# U ni te d S ta te s Co ur t of A pp ea ls

For the Eig hth Circu it

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No. 1 4- 12 65

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Avo n S ta te Ban k

ll ll ll ll ll ll ll ll ll ll l Pla in ti

ff - App el le e

v.

Ban cIn su re, In c.

ll ll ll ll ll ll ll ll ll ll l Defe nd

an t - Ap pe ll an t

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No. 1 4- 22 02

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Avo n S ta te Ban k

ll ll ll ll ll ll ll ll ll ll l Pla in ti

ff - App el la nt

v.

Ban cIn su re, In c.

ll ll ll ll ll ll ll ll ll ll l Defe nd

an t - Ap pe ll ee

__ __ __ __ __ __
App eal s fr om

Uni te d S ta te s Di st ric t Co ur t fo r th e Dis tri ct of M in ne so ta - Mi nn eap ol is

__ __ __ __ __ __Su bm it te d: Feb ru ary 10 , 20 15
Fil ed : J un e 2 , 20 15

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Befo re GRUENDER, SHEPHERD, and KELLY , Cir cu it Ju dg es

.

__ __ __ __ __ __

SHEPHERD, Cir cu it Ju dg e.

Thi s act io n ari se s fro m an ad va nc e m on ey sc am in vo lv in g a su pp os ed m

ul ti

m il li on do ll ar es ta te of a de ceas ed Afri can bu si ne ss m an

. Avo n St at e Ban k (Av on )

reac he d a se tt le m en t wit h two in di vi du al s who an Avo n em pl oyee in du ced to in ve st

in th is sc he m e. Avo n’s in su rer, Ban cIn su re, In c. (Ban cIn su re), refu se d to pr ov id e

co ve rag e to Avo n, as se r t i n g th at th e te rm s of a Dire ct or s’ an d Offi cers ’ Liab il it y

Po li cy (D&O Po li cy ) an d a se pa rat e Fi de li ty Bon d (B on d) di d no t co ve r th is ev en t.

The di st ric t co ur t gr an te d Ban cIn s u r e ’s m ot io n fo r su m m ary jud gm en t in pa rt, 1

ho ld in g th e D&O Po li cy di d no t pr ov id e co ve rag e fo r th is lo ss

. The di st ric t co ur t al so

gr an te d Avo n’s m ot io n fo r su m m ary jud gm en t in pa rt, ho ld in g th e Bo nd co ve red th e
lo ss an d award in g pr ejud gm en t in te res t to Avo n. Ban cIn su re ap pe al s an d Avo n Ban k

cro ss -ap pe al s. We affir m

.

I.

In 20 07

, a lo ng -ti m e Avo n cu st om er, Am br os e Herd eri ng , was co nt act ed by a

m an pu rp or ti ng to be th e so n of an Afri can as so ci at e wit h who m Herd eri ng ha d do ne
bu si ne ss

. Thi s in di vi du al id en ti fie d hi m se lf as “ Dav id Gib so n” and claim ed hi s fat he r

ha d pa ss ed away, le av in g a $9 m il li on es ta te in Afri ca. He in fo rm ed Herd eri ng th at

th e fam il y

want ed to tra ns fer t he fu nd s to th e Uni te d St at es , a nd in pa rti cu la r to th e

The Hon or ab le Ri ch ard H. Ky le

, Uni te d St at es Dis tri ct Ju dg e fo r th e Dis tri ct 1

of Mi nn es ot a.

-2

-ba nk Herd eri ng us ed

, Avo n. Gib s o n c l a i med th e m on ey was ti ed up in th e

Neth erl an ds an d tr a ns ferr in g th e fu nd s to th e Uni te d St at es req ui red up -fro nt

pa y m en ts of ta xe s an d ot he r fees

. Herd eri ng se nt Gib so n m on ey fo r th es e ex pe ns es

an d co nt in ue d to se nd m on ey as Gib so n cl ai m ed p r o b l e ms an d de la y s req ui red

ad di ti on al fun ds

.

