Cheating Third Party Customers of Insured is not Covered by a Fidelity Bond

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In Federal Insurance Company v. Axos Clearing LLC, No. 18-2653, United States Court of Appeals For the Eighth Circuit (December 7, 2020) Federal denied coverage and sued claiming COR’s claim is not covered under the Bond’s insuring clauses. The district court granted summary judgment, declaring that COR’s claim for reimbursement under the Bond is not covered and dismissing COR’s counterclaim with prejudice. COR appealed.

ZALMA OPINION

A fidelity bond, issued by an insurer, is not a type of insurance that will indemnify an insured against the claims of third parties due to the unethical and criminal acts of an employee. Rather, the bond only covers the damage the unethical or criminal acts of an employee that damages the employer, the holder of the bond. Since the crooked employee did not embezzle or otherwise take the money of COR there was no coverage for the losses it paid to settle with defrauded third parties.