A federal appeals court on Tuesday upheld a lower court’s ruling in favor of Cargill Inc. in a dispute with a unit of American International Group Inc. over how much coverage it is entitled to stemming from an employee’s embezzlement.
Foodservice company Cargill Inc., which is based in Wayzata, Minnesota, had purchased commercial insurance through AIG unit National Union Insurance Co. in Pittsburgh that covered theft by employees, according to the ruling by the 8th US Circuit Court of Appeals in St. Louis in National Union Fire Insurance Co. in Pittsburgh v. Cargill Inc.
Around 2008, Diane Backis, who was a Cargill employee for several decades at a grain facility Cargill operated in Albany, New York, began a fraudulent scheme, at least in part, to embezzle money from Cargill, according to the indictment.
This involved misrepresenting to Cargill the price at which it could sell grain in the Albany market, resulting in Cargill sending additional grain to Albany which it sold at prices lower than those reflected in Cargill̵
7;s accounting system.When Cargill discovered Backi’s plan, Cargill notified the National Union, and she was eventually arrested. She later pleaded guilty and was sentenced to 60 months in prison in 2017, according to the U.S. Attorney’s Office in Syracuse, New York.
In August 2016, Cargill invoked an insurance provision that allowed Cargill and National Union to jointly investigate the case. They hired BDO Advisory, a unit of BDO USA, which concluded in a 2019 report that Cargill had incurred losses of $32 million, primarily reflecting freight costs Cargill paid to ship grain to Albany under the embezzlement program, and the $3 million dollar as mrs. Backis had redirected to her personal bank accounts.
A dispute arose between Cargill and National Union over policy coverage, with AIG claiming it was obligated to pay only $3 million and Cargill claiming it was entitled to the full $32 million.
AIG filed suit in US District Court in St. Paul, Minnesota, to obtain a declaration in its favor, and Cargill counterclaimed for breach of contract. The district court ruled in Cargill’s favor and was affirmed by a three-judge panel.
“National Union asserts that several material facts are in ‘dispute,'” but “many of the allegedly disputed facts it cites … are contradicted by the findings of the report, which National Union acknowledges are final and binding,” the ruling said.
“National Union cannot defeat judgment on the pleadings by recasting legal disputes as factual,” said the ruling, which affirmed the lower court.
Cargill attorney Rikke A Dierssen-Morice, a partner with Maslon LLP in Minneapolis, said in a statement, “We are pleased to see that the court agreed with Cargill’s position and ruled in favor of coverage.” AIG’s lawyers did not respond to a request for comment.
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