Constr. Contractors Employers Group, LLC v. Fed. Ins. Co., No. 15-4352 (6th Cir. 2016)Annotate this Case
Construction Contractors (CC), was formed to perform employment functions for regional construction employers, who would transfer funds into CC’s accounts to cover gross payroll, taxes, benefits, and administrative costs. CC would disburse the funds to satisfy subscribers’ obligations. In 2002, CC outsourced its daily operations to AlphaCare. In 2012, AlphaCare informed CC that there were insufficient assets to meet obligations, although the subscribers had paid enough money to fulfill their respective obligations. An AlphaCare manager (Moon) had been falsifying financial statements. CC terminated its agreement with AlphaCare. An investigation revealed that the IRS had started levying CC accounts in 2011. CC owed more than $1.25 million, plus penalties, in unpaid taxes dating back to 2005. AlphaCare had also failed to remit $715,000 in Ohio unemployment taxes for the first quarter of 2012.CC’s CFO, VanDenBerghe, determined that Moon had committed wire fraud by transferring over $900,000 from CC’s account to AlphaCare’s account from 2009-2012. VanDenBerghe continued investigating; about $1 million was still missing. CC applied for a crime-coverage insurance policy, with coverage for employee theft, from Federal Insurance. After Federal executed the policy, CC determined that Moon had misappropriated the missing $1 million. Federal denied CC’s claim for that loss. The Sixth Circuit affirmed summary judgment in favor of Federal, concluding that any loss caused by one employee is considered a “single loss” under the policy and that CC had “discovered” the loss before the execution of the policy.