The Federal Court ruled that Chubb did not have to cover a $ 2 million employee theft claim filed after funds in a client’s trust account were misused in an apparent attempt to maintain afloat the failing brokerage All Class.
The alleged theft involved the payment of the client’s trust money into the All Class working account, where Leroy Bowmaker was the sole director, shareholder and secretary of the company from 2007 to February 2014.
Chubb was made aware of the discrepancies in the trust account on March 27, 2013 following the appointment of Mr. Bowmaker’s wife as agent after his admission to hospital.
All categories were placed under external administration and a “proof of loss” related to the trust account was then provided by the liquidator to the insurer.
A $ 2.05 million court order including fraudulent payments and investigative fees was sought on behalf of All Class after Chubb dismissed a claim under a police employee theft clause.
The grounds for refusal included non-disclosure by All Class, as Mr. Bowmaker was the “guiding mind and will” of the business and, therefore, All Class was aware of the fraudulent payments.
The insurer also argued that Mr. Bowmaker was not an employee under the police and that he was not robbing the business because the trust funds were deposited into the brokerage’s checking account and , therefore, All Class had not suffered any direct losses.
The non-disclosure allegedly occurred when Mr Bowmaker completed the insurance claim form in April 2012, two months before the policy terms were finalized.
Chief Justice James Allsop found in a judgment last week that a significant portion of the funds wrongly and dishonestly withdrawn from the trust account had been placed in the All Class office account by Mr Bowmaker for the purpose of to support the activities of All Class.
“It is not possible, on the basis of the documents provided, to draw any conclusion as to how much of the funds were actually wrongly withdrawn from the company by Mr Bowmaker for his own benefit,” the judge said. in chief Allsop.
On the issue of non-disclosure, Chief Justice Allsop said it was necessary to consider whether Mr Bowmaker’s knowledge of the hijackings could be characterized as All Class-held knowledge that should have been passed on to Chubb.
The evidence showed that Mr. Bowmaker did not disclose his conduct in communications with Chubb and its network group of Steadfast brokers, and no other person was “the mind and will of the business,” according to the jugement.
“Particularly in view of Mr. Bowmaker’s position as an insurance broker, there is no reason to believe that the non-disclosure was other than knowingly false and, in all the circumstances, fraudulent,” the judge said in Chief Allsop. “He couldn’t fail to know that his actions were dishonest and that not telling Steadfast so he could tell the insurers was dishonest.”
Chief Justice James Allsop found Mr. Bowmaker to be an employee in the context, but the misuse of client funds had not been a direct loss.
“The correct reading of ‘direct loss’ to theft or dishonesty or fraud is the removal of accounts held by the company and the taking from the company, whether as a trustee or not, of those funds,” did he declare.
“Evidence may ultimately reveal a quantity of such thefts. However, the improper and dishonest use of trust funds for use in the business of the company to support the company or to avoid disaster or financial hardship is not a direct loss of money for the company.
Chief Justice Allsop ruled that Chubb had “the right to opt out of the policy of fraudulent non-disclosure” or, failing that, to reduce his liability to zero.
“As such, the proceeding should be dismissed with costs,” he said.
The decision is available here.