Herd eri ng ap pr oa ch ed Ro be rt Carl so n, an Avo n Ass is ta nt Vice Pres id en t an d

Loa n Offi cer, an d as ke d fo r hi s he lp in tr a n s f e r r i ng th e es ta te to th e Uni te d St at es

. Herd eri ng pr om is ed Carl so n hu ge ret ur ns in ex ch an ge fo r hi s he lp

. In th e su m m er of

20 07

, Carl so n is su ed Herd eri ng a lo an fro m Avo n an d co nt rib ut ed $6 0,0 00 of hi s own

m on ey , al l of whi ch was to be us ed in tra ns ferr in g th e es ta te

. W he n Carl so n m ad e th e

l o a n to Herd eri ng , Avo n’s Pres id en t, Glen n Died ric h, co nt act ed Herd eri ng an d

ex pr es se d hi s co nc ern th at th e es ta te m ig ht be a sc am

. Alt ho ug h Died ric h was aware

of th e lo an , he r em ai ne d u na ware o f Car ls on ’s per so na l co nt rib ut io n.

In Octo be r 20 07 , Gi bs on req u e s t e d th at Herd eri ng an d Carl so n co ve r ha lf of

a $7 50 ,00 0 ta x on th e es ta te

. Carl so n, who at th is po in t ha d rece iv ed no ret ur n on hi s

in ve st m en t, ex pr es se d hi s co nc ern to Herd eri ng th at th e in ve st m en t m ig ht be a sc am , writ in g in a le tt er: “ [N]ow th at th is lo ok s to be im p o s s i b l e, are y ou su re y ou real ly

kn ow th es e pe op le ? ” Des pi te Carl so n’s co nc ern , h e recr u i t e d D o n a ld Im di ek e an d

Mi ke Fro se th to se cu re th e ad di ti on al fu nd s. Carl so n in fo rm ed Im di ek e an d Fro se th

of th e in ve st m en t op po rtu ni ty, pr om is in g th em th ey co ul d do ub le th ei r m on ey wit hi n

a m at te r of week s an d as su rin g th em he was “ 10 0 pe rcen t su re th at it was le gi t.”

C arl so n le d bo th Im di ek e an d Fro se th to be li ev e th at Avo n it se lf was in ve st in g t h e

m on ey , r at he r th an th e m en in di vi du al ly, b y ha vi ng bo t h men writ e ch eck s pa y ab le

to Avo n. Fro se th co nt rib ut ed $4 05 ,00 0 wh il e Im di ek e co nt rib ut ed $8 0,0 00

.

-3

-Carl so n de po si te d Fro se th ’s ch ec k a n d wire d th e m on ey to th e “ Otu a Aut o

Co m pa ny” acco un t at th e “ Taip ei Fu bo n Ban k” in Hon g Kon g. Thi s was in vi ol at io n

2

of Avo n po li cy th at pr oh ib it ed th e wiri ng of m on ey on be ha lf of in di vi du al s who were

no t cu st om ers of th e ba nk

. Carl so n to ld Avo n’s Vice Pres id en t a n d Aud it or , Ro se

Bl as czi ek

, th at th e pe op le r eq ue st in g th e wire wou ld no t rece iv e th ei r m erch an di se

if Bl as czi ek di d no t ap pr ov e th e w i r e. Bas ed on th is m is rep res en ta ti on , Bl as czi ek

ap pr ov ed th e wire

. Carl so n he ld Im di ek e’s ch eck whi le wait in g fo r co nf irmatio n of

th e wire tra ns fer of Fro se th ’s fu nd s. He at te m pt ed to co nt act th e ba nk in Hon g Kon g

to co nf irm bo th th e tra ns fer an d th e va li di ty of th e acco un t. Des pi te ne v e r h e a r in g
b a c k fro m th e ba nk

, Carl so n st il l wire d Im di ek e’s $8 0,0 00

. Uns ur pr is in gl y,
Herd eri ng , Carl so n, Fr os et h, an d Imdiek e n ev er re cei ve d t he ir p ro m is ed ret ur ns

.

