Bloomberg Law
March 17, 2023, 9:01 AM

AIG Loss Over Employee Theft Insurance Broadens Crime Coverage

Daphne Zhang
Daphne Zhang
Insurance Correspondent

Cargill Inc.'s recent win against an AIG unit over an employee’s fraud is poised to expand the scope of commercial crime insurance policies’ coverage, a prospect that will likely trigger insurers’ resistance.

The US Court of Appeals for the Eighth Circuit’s March 7 ruling broadens the range of damages covered under a corporate crime insurance policy, which typically addresses fraud, dishonesty and theft. It was a rare policyholder win in an insurance area that had lacked case law, attorneys say.

The appeals court held that National Union Fire Insurance Co., an AIG unit, must cover not only the $3 million that a Cargill employee embezzled, but also the $29 million in general business losses that the agricultural giant argued it incurred as a result of the employee’s fraud.

In coverage disputes, insurers have traditionally argued that they’re only responsible for direct losses—as opposed to other ancillary losses—from the insured incident. But Cargill’s dispute caught industry watchers’ attention because case law on this specific issue—the extent of criminal insurance policies’ coverage of employee theft—was scarce.

“The Eighth Circuit has opened the possibilities for a variety of costs that may be indemnified” under crime insurance, said Shevani Jaisingh, a senior counsel at TittmannWeix who represents insurers.

The decision will likely have a wide-ranging impact, particularly in the Eighth Circuit states, because the AIG insurance language is common among crime policies, insurance attorneys say. Carriers may consider tightening policy terms and raising premiums to avoid covering a company’s broader losses resulting from a smaller amount of employee theft, they say.

“The court recognizes that crime causes a lot of harm to a company, more than what the bad actor can steal for themselves,” said Bradley Nash, a partner who represents policyholders at Hoguet Newman Regal & Kenney LLP.

Employee Theft

The ruling will help businesses if they can prove a link between an employee’s actions and additional losses, insurance attorneys say.

The case stems from Cargill’s discovery in 2016 of an embezzlement scheme run by a sales manager, Diane Backis. She later pleaded guilty to stealing more than $3 million from the company by inflating grain price estimates for Cargill’s Albany, New York market and doctoring invoices.

A joint investigation by Cargill and National Union found in 2019 that Backis transferred $3 million to her personal bank accounts and that Cargill lost another $29 million in freight costs it paid to ship the grain from the Midwest to Albany as a result of Backis’ scheme.

National Union argued it’s not on the hook for the freight costs because Cargill would have shipped the grains to Albany anyway. But the Eighth Circuit disagreed, upholding the US District Court for the District of Minnesota’s decision.

“Cargill would not have paid approximately $29 million in freight costs if not for Backis’s scheme,” Judge Jane Kelly said in the Eighth Circuit decision. “The insurance policy covers Cargill’s loss, not Backis’s gain.”

The decision wouldn’t be binding in other circuits. But this case is still likely to be cited outside of the Eighth Circuit, said Laura Gregory, a partner of Sloane and Walsh LLP who represents insurers.

“Other states don’t have many case laws on crime insurance disputes,” she said. “I imagine this case will pop up in briefs across the country for policyholders.”

That AIG is a national carrier would also give weight to the case when other courts are assessing the issue, Nash said.

Cargill’s coverage terms are common among crime policies, said Lauren Silvestri Burke of Morgan Lewis & Bockius LLP. “The exact same policy language will come up all across the country because this is based on standard coverage forms,” she said.

Unwanted Exposure

Cargill’s victory also underscored the importance of an investigation provision in the policy that allowed the policyholder to join the insurer in conducting a report on the fraud incident. The report’s findings were used to help dictate the insurer’s coverage decisions.

The ruling highlights that expert reports can be persuasive to courts on factual determinations, especially in cases where the expert is jointly retained by the parties, said Jaisingh.

In most coverage disputes, the court is often the only arbiter of what happened and how much coverage a policyholders is entitled to, said Syed S. Ahmad, a Hunton Andrews Kurth LLP partner who represents policyholders.

But here the court took the investigation as undisputed facts, as the policy required, he said.

To contact the reporter on this story: Daphne Zhang in New York City at

To contact the editors responsible for this story: Maria Chutchian at; Roger Yu at