A Chubb Corp. unit is obligated to pay for a scam committed against a check cashing retailer under terms of its crime insurance policy despite ambiguity in the policy's language, says a federal appellate court.

Wednesday's ruling in VAM Check Cashing Corp. v. Federal Insurance Co. by the 2nd U.S. Circuit Court of Appeals in New York involved a close parsing of the language of the policy issued by Warren, N.J.-based Chubb for the Brooklyn-based retailer.

According to the ruling, on Sept. 2, 2009, Romanita Vazquez, an employee of the company's Pine Check Cashing store in Brooklyn, received a call ostensibly from the wife of the company's owner, who told her the company was opening three new stores that day, including one in Manhattan.

During this call, she received a second call from another woman who identified herself as the manager of the newly opened Manhattan store and said she needed $120,000 to pay a government official who had arrived at the store to collect a tax bill.

The original caller told Ms. Vazquez a man named Windrey would come to collect the money. When “Mr. Windrey” arrived, Ms. Vazquez gave him $120,000 in cash in what turned out to be a scam by a “sophisticated group of criminals” who were never apprehended, according to the ruling.

In January 2010, Federal Insurance denied the company's claim for the loss, and VAM filed suit, claiming damages of $112,500, which was the $120,000 loss, less the policy's $7,500 deductible.

%%BREAK%%

The crime policy said coverage would be provided in the event of an “overt felonious act.” Federal contended that there was no coverage because the crime's “felonious nature was not 'overt' but covert,” said the ruling. VAM said the act was overt because the act of taking the money was public, “even though its true criminal nature was hidden.”

“Because the plain text of the policy does not resolve this case, VAM must prevail if it has provided us a reasonable reading permitting recovery. It has,” said the 2nd Circuit's three-judge panel.

“Under VAM's overall reading of the policy provisions at issue, the insured will recover for 'robbery' whenever property is taken from an employee by means of an observable act that amounts to a felony, provided that the act occurs in the presence of the employee and the employee is aware of the act's occurrence. But the employee need not be aware that the act itself is felonious,” said the ruling.

“This interpretation is at least as plausible a reading of the language as that provided by Federal,” said the appellate court, in upholding a lower court's decision in the retailer's favor.