The United States Court of Appeals for the Eighth Circuit has held that a commercial crime policy does not provide coverage for stolen earnings because the insured did not own the funds at the time they were stolen. 3M Co. v. National Union Fire Ins. Co of Pittsburgh, PA, 2017 WL 2347105 (8th Cir. May 31, 2017).

The insured, a manufacturing company, invested its employee benefit plan assets in a private equity firm.  Its investment was structured as a limited partnership interest in the private equity firm.  It was later discovered that two principals of the firm had engaged in a massive Ponzi scheme, diverting hundreds of millions of dollars from investors’ accounts.  The insured sought insurance coverage for the stolen earnings under the Employee Dishonesty provision of its commercial crime policy, which provided coverage for “direct Losses of Money, Securities or other property caused by Theft or forgery by any Employee of any Insured acting alone or in collusion with others.”  Another provision of the policy provided that “insured property may be owned by the Insured, or held by the Insured in any capacity whether or not the Insured is legally liable[.]”  The insurers denied coverage, and the insured filed this coverage action.  On cross motions for summary judgment, the trial court ruled for the insurers.

On appeal, the Eighth Circuit affirmed the trial court’s grant of summary judgment in favor of the Insurers, holding that the policy’s ownership requirement applied to the Employee Dishonesty provision because the only reasonable construction of that provision limits coverage to insured property.  Further, the court rejected the insured’s argument that its limited partnership interest in the private equity firm satisfied the ownership requirement, holding that property acquired with partnership funds is partnership property and therefore the insured did not own the stolen earnings at the time they were diverted.