

The ABA FSLC Fall Meeting on November 7-8 is entitled “How to Handle the Fidelity Bond Claim.”  Program Chairs Megan Manogue and Richard Baudouin have designed a lineup of presentations on Thursday, November 7 that will update participants on recent legal developments and claims handling strategies.  The focus will be on a pragmatic discussion and implementation of specific skills with an eye toward pressing legal issues, ethical issues and strategy.  The program will address important practical issues germane to today’s fidelity claims handling, including topics such as the claim handler’s initial analysis of the claim; the use of outside professionals; valuation of the insured’s loss; issues arising from the limit of liability; and subrogation and mitigation.

On Friday, November 8, attendees will put what they have learned into practice, through a series of four breakout sessions, each focused on a different insuring agreement.  Participants will receive a hypothetical loss scenario which will serve as the starting point to engage the room in a discussion of claims handling issues.  Blaneys Partner Chris McKibbin joins Tracey Archbold, Toni Scott Reed and Katherine Musbach in presenting a hypothetical involving the Securities insuring agreement.

The Fall Meeting also sees the debut of the third edition of Handling Fidelity Bond Claims, the leading reference work in the field.  The text has been wholly updated to provide fidelity claims professionals with up-to-date practical guidance on issues arising from the submission, investigation, and resolution of claims.

  • To register, or for more information, click here.
  • A copy of the conference brochure may be accessed here.

On August 6, 2019 the Eighth Circuit Court of Appeals released its decision in C.S. McCrossan Inc. v. Federal Insurance Company.  The decision addresses a host of coverage issues, including the application of the “Authorized Representative” exclusion and the definitions of “Subsidiary” and “Contractual Independent Contractor.”  The case is instructive for fidelity claims and underwriting professionals, as well as brokers and corporate risk managers.

Continue Reading C.S. McCrossan Inc.: Eighth Circuit applies Crime Policy’s Authorized Representative Exclusion in finding No Coverage for loss caused by Insured’s Property Manager’s Employee

In the recent decision of Starr Insurance Holdings, Inc. v. United States Specialty Insurance Company, the Supreme Court of the State of New York held that the termination condition applied to terminate coverage in respect of losses allegedly caused to an insured insurance company (itself a holder of a fidelity bond issued by two other carriers) by the insured’s managing general agent (“MGA”)/broker.  Finding that the insured knew of the MGA’s dishonest acts prior to obtaining fidelity coverage, the Court applied the bond’s termination condition to hold that coverage terminated in respect of the MGA as of the inception of the bond.

Continue Reading Starr: New York Supreme Court applies Termination condition in finding No Coverage under Fidelity Bond for Loss caused to Insurer by Managing General Agent

On November 19, 2018, the U.S. District Court for the District of New Jersey released its decision in Posco Daewoo America Corp. v. Allnex USA, Inc. and Travelers Casualty and Surety Company of America.  The decision represents a “sequel” to the Court’s 2017 decision arising out of the same claim (see our November 6, 2017 post).  The case features an interesting twist on the usual social engineering fraud claim scenario, in that it was the intended payee of the funds, not the payor, which asserted a claim under its own crime policy for recovery of funds which the payor had been duped into paying to an impostor.  This type of claim has been referred to as a “reverse” social engineering fraud claim.  Numerous such claims have been advanced by intended payees recently, typically when it comes to light that the payor did not maintain its own social engineering fraud coverage.

The 2017 decision dismissed the claim of the insured, Posco Daewoo America Corp. (“Daewoo”), under Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief could be granted (this is similar to Ontario’s Rule 21.01(1)(b)).  However, the Court granted leave to Daewoo to re-plead its claim.  In so doing, Daewoo made some novel arguments concerning the scope of the ownership condition.

Continue Reading Posco Daewoo: U.S. District Court applies Ownership Condition in rejecting Creditor’s “Reverse” Social Engineering Fraud Claim under its own Crime Policy

Blaneys partners David Wilson and Chris McKibbin will attend the joint FLA/ABA FSLC Conference in Philadelphia.  The FLA Conference on November 7 has a solid emphasis on cybercrime, while also addressing other important contemporary issues.  Program Chairs Theresa A. Gooley and Samuel J. Arena, Jr. have assembled a series of timely presentations, covering the impact of digital technology on forgery coverage; ERISA fidelity insurance; the continuing problem of the application of the tort concept of “proximate cause” to the interpretation of causation language in fidelity policies; comparing and contrasting Insuring Agreements (D) and (E); and a panel discussion on cybercrime, covering prevention, available products, coverages and claims.

