825 N.W.2d 666
Mich. Ct. App.2012Background
- Amerisure sold a commercial policy to DeBruyn covering employee dishonesty.
- DeBruyn’s former controller Jillone Phillips issued unauthorized duplicate payroll checks funded from the payroll account.
- Phillips did not pay taxes or withhold on the additional checks.
- Phillips was convicted of embezzlement for this conduct.
- DeBruyn filed a claim under the employee dishonesty coverage; Amerisure denied it, and a declaratory action followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the exclusion for 'employee benefits earned in the normal course' applies | DeBruyn argues embezzled funds are covered unless earned. | Amerisure argues the exclusion covers only earned benefits; unearned funds are excluded. | Exclusion applies; embezzlement money is not salary/earned benefits. |
| Whether Phillips’s payments were 'salary' or not | Phillips’s payments were salary-like benefits. | Payments were unearned embezzlement, not salary. | Not salary; treated as unearned embezzlement under the policy. |
| Whether Resolution Trust Corp framework governs the analysis | Resolution Trust supports treating unearned payments as excluded. | Resolution Trust is persuasive, not controlling, but supports exclusion. | Resolution Trust framework applied; supports exclusion of the embezzled funds. |
Key Cases Cited
- Hartford Accident & Indemnity Ins Co v Washington Nat’l Ins Co, 638 F. Supp. 78 (ND Ill. 1986) (distinguishes earned vs unearned benefits for exclusion purposes)
- ABC Imaging of Washington, Inc v Travelers Indemnity Co of America, 150 Md App 390 (2003) (salary includes unearned funds; informs earned/excluded distinction)
- Performance Autoplex II Ltd v Mid-Continent Cas Co, 322 F.3d 847 (5th Cir. 2003) (distinguishes salary vs. unearned payments in coverage analysis)
- James B Lansing Sound, Inc v Nat’l Union Fire Ins Co of Pittsburgh, 801 F.2d 1560 (9th Cir. 1986) (excludes fraudulent commissions as salary/earned benefits)
- Muni Securities, Inc v Ins Co of North America, 829 F.2d 7 (6th Cir. 1987) (coverage denied where benefit is commissions/earnings)
- R & J Enterprizes v Gen Cas Co of Wisconsin, 627 F.3d 723 (8th Cir. 2010) (emphasizes embezzlement and similar acts fall outside salary)
- Resolution Trust Corp v Fidelity & Deposit Co of Maryland, 205 F.3d 615 (3rd Cir. 2000) (defines 'salary' exclusion by knowing payments as compensation)
- Klyn v Travelers Indemnity Co, 273 A.D.2d 931 (2000) (employee knowingly paying funds to employee; pure embezzlement recoverable)
- In re Performance Autoplex, 322 F.3d 847 (CA5 2003) (see above; relevant to salary vs unearned distinction)