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3M Co. v. National Union Fire Insurance Co. of Pittsburgh, PA

United States Court of Appeals, Eighth Circuit

May 31, 2017

3M Company, a Delaware corporation; 3M Employees Welfare Benefits Associates, a Minnesota corporation; Employee Retirement Income Plan of Minnesota Mining and Manufacturing Company, a citizen of New York Plaintiffs - Appellants
v.
National Union Fire Insurance Company of Pittsburgh, PA, a Pennsylvania corporation; Great American Insurance Company, an Ohio corporation; St. Paul Fire & Marine Insurance Company, a Connecticut corporation; Federal Insurance Company, a New Jersey corporation; Zurich American Insurance Company, a New York corporation Defendants - Appellees

          Submitted: October 18, 2016

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

          Before LOKEN, SMITH, [1] and COLLOTON, Circuit Judges.

          SMITH, Circuit Judge.

         3M Company ("3M") incurred losses on a number of investments due to fraud perpetrated by its own investment advisors. 3M purchased a "Blanket Crime Policy" ("the Policy") issued by National Union Fire Insurance Company of Pittsburgh, PA, Great American Insurance Company, St. Paul Fire & Marine Insurance Company, Federal Insurance Company, and Zurich American Insurance Company (collectively, "the Insurers"). 3M claimed that it earned returns on investments that were subsequently lost due to its advisors' malfeasance. 3M filed an insurance claim to recover the loss of the returns. The Insurers denied the claim, and 3M filed suit in Minnesota state court, seeking a declaration that the Policy covered 3M's losses resulting from the theft of 3M's alleged earnings. The Insurers removed the case to federal court and filed for summary judgment. 3M filed a cross-motion for partial summary judgment. The district court[2] granted the Insurers' motion and denied 3M's motion, holding that the stolen earnings are not covered under 3M's insurance policy because "3M does not meet the conditions of coverage set forth in the 'ownership' provision" of the Policy. We affirm.

         I. Background

         In 1999, 3M began investing its employee-benefit-plan assets in WG Trading Company LP ("WG Trading"). 3M structured this investment as a limited-partnership interest in WG Trading. Stephen Walsh and Paul Greenwood founded and served as general managing partners of WG Trading and two related entities, Westridge Capital Management, Inc. ("Westridge") and WG Trading Investors, LP ("WG Investors"). Westridge provided marketing services for WG Trading, and WG Investors was a limited partner in WG Trading. WG Trading was regulated and audited, but WG Investors was not.

         Eventually, 3M learned that Walsh and Greenwood fraudulently diverted hundreds of millions of dollars from WG Trading and WG Investors. Walsh and Greenwood ultimately pleaded guilty to federal criminal charges. The United States Commodity Futures Trading Commission and the Securities and Exchange Commission initiated civil lawsuits against Walsh, Greenwood, Westridge, WG Trading, WG Investors, and other related entities ("the defendants"). The United States District Court for the Southern District of New York seized the defendants' assets and placed the assets into receivership. The receiver distributed the assets among the defrauded claimants, including 3M, who recovered the capital contribution that it invested in WG Trading. Although 3M recovered its capital contribution, 3M contends that it should also be entitled to recover lost earnings from the investments that WG Trading made in legitimate investment products that produced legitimate earnings.

         3M's employee-benefit plans are insured under Endorsement 3 of the Policy (the "ERISA Rider" provision). 3M sought coverage for the stolen earnings under the "Employee Dishonesty" provision, which (as amended by Endorsement 10) states:

1. Insuring Agreement 1, EMPLOYEE DISHONESTY, of the attached policy is hereby deleted in its entirety and replaced with the following:
The [Insurers] shall be liable for direct losses of Money, Securities or other property caused by Theft or forgery by any Employee of any Insured acting alone or in collusion with others.
2. Section 3., DEFINITIONS, is hereby amended to include the following:
Theft means the unlawful taking of Money, Securities or other property to the deprivation of the Insured.
3. Nothing herein contained shall be held to vary, alter, waive or extend any of the terms, conditions, limitations or provisions of the ...

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