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C.S. McCrossan Inc. v. Federal Insurance Co.

United States Court of Appeals, Eighth Circuit

August 6, 2019

C.S. McCrossan Inc. Plaintiff - Appellant
v.
Federal Insurance Company Defendant-Appellee

          Submitted: March 14, 2019

          Appeal from United States District Court for the District of Minnesota - Minneapolis

          Before GRUENDER, BENTON, and GRASZ, Circuit Judges.

          BENTON, Circuit Judge.

         C.S. McCrossan Inc. sued Federal Insurance Company for coverage under a crime insurance policy. Both moved for summary judgment. The district court [1]granted the Company's motion. C.S. McCrossan Inc. v. Federal Ins. Co., 2018 WL 2180256 (D. Minn. Mar. 29, 2018). McCrossan appeals. Having jurisdiction under 28 U.S.C. § 1291, this court affirms.

         I.

         The Company issued McCrossan an insurance policy for "Employee Theft" and "Forgery":

(A) The Company shall pay the Parent Organization for direct loss of Money, Securities, or Property sustained by an Insured resulting from Theft or Forgery committed by an Employee acting alone or in collusion with others.
(D) The Company shall pay the Parent Organization for direct loss sustained by an Insured resulting from Forgery or alteration of a Financial Instrument committed by a Third Party.

(bolded words in original, defined in policy). The policy excluded from coverage certain loss "committed by any authorized representative of an Insured." An Insured under the policy included McCrossan and its subsidiaries.

         Blakeley Properties, LLC and Stewart Properties, LLC own commercial rental properties. Brookstone, Inc. and Valhalla Investments, Inc. were Blakeley's and Stewart's respective agents to "manage, operate, control, rent and lease" several properties. (Image Omitted) Both hired Balderson Management, Inc. to manage these properties. Blakeley separately hired Balderson as well.

         Balderson's owner and principal, Cynthia Balderson, managed properties with the help of an "administrative person," as relevant here, her daughter Stephanie Castillo. Castillo was the primary user of Balderson's property management system, the sole copy of which was on her computer. Unlike Cynthia, her duties (and authority) did not include signing checks from any accounts.

         Castillo stole around $570, 000 from Blakeley and $250, 000 from Stewart over the course of several years. She created fake invoices in the property management system, printed checks (from Blakeley's and Stewart's accounts) payable to herself or for her benefit, manipulated the system to show payment to a vendor, and forged Cynthia's signature on each check. She pled guilty to eight counts of theft by swindle and was sentenced to 80 months' imprisonment. State v. Stephanie Lantgen Castillo, No. 27-CR-15-503 (Minn. Dist. Ct. Hennepin Cty. Nov. 23, 2015) (sentencing order).

         McCrossan submitted a claim to the Company, seeking coverage under the "Forgery" and "Employee Theft" insuring clauses. The Company denied the claim. McCrossan sued for breach of the insurance policy. Both parties moved for summary judgment. The district court granted summary judgment to the Company. It concluded Stewart was not an Insured under the policy; Castillo was an authorized representative of Blakeley, precluding coverage under "Forgery;" and Castillo ...


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