This case demonstrates how important it is to have good insurance coverage counsel assessing a claim before the case goes to trial, through appeal, and results, nonetheless, in payment of the claim and untold amounts of litigation and appeals costs.
If the policy language applicable here would have been closely analyzed by insurance coverage counsel at the outset, a decision should have been made that the claim was in fact covered. In fact, the “plain language” approach and ordinary principles of insurance contract interpretation applied by Michigan courts would certainly mandate coverage; as noted by the Court of Appeals here.
In a rather unsurprising, but published case, the Michigan Court of Appeals held that a commercial insurance policy covering acts of “employee dishonesty” would cover claims by the insured employer for losses due to a comptroller’s payments to herself from the employer’s payroll account.
The employee administered the employer’s payroll. She cut equal checks to herself when issuing payroll checks and these additional monies were removed from the employer’s payroll account and taken by her.
The coverage provision at issue provided coverage for “employee dishonesty”, which it defined as follows:
“Employee Dishonesty”…means only dishonest acts committed by an “employee”, whether identified or not…with the manifest intent to: (1) Cause (the insured) to sustain loss; and also…[o]btain financial benefit (other than employee benefits earned in the normal course of employment, including salaries…) for…[t]he “employee”….”
I include this last parenthetical only to highlight the absurdity to which this case was extended into the Court of Appeals. The insurance coverage counsel representing the insured actually argued that case law supported the conclusion that because the checks were paid from the payroll account to the employee by herself that this constituted monies she earned in the normal course of employment and therefore the exclusion within the coverage provision applied.
This is a bit of a simplification of the argument, but there is no way under the cases analyzed in the opinion that a court is not going to characterize the employee’s conduct here as “employee dishonesty”.
Again, this demonstrates the importance of having coverage counsel overview claims decisions and make honest assessments of the policy language and the facts. The decision to pay the claim rather than litigate should have been made. This would have saved a considerable sum of money because the cost of a thorough coverage opinion and analysis is approximately one-tenth the cost of a declaratory judgment action, litigation in the trial court, and a full appeal resulting in a published opinion requiring the insurer to pay the claim, nonetheless.
If anyone has questions about this decision, please do not hesitate to call me.
The opinion is attached here: Amerisure v DeBruyn