CP Food & Beverage, Inc. v. U.S. Fire Ins. Co., 324 F. Supp. 3d 1172

CP Food & Beverage operated a club where patrons purchased "funny money" to tip; employees could exchange funny money with CP for cash.
Several employees ran a scheme overcharging customer credit cards (duplicate charges, charging for bottles kept by employees, charging for unpurchased funny money) and then converted proceeds into cash at CP.
Multiple customers disputed charges; CP paid $768,617.91 in chargebacks and incurred substantial investigation and professional fees. CP only paid chargebacks when customers disputed and the chargebacks were processed.
CP held a commercial crime (employee dishonesty) policy from U.S. Fire insuring "loss ... resulting directly from 'theft' committed by an 'employee'" and defining theft as "the unlawful taking of property to the deprivation of the Insured." The policy excluded indirect losses and costs incurred to establish loss.
U.S. Fire denied CP's claim; CP sued for breach of contract, breach of covenant of good faith and fair dealing (bad faith), violations of Nevada's Unfair Claims Practices Act, and declaratory relief.
The district court granted summary judgment to U.S. Fire, holding CP's losses were indirect third‑party losses (customers were the direct victims), so not covered; denial was reasonable so no bad faith; and CP produced no evidence of damages from unfair practices.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether employee theft produced a "direct" covered loss under the policy	CP: employees obtained cash from CP when exchanging funny money, so CP was directly deprived and the loss is covered	U.S. Fire: employees stole from customers; CP's payments were restitution/contractual chargebacks — an indirect third‑party loss not covered	Court: Adopted "direct means direct" approach; CP's losses were indirect and not covered
Whether U.S. Fire acted in bad faith by denying the claim	CP: U.S. Fire failed to investigate and only asserted lack of direct loss in summary judgment	U.S. Fire: denial was reasonable based on policy language and case law	Court: Denial reasonable; no bad faith as a matter of law
Whether CP stated an unfair claims practices claim under Nev. Rev. Stat. § 686A	CP: U.S. Fire engaged in unfair practices in handling the claim	U.S. Fire: CP has no evidence of damages from any unfair practice	Court: CP failed to show damages or other elements; summary judgment for U.S. Fire
Recoverability of investigative/professional fees and chargebacks as policy loss	CP: Fees and chargebacks flowed from employees' thefts and are recoverable	U.S. Fire: Those costs result indirectly from third‑party thefts and from CP's contractual/legal obligations; policy excludes indirect losses	Court: Fees and chargebacks are indirect and excluded; not recoverable

Tooling, Mfg. & Techs. Ass'n v. Hartford Fire Ins. Co., 693 F.3d 665 (6th Cir.) (discussing proximate‑cause vs. direct‑loss interpretations)
Vons Cos., Inc. v. Fed. Ins. Co., 212 F.3d 489 (9th Cir.) ("direct" means direct; fidelity policies do not cover vicarious liability for third‑party losses)
Universal Mortg. Corp. v. Württembergische Versicherung AG, 651 F.3d 759 (7th Cir.) (insured’s liability to third parties resulting from employee misconduct is not a "direct" loss)
Direct Mortg. Corp. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, 625 F. Supp. 2d 1171 (D. Utah) (losses contingent on later events are not "direct")
Pemberton v. Farmers Ins. Exch., 109 Nev. 789 (Nev. 1993) (elements of insurer bad‑faith claim under Nevada law)
Fourth St. Place v. Travelers Indem. Co., 127 Nev. 957 (Nev. 2012) (policy interpretation principles; give terms plain meaning)