In Ja nu ary 20 09

, m or e th an a y ear aft er Carl so n wire d Fro se th ’s an d Im di ek e’s

fu nd s, Fro se th an d Im di ek e m et wit h Died ric h ab ou t Carl so n an d th es e tra ns act io ns

. The y sh owe d Died ric h co pi es of th ei r ch eck s an d de m an de d th e ret ur n of th ei r

m on ey

. Thi s was whe n Died ric h fir st le arn ed th at Carl so n, Fro se th

, an d Im di ek e ha d

in ve st ed in th e sc he m e. He im m ed ia te ly no ti fie d Ban cIn su re th at he was co nc ern ed

an em pl oyee m ig ht ha ve be en st eal in g fro m th e ba nk

. Died ric h su sp en de d Carl so n

an d ul ti m at el y te rm in at ed hi m

. Avo n se nt b o th Fro se th an d Im di ek e le tt ers st at in g

th at it vi ewed an y in ve st m en t th e m en m ad e as rel at ed to Carl so n’s pe rs on al de al in gs

an d n ot in vo lv in g t he ba nk

.

Fro se th an d Im di ek e co nt in ue d to co rres po nd wit h Avo n an d, in Octo be r 20 09

, th ey se nt a le tt er to Died ric h th reat en in g li ti ga ti on ba se d on de po si ts m ad e rel y in g on

a ba nk of

fic er’s m is rep res en ta ti on s. Died ric h em ai le d a co py of th is le tt er to

Ban cIn su re an d to ld th em he wou ld ke ep th em ap pr is ed of th e si tu at io n. Ban cIn su re
ack no wled ge d th e no ti ce of a po te nt ia l cl ai m an d as si gn ed th e fil e t o a cl ai m sad jus tm en t fir m f

o r i n ve st ig at io n. Sev eral m on th s la te r, Died ric h in qu ire d ab ou t

The co ur t no te s wit h in te res t th at “ Otu a” is si m pl y “ au to ” sp el le d ba ck ward s. 2

-4

-co ve rag e. Ban cIn su re st at ed th at it ha d no t y et de ni ed th e cl ai m as th ere was no cl ai m

at th at ti m e b ecau se th ere was no t yet an y laws ui t.

In May 20 10

, Fro se th an d Im di ek e su ed Avo n fo r n e g l ig en t an d frau du le nt

m is rep res en ta ti on

. B an cIn su re ag reed to pr ov id e co ve rag e un de r th e D&O Po li cy ,
rat he r th an si m

pl y de fen d Avo n in th e act io n, an d res erv ed it s rig ht s. At tri al

, Fro se th

an d Imdiek e d ro pp ed th e cl ai m for ne gl ig en t m is rep res en ta ti on an d pro ceed ed on ly

wit h th e frau du le nt m is rep res en ta ti on cl ai m , al le gi ng Avo n was vi cari ou sl y li ab le fo r
Carl so n’s co nd uc t. In Ja nu ary 20 12

, a jury ret ur ne d a ve rd ic t in fav or of Fro se th an d

Im di ek e, fin di ng Carl so n ha d br each ed hi s du ty to di sc lo se m at eri al in fo rm at io n an d

ha d do ne so whi le in th e sc op e of hi s em pl oym en t wit h Av o n

. The co ur t en te red
jud gm en t ag ai ns t Avo n an d, whi le po st -tr ia l ap pe al s were pe nd in g, th e pa rti es se tt le d.

Avo n t he n g av e Ban cIn su re a Swo rn Sta te m en t i n P ro of of Lo ss

.

Afte r th e jury ve rd ic t, Ban cIn su re in fo rm ed Avo n th at it s D&O Po li cy di d no t

co ve r th e lo ss be cau se th e p ol ic y ex cl ud ed li ab il it y

for frau du le nt act s. Ban cIn su re

req ue st ed th at Avo n rei m bu rs e i t f o r d e fen se co st s. Avo n ch al le ng ed th e de ni al of

co ve rag e, as se rti ng th at th e p ol ic y co ve red th e jud gm en t and de fen se co st s an d t ha t

th e Bo nd als o c ov ered th e lo ss

.

Avo n co m

m en ced th is su it on Octo be r 5, 2 0 1 2

, as se rti ng cl ai m s ag ai ns t

Ban cIn su re fo r br each of co nt ract un de r bo th th e D & O Po li cy an d th e Bo nd

, fo r
br each of im

pl ie d co ve na nt of go od fai th an d fai r de al in g, an d se ek in g d e c l arat or y jud gm en t. Ban cIn su re co un te rcl ai m ed fo r br each of co nt ract an d de cl a r a t o r y jud gm en t. Bo th pa rti es fil ed m ot io ns fo r su m m ary jud gm en t on Avo n’s cl ai m s. The

di st ric t co ur t gr an te d bo th m ot io ns in pa rt an d de ni ed th em in pa rt, ul ti m at el y ho ld in g

th at th e Bo nd co ve red th e lo ss an d th e D&O Po li cy di d no t co ve r t h e l o s s. The

di st ric t co ur t al so award ed Avo n p reju dg m en t i nt eres t.

