Bankers bonds; Employee misconduct
When an insured incurs liability to a third party — whether in contract or tort — as a result of employee misconduct, financial loss resulting from that liability is not “directly” caused by the employee misconduct and therefore is not covered by fidelity bonds containing direct-loss language.
“The particular bond at issue in our case is a mortgage bankers bond, a variation of a bankers blanket bond specifically tailored to institutions that originate and resell mortgage loans. See http://www. statesideunderwriting.com/mbb/mortgage_banker_broker_ insurance.html (last visited June 30, 2011). Because bankers blanket bonds have changed over time, we must closely examine the operative language in the bond to ensure the authorities we have cited are applicable. See First Nat’l Bank of Manitowoc v. Cincinnati Ins. Co., 485 F.3d 971, 977 (7th Cir. 2007). The bond’s relevant insuring clause covers loss ‘directly caused by’ employee dishonesty, while the Standard Form No. 24 and the bonds interpreted in Tri City and RBC Mortgage covered loss ‘directly resulting from’ employee dishonesty. These phrases differ slightly, but the key word in each is ‘directly,’ which courts have exhaustively interpreted. We see no meaningful difference between ‘caused by’ and ‘resulting from’ in this context, a conclusion with which the parties appear to agree. Accordingly, consistent with Tri City and RBC Mortgage, the bond does not cover losses sustained by Universal as a result of third-party contract liability.”
10-3015 Universal Mortgage Corp. v. Wurttembergische Versigherung AG
Appeal from the United States District Court for the Eastern District of Wisconsin, Stadtmueller, J., Sykes, J.