Chris will co-present Tales From The Crypt: Cryptocurrency Is Here — How Will Crime Insurers Respond? which examines potential loss scenarios involving cryptocurrency and how they compare and contrast with traditional fidelity loss scenarios.

  • To register, or for more information, click here.
  • A copy of the conference brochure may be accessed here.

The ABA FSLC Fall Meeting on November 8 is entitled “An Analysis of Fidelity Claims for the Modern World.”  The program will address important substantive and practical issues germane to today’s fidelity claims handling.  Program Chairs Robin Segal-Gonzalez and Justin Wear have designed a lineup of presentations that will update participants on recent developments and claims handling strategies. The focus will be on a pragmatic discussion and implementation of specific skills with an eye toward pressing legal issues, ethical issues, and strategy. The topics include developments in cybercrime; a comparison of employee dishonesty vs. theft wordings; policy conditions regarding notice and proof of loss, as well as filing of suit; and causation in the context of fictitious collateral cases.

Chris will participate in the panel entitled The Fidelity Recovery Playbook: Practical Strategies for Maximizing Recovery, which canvasses litigation strategies and tools carriers can use to maximize recoveries against defaulters, confederates, third-party beneficiaries, auditors and banks.

  • To register, or for more information, click here.
  • A copy of the conference brochure may be accessed here.


In the recent decision of CP Food & Beverage, Inc. v. United States Fire Insurance Company, the U.S. District Court for the District of Nevada held that coverage was not available under a crime policy where the insured’s employees had defrauded the insured’s customers through misuse of customer credit cards.  The decision makes important findings regarding the appropriate test for “direct loss” causation in a crime policy, and reaffirms the general principle that crime policies are not intended to indemnify insureds for their vicarious liability arising from employees’ theft of third parties’ property.

Continue Reading CP Food: U.S. District Court finds No Coverage under Crime Policy for Insured’s Vicarious Liability for Theft of Customers’ Funds

Jump To: The Facts | The Decision | The Conclusion

On April 17, 2018, the Ninth Circuit Court of Appeals released its decision in Aqua Star (USA) Corp. v. Travelers Casualty and Surety Company of America, affirming the decision of the U.S. District Court for the Western District of Washington (see our July 19, 2016 post).  The decision offers guidance to fidelity insurers with respect to the application of the “authorized entry” exclusion found in the base wording of many commercial crime policies (sometimes referred to as the “authorized access” exclusion), and illustrates how this exclusion may operate in the context of a social engineering fraud loss.

Continue Reading Aqua Star: Ninth Circuit applies Authorized Entry Exclusion to Social Engineering Fraud Claim


On January 22, 2018, the U.S. District Court for the Southern District of New York released its decision in Hudson Heritage Federal Credit Union v. CUMIS Insurance Society, Inc., dismissing the insured credit union’s claim pursuant to Federal Rule 12(b)(6) for failure to state a claim upon which relief could be granted.

According to its amended complaint, the insured had granted several vehicle finance loans on the strength of photocopies or electronic copies of New York State Department of Motor Vehicles (“DMV”) title documents.  The copies received by the insured had been falsified to misrepresent the names of the owners/sellers.  The Court found that the insured’s complaint failed to plead that its losses had resulted directly from forgery or alteration of an “instrument”, which the bond in issue defined as an “original … document of title”.

Continue Reading Hudson Heritage: U.S. District Court dismisses Fraudulent Loans claim where Credit Union failed to plausibly plead Alteration of Original Documents of Title

Jump To: The Facts | The Ownership Condition | The Conclusion

On November 20, 2017, the Fifth Circuit Court of Appeals released its decision in Cooper Industries, Limited v. National Union Fire Insurance Company of Pittsburgh, PA.  The Court applied a crime policy’s ownership condition in ruling that the insured did not have coverage for the loss of funds incurred when an investment entity to which it had provided funds in exchange for promissory notes collapsed due to the entity’s principals’ Ponzi scheme.

The dispute arose out of the same Ponzi scheme that gave rise to the decision of the Eighth Circuit in 3M Company v. National Union Fire Insurance Company of Pittsburgh, PA (see our June 13, 2017 post).  Although there are important factual distinctions between the two losses, the Fifth Circuit reached the same conclusion as the Eighth Circuit in finding that the insured had not demonstrated that it owned the property in issue.

Continue Reading Cooper Industries: Fifth Circuit applies Crime Policy’s Ownership Condition in finding No Coverage for Loss of Funds in Ponzi Scheme