-5

-Ban cIn su re ap pe al s, as se rti ng th at th e di st ric t co ur t erre d in gr an ti ng su m m ary jud gm en t to Avo n a n d h o l d i n g th at th e Bo nd co ve red th e lo ss

. Ban cIn su re al so

a s se rts th at th e di st ric t co ur t erre d in it s cal cu la ti on of pr ejud gm en t in te res t. Avo n

cro ss -ap pe al s, as se rti ng th at th e di st ric t co ur t erre d in gr an ti ng su m m ary jud gm en t to

Ban cIn su re an d h ol di ng th at th e D&O Po li cy di d n ot co ve r th e lo ss

.

II.

W e fir st co ns id er whe th er th e di st ric t co ur t erre d in gr an ti ng su m m ary jud gm en t in fav or of Avo n by ho ld in g th at t h e B o n d c o v e red Avo n’s lo ss es

. W e

rev ie w a di st ric t co ur t’s gr an t of su m m ary jud gm en t de no vo

. Wat ki ns In c. v.
Ch il ko ot Dis tri b., In c., 71 9 F .3d 98 7, 9 91 (8 th Ci r. 20 13 ). W e wil l affir m th e g ran t

of su m m ary jud gm en t “ if th e m ov an t sh ows th at th ere is no ge nu in e di sp ut e as to an y

m at eri al fact an d th e m ov an t is en ti tl ed to jud gm en t as a m at te r of la w.” Fed

. R. Ci v.

P. 56 (a).

Ban cIn su re arg ue s th at th e di st ric t co ur t erre d be cau se th e jury ve rd ic t ag ai ns t

A v o n d i d n ot co ns ti tu te a “ di rect ” lo ss un de r th e te rm s of th e Bo nd

. The B o n d

req ui res Ban cIn su re to in de m ni fy Avo n fo r an y “ [l]os s res ul ti ng di rect ly fro m
di sh on es t or frau du le nt act s co m m it te d by an Em

pl oyee act in g al on e or in co ll us io n

wit h ot he rs .” Ban cIn su re fir st arg ue s th at th e lo ss was no t “ di rect ” be cau se th e Bo nd

on ly affo rd ed co ve ra ge fo r fir st -p art y lo ss es an d no t fo r th ird -p art y lo ss es

. Ban cIn su re co nt en ds th at th e la ng ua ge of th e Bo nd do es no t en co m pa ss th e si tu at io n

th at oc cu rred he re, whe re th i r d pa rti es su ffer ed th e lo ss res ul ti ng fro m em pl oyee
di sh on es ty, rat he r th an A v o n it se lf su ffer in g de pl et io n of it s own fu nd s th ro ug h

em pl oyee act io ns li ke em

be zzl em en t. W e di sa gr ee. Fi rs t, un de r th e lo os el y wor de d

la ng ua ge of th e Bo nd

, no su ch li m it at io n on th ird -p art y lo ss es ap pe ars

. The la ng ua ge

of th e Bo nd si m

pl y pr ov id es co ve rag e fo r a lo ss “ res ul ti ng di rect ly fro m di sh on es t or

frau du le nt act s co m

m it te d by an Em

pl oyee,” whi ch pr eci se ly de sc rib es th e lo ss Avo n

su ffer ed th ro ug h Carl so n’s frau du le nt co nd uc t. Seco nd

, un de r Mi nn es ot a la w, whi ch

-6

-go ve rn s th is di ve rs it y act io n, co ur ts reco gn iz e a di st in ct io n be twee n an in su red ’s lo ss

of th ird -p art y pr op ert y in it s po ss es si on an d th eft co m m it te d ag ai ns t a th ird pa rty by

th e in su red ’s em

pl oyee, al lo win g fid el it y bo nd co ve rag e fo r th e fo rm er. See Carg il l,

