Sherwin-Williams Company, The v. Beazley Insurance Company, Inc.

Background

Beazley issued The Valspar Corporation a crime insurance policy for April 20, 2016, through April 20, 2017. The policy’s Employee Dishonesty Clause covered losses resulting directly from “Employee Theft” or “Employee Forgery.” The policy defined Employee Theft as the unlawful taking of money, securities, or property that deprived the insured, whether the employee acted alone or with others.

Sherwin-Williams, Valspar’s successor, alleged that former Valspar employee Charles Cunningham approved inflated invoices submitted by AmeriCoats, a toll-manufacturer. Sherwin-Williams alleged that the scheme deprived Valspar of approximately $3.5 million and that Cunningham personally benefited, including through payments to CEC Consultants, Ltd. Valspar discovered the alleged loss in April 2017, notified Beazley, and sought coverage. Beazley denied coverage, and Sherwin-Williams sought a declaration under Minnesota law that Beazley owed coverage above the policy’s $250,000 deductible.

Beazley moved for summary judgment, which asks the court to decide a case without a trial when there is no genuine dispute over a fact that could affect the result. Beazley argued that the alleged overcharges were not Employee Theft, that a policy exclusion for losses caused by a contractor or similar entity applied, and that a separate exclusion for money knowingly given to a third party also applied.

Legal framework

The parties agreed that Minnesota law governed. The court explained that insurance-policy interpretation is generally a legal question, and that policy terms ordinarily receive their plain and ordinary meaning. Ambiguous terms are interpreted in favor of coverage, while exclusions are read narrowly. The court also had to view the evidence and reasonable inferences in the light most favorable to Sherwin-Williams, the party opposing summary judgment.

Employee Theft

Beazley argued that Cunningham did not “take” the money because he did not issue the payments, divert them to himself, or exercise control over them; Valspar paid AmeriCoats directly. Sherwin-Williams argued that a physical taking was unnecessary and that the evidence could support a finding that Cunningham committed Employee Theft.

The court agreed that “taking” for purposes of the policy does not generally require a physical act. It emphasized that the policy did not specifically require physical control over a particular item. Based on the evidence viewed favorably to Sherwin-Williams, a reasonable juror could find that Cunningham’s actions unlawfully deprived Valspar of money and constituted Employee Theft. The court therefore declined to grant summary judgment on this issue.

Policy exclusions

Beazley argued that Exclusion B.1 barred coverage for losses caused directly or indirectly by a contractor, independent contractor, subcontractor, or similar entity, contending that AmeriCoats caused the loss by submitting inflated invoices. Sherwin-Williams argued that AmeriCoats could submit invoices but could not cause them to be approved and paid, and that Cunningham caused or helped cause the loss.

The court concluded that a reasonable juror could find that Cunningham caused or colluded to cause the loss. It reasoned that reading Exclusion B.1. to bar losses involving a third party acting together with an employee could make the policy’s express coverage for Employee Theft “in collusion with others” nearly meaningless. The court therefore declined to rule as a matter of law that Exclusion B.1. barred coverage.

Beazley also relied on Exclusion A.18, which applied to loss resulting from the insured knowingly giving or surrendering money in an exchange or purchase with a third party not acting in collusion with an employee. The court found that a reasonable jury could conclude that Cunningham caused or colluded to cause the loss and that Valspar did not knowingly give or surrender the money. The court therefore could not conclude as a matter of law that Exclusion A.18 barred coverage.

Disposition

The court found that disputes over material facts precluded summary judgment. It held that a reasonable juror could conclude that Cunningham’s conduct constituted Employee Theft and that the policy provided coverage, and it could not decide as a matter of law that either cited exclusion barred coverage. Judge Donovan W. Frank ordered that Beazley’s motion for summary judgment was DENIED. The opinion did not finally determine Beazley’s ultimate coverage obligation.