First Department Analyzes "Manifest Intent" Requirement in Fidelity Bond

On January 22, 2015, the First Department issued a decision in Keybank N.A. v. National Union Fire Insurance Co. of Pittsburgh, PA, 2015 NY Slip Op. 00614, analyzing the "manifest intent" requirement in a fidelity bond.

In Keybank, the plaintiff sought to recover on a fidelity bond. The First Department affirmed the trial court's denial of summary judgment on the ground that there were questions of fact regarding whether the losses were the result of an employee's "'manifest intent' to cause plaintiff to sustain a loss or to obtain a financial benefit for himself or the developer," explaining:

Plaintiff now seeks to recover its losses under the fidelity bond issued by defendant, which provided coverage for:

"(A) Loss resulting directly from dishonest or fraudulent acts committed by an Employee acting alone or in collusion with others.

Such dishonest or fraudulent acts must be committed by

the Employee with the manifest intent:

(a) to cause the Insured to sustain such loss; or

(b) to obtain financial benefit for the Employee or

another person or entity.

"Notwithstanding the foregoing, however, it is agreed that with regards to Loans and/or Trading this bond covers only loss resulting directly from dishonest or fraudulent acts committed by an Employee with the intent to cause the Insured to sustain such loss and which results in a financial benefit for the Employee".

. . .

[S]ummary judgment must be denied because material issues of fact exist as to whether the employee had the "manifest intent" to cause plaintiff to sustain a loss or to obtain a financial benefit for himself or the developer.

Manifest intent involves a continuum of conduct, ranging from embezzlement, where the employee necessarily intends to cause the employer the loss, to the other end of the continuum, which does not trigger fidelity coverage, where the employee's dishonesty at the expense of a third party is intended to benefit the employer, since the employee's gain results from the employer's gain.

Manifest intent to injure an employer exists as a matter of law where an employee acts with substantial certainty that his employer will ultimately bear the loss occasioned by his dishonesty and misconduct. . . . An issue of fact remains as to whether the employee's diversion of checks to the developer that should have been deposited with his employer manifests an intent to harm his employer within the meaning of the fidelity bond.

(Internal quotations and citations omitted) (emphasis added).