National Union Fire Insurance Company of Pittsburg, Pa. v. Cargill Inc

Background

National Union issued Cargill a commercial crime insurance policy covering up to $25 million, subject to a $10 million deductible. The policy’s employee-theft provision covered losses to money, securities, and other property resulting directly from theft by an employee. The policy defined theft as the unlawful taking of property to the insured’s deprivation.

Cargill’s former employee, Diane Backis, negotiated sales contracts for corn and sorghum at Cargill’s Albany, New York, facility. According to the opinion, Backis misrepresented customer prices and entered false prices into Cargill’s accounting system. This caused Cargill to sell commodities below cost. A jointly retained investigative specialist concluded that Cargill suffered $32,115,192 in losses, including $3,115,611 in cash theft.

Cargill sought coverage, but National Union denied it. National Union then brought a declaratory-judgment action about its contractual obligations, and Cargill filed a counterclaim for breach of contract. Cargill moved for judgment on the pleadings, which is a decision based on the pleadings and documents incorporated into them when no material factual dispute remains and the moving party is entitled to judgment as a matter of law.

Insurance coverage

The court applied Minnesota law. It concluded that Cargill’s losses resulted directly from Backis’s conduct because she controlled the pricing and recordkeeping for the sales, and her scheme caused Cargill to sell commodities below cost. The court found no intervening cause that broke the connection between Backis’s actions and Cargill’s losses.

The court also held that Backis’s conduct constituted theft under the policy. A taking requires an exercise of possession or control, but the court determined that Minnesota law did not require a physical taking for employee-theft coverage. Backis controlled pricing, negotiated and recorded sales contracts, and oversaw accounting and invoicing. That control was sufficient under the policy.

The court rejected National Union’s argument that Cargill had to prove Backis received something unlawfully from the losses. The policy covered the insured’s loss and did not require proof of a matching gain by the employee. Any remaining uncertainty in the policy language had to be resolved in Cargill’s favor.

Prejudgment interest

The court also ruled that prejudgment interest accrued beginning April 28, 2016. On that date, Cargill emailed National Union about the federal investigation into Backis’s conduct and formally notified National Union of a claim under the policy. Under Minnesota Statutes section 60A.0811, the court concluded that interest begins when the insured requests payment; the insurer need not first have a complete opportunity to determine the amount owed.

Disposition

The court granted Cargill’s motion for judgment on the pleadings. It ordered judgment against National Union and in favor of Cargill for $22,114,883, plus 10 percent prejudgment interest per year, or $6,058 per day, beginning April 28, 2016, and ending when judgment was entered.