Avon State Bank v. BancInsure, Inc., No. 14-2202 (8th Cir. 2015)
Annotate this CaseAvon Bank customer Herdering was contacted by "Gibson," who claimed to be the son of an African associate with whom Herdering had done business; that his father had died, leaving a $9 million estate; that the family wanted to transfer the funds to the U.S.; that the money was tied up in the Netherlands; and that the transfer required up-front payments of taxes and fees. Herdering sent Gibson money and approached Avon Assistant Vice President Carlson, who issued Herdering a loan from Avon, but contributed $60,000 of his own money. Avon’s President expressed concern that the estate might be a scam. Herdering later recruited others, telling them that Avon was making the loans and having both men write checks to Avon. Froseth contributed $405,000; Imdieke contributed $80,000. Carlson wired the money in violation of Avon policy that prohibited wiring money to non-customers. When the scheme fell apart, Avon terminated Carlson and sent the investors letters stating that it viewed their investments as related to Carlson’s personal dealing and not involving the bank. They sued Avon for fraudulent misrepresentation. BancInsure agreed to provide coverage under the Directors’ and Officers’ Liability Policy, rather than simply defend Avon, reserving its rights. A jury found that, in the scope of his employment, Carlson had breached his duty to disclose material information. BancInsure asserted that neither the Policy nor a separate Fidelity Bond covered the loss. The Eighth Circuit affirmed the district court holding that the Bond, but not the Policy, covered the loss, and an award of prejudgment interest.
Court Description: Shepherd, Author, with Gruender and Kelly, Circuit Judges] Civil case - Insurance. The indemnity bond issued to the bank requiring defendant to indemnify Avon for any loss resulting directly from dishonest or fraudulent acts committed by a bank employee was not limited to first party losses and covered third party losses such as occurred in this case where Avon suffered the loss of third-party property in its possession; as the district court did not err in holding that the bond covered Avon's loss and the bond covered Avon's entire loss, the court did not need to consider Avon's cross-appeal on the question of whether the loss was covered under its Directors and Officers liability policy; district court correctly applied Minnesota law in determining Avon's prejudgment interes.
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