Update (April 23, 2014): A business (BancInsure) promised to indemnify another business (Avon State Bank), breached the promise, forcing Avon to sue BancInsure. Avon cannot recover its legal fees in its action to get BancInsure to indemnify it.
Might not make sense. But the law is the law. Too bad for Avon State Bank.
On the subject of “prejudgment interest,” the law provides:
An insured who prevails in any claim against an insurer based on the insurer’s breach or repudiation of, or failure to fulfill, a duty to provide services or make payments is entitled to recover ten percent per annum interest on monetary amounts due under the insurance policy….[The interest is] calculated from the date the request for payment of th[e] benefits was made to the insurer.
This makes no sense in the Avon State Bank v. BancInsure case. Avon had not actually paid the settlement or defense costs for which it sought indemnification at that time. Why should it be entitled to prejudgment interest going back to the time that it made its “request for payment”?
Might not make sense. But the law is the law. Too bad for BancInsure.
Original post (1/13/2014): (under subject line, “Bank Employee Falls for Cliché Scam and Draws in Bank Customers. Is The Bank’s Insurer on the Hook?”): As Sr. U.S. District Court Judge Richard H. Kyle, Sr. (D. Minn.) explained in a decision that issued this past Friday:
The difference between liability insurance and fidelity bonding is that liability insurance covers the liability of the insureds to a third-party, while fidelity bonding covers the loss of property owned by the insureds or held by the insureds, as a consequence of employee dishonesty.
Or, to put it another way, if a bank employee negligently causes the loss of a bank customer’s money in the course of his work and the bank itself is held liable to the third party, that implicates the bank’s liability insurance. But if a bank employee steals money from the bank itself, this could trigger coverage under the bank’s fidelity bond.
But what if the bank employee uses the bank and his position with the bank to misappropriate money from third parties intentionally? Does this trigger coverage under either the bank’s liability policy or its fidelity bond?
It is a knotty question. Liability insurance frequently (always?) has an exclusion for coverage for intentional misconduct. In light of this, Judge Kyle found that the bank in this case, Avon State Bank located in Avon, Minnesota (Stearns County, pop. 1,409 (2012 U.S. census)), was not in a position to make a claim under its liability insurance policy.
As for the bank’s fidelity bond, it is somewhat unclear whether using the bank as a cover and conduit for the misappropriated money from third parties should suffice to make the loss a direct loss of the bank’s money triggering coverage under the bond.
Judge Kyle’s analysis concludes that it does suffice.
Avon’s loss is covered by the terms of its 2007 Financial Institution Bond and BancInsure is therefore obligated to indemnify Avon for the judgment and ensuing settlement agreement in the action entitled Donald Imdieke and Mike A. Froseth v. Ambrose Joseph Herdering, Avon State Bank, and Glenn Diedrich, Stearns County Court File No. 73-CV-10-923, and for its post- verdict defense costs. Avon is further entitled to recover attorneys’ fees and costs reasonably incurred in this action.
Congratulations to victorious plaintiff’s counsel, Margo Brownell and others from the law firm of Maslon Edelman Borman & Brand, LLP. But we’ll have to see whether the defendant insurer will appeal…