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Chubb unit loses restitution case regarding employee theft policy

Posted On: Feb. 13, 2018 12:53 PM CST

A Chubb Ltd. unit achieved only partial success in its effort to recover $15 million it paid under a crime policy in connection with a New York City kickback scheme, according to a federal appeals court ruling Monday.

While the 2nd U.S. Circuit Court of Appeals in New York denied a petition by Chubb Ltd. unit Federal Insurance Co. for restitution, it remanded for further consideration the issue of whether it is entitled to “superior rights” to property forfeited by the wrongdoer in the case.

The case involves McLean, Virginia-based Science Applications International Corp., which was the lead contractor in New York City’s CityTime Project, an effort to update the city’s timekeeping and management software, according to the ruling by the 2nd Circuit in Federal Insurance Co. et al. v. United States of America.

Several SAIC employees, including Carl Bell, conspired to obtain bribes and kickbacks from one of SAIC’s subcontractors on the project between 2003 and 2011 in exchange for steering work to that entity at inflated prices, according to the ruling. The employees were eventually convicted, according to the ruling.

Federal made a $15 million payment to SAIC under the company’s Employee Theft Insurance Policy. SAIC subrogated its rights under the policy to Federal Insurance, which then attempted to recover its payment. Alternatively, the insurer sought to assert a priority right to property Mr. Bell had forfeited as proceeds of his crimes, according to the ruling.

The U.S. District Court in New York denied the insurer on both issues. On appeal, a three-judge appeals court panel unanimously agreed Federal Insurance was not entitled to restitution. “Assuming that Federal could overcome various procedural obstacles identified by the government, its petition nevertheless fails on the merits because the district court did not abuse its discretion when it concluded that SAIC’s own criminal conduct precluded it and, by extension, Federal from obtaining restitution from Bell,” said the ruling.

However, the court remanded for further consideration whether Federal was entitled to a priority interest in Mr. Bells’ forfeited property.

“We conclude that the district court failed to make adequate factual findings regarding whether SAIC’s allegedly unclean hands should bar it from obtaining an equitable remedy, and if such a remedy remains available, whether the property was traceable to bribes and kickbacks actually obtained at SAIC’s expense,” said the ruling.