Cargill wins ruling against AIG related to employee theft cover

A federal appeals court on Tuesday affirmed a lower court’s ruling in favor of Cargill Inc. in a dispute with an American International Group Inc. unit over how much coverage it is entitled to stemming from an employee’s embezzlement.

Food service company Cargill Inc., which is based in Wayzata, Minnesota, had purchased a commercial insurance policy through AIG unit National Union Insurance Co. of Pittsburgh that covered employee theft, according to the ruling by the 8th U.S. Circuit Court of Appeals in St. Louis in National Union Fire Insurance Co. of Pittsburgh v. Cargill Inc.

Around 2008, Diane Backis, who was a Cargill employee for several decades at a grain facility Cargill operated in Albany, New York, began a fraudulent scheme, at least in part to embezzle money from Cargill, according to the ruling. 

It involved misrepresenting to Cargill the price at which she could sell grain in the Albany market, which led Cargill to ship additional grain to Albany that she sold at prices below those reflected in Cargill’s accounting system.

Upon discovering Ms. Backis’ scheme, Cargill notified National Union, and she was eventually arrested. She later pleaded guilty and was sentenced to 60 months in jail in 2017, according to the U.S. Attorney’s Office in Syracuse, New York.

In August 2016, Cargill invoked an insurance policy provision that allowed Cargill and National Union to jointly investigate the case. They hired BDO Advisory, a unit of BDO USA, which concluded in a 2019 report that Cargill had incurred losses of $32 million, reflecting primarily the freight costs Cargill paid to ship grain to Albany under the embezzlement scheme, and the $3 million Ms. Backis had diverted to her personal bank accounts.

A dispute ensued between Cargill and National Union over policy coverage, with AIG contending it was obligated to pay only $3 million and Cargill arguing it was entitled to the entire $32 million.

AIG filed suit in U.S. District Court in St. Paul, Minnesota, to obtain a declaration in its favor, and Cargill counterclaimed for breach of contract. The district court ruled in Cargill’s favor, and was affirmed by a three-judge appeals court panel.

“National Union argues that several material facts are in ‘dispute’” but “many of the purportedly disputed facts it cites….are contradicted by the findings of the Report, which National Union acknowledges are definitive and binding,” the ruling said.

“National Union cannot defeat judgment on the pleadings by recasting legal disputes as factual ones,” the ruling said, in affirming the lower court.

Cargill attorney Rikke A Dierssen-Morice, a partner with Maslon LLP in Minneapolis, said in a statement, “We are pleased to see that the court agreed with Cargill’s position and ruled in favor of coverage.” AIG’s attorneys did not respond to a request for comment.