In c. v. Nat’l Uni on Fi re In s. Co

. of Pi tt sb ur gh

, No. A03 -1 87

, 20 04 W L 51 67 1, at *1 1
(Mi nn

. Ct

. App

. Ja n. 13

, 20 04 ) (u np ub li sh ed ) (“ Alt ho ug h in su ran ce typic al ly co ve rs

th ird pa rti es , fo r th e pu rp os es of a fid el it y bo nd

, ‘[t]hird -p art y cl ai m s ari se on ly wit hi n

th is sp eci fi c c o nt ex t: th e em pl oyee act ed di sh on es tl y an d pr op ert y is ta ke n fro m or
lo st by th e in su red s/ em

pl oye r t h a t ha s cu st od y of th e pr op ert y .’ ” (al te rat io n in

or ig in al ) (q uo ti ng Aetn a Cas

. & Su r. Co

. v. Kid de r, Peab od y & Co

. In c., 67 6 N.Y.S.

2d 55 9, 56 5 (N.Y. App

. Div

. 19 98 ))); se e al so RBC Dain Rau sc he r, In c. v. Fed

. In s.

Co ., 37 0 F . Sup p. 2 d 88 6, 89 0 n.3 (D. Mi nn . 2 00 5) (“ Carg il l’s cl ai m was ba se d n ot

on lo ss of th ird -p art y pr op ert y in it s po ss es si on , as [th is ] cl ai m is

, bu t rat he r on th eft

co m m it te d aga in st th ird -p art ie s by it s em pl oyees. The Carg il l cou rt .

. . gr as pe d th e

cru ci al di ffer en ce, ob se rv in g th at th e fo rm er is co ve red by fid el it y in su ran ce whi le th e

la tt er is no t.” (in te rn al ci ta ti on s an d qu ot at io n m ark s om i t t e d ) )

. H ere, th e Bo nd

pr ov i d e s co ve rag e be cau se Avo n su ffer ed th e lo ss of th ird -p art y pr op ert y in it s

p o s s e ss io n whe n Carl so n wire d Fro se th ’s an d Im di ek e’s fu nd s fro m Avo n t o a n

un ve rif ie d Ch in es e ba nk acco un t. We t he refo re co nc lu de th is lo ss fal ls wit hi n th e

co ve rag e o f th e Bo nd , in acco rd an ce wi th Mi nn es ot a la w.

Seco nd

, Ban cIn su re arg ue s th at th e lo ss was no t “ di rect ” be cau se Avo n di d no t

own or ho ld th e fu nd s an d was no t le ga ll y li ab le fo r th em

. The la ng ua ge of th e Bo nd

pr ov id es co ve rag e fo r pr op ert y “ he ld by t he In su red in an y cap aci ty” o r “fo r whi ch

t h e I n s ur ed is le ga ll y li ab le .” Ban cIn su re m ai nt ai ns th at Avo n m erel y se rv ed a s a

co nd ui t for th e fu nd s and th us di d no t sat is fy th e req ui rem en t th at th e fu nd s be hel d
by Avo n for th e Bo nd to co ve r th e lo ss

. W e di sa gr ee. Avo n hel d th e fu nd s, even if

it di d so fle et in gl y

. In it s leg al co nt ex t, “ ho ld ” m ean s “ to po ss es s by a la wfu l tit le .”

Bl ack ’s Law Dict io na ry 80 0 (9 th ed

. 20 09 ). Avo n po ss es se d Fro se th ’s an d Im di ek e’s

fu nd s by a la wf

u l t i t l e

. Carl so n so li ci te d th e m on ey fro m Fro se th an d Im di ek e,

rep res en te d th at Avo n wou ld be ha nd li ng th e m on ey , ob ta in ed ch eck s m ad e pa y ab le

-7

-to Avo n, de po si te d th e ch eck s in to Avo n’s acco un ts

, an d wire d t h e m on ey ou t of

Avo n’s acco un ts

. Thi s is su ffi ci en t to sh ow th at Avo n he ld th e fu nd s fo r th e pu rp os es

of Bo nd co ve rag e, ev en if Avo n di d no t ho ld th e fu nd s fo r an ex te nd ed pe rio d of ti m e.

Ban cIn su re ur ge s us to ad op t th e de fin it io n of “ he ld ” fro m ot he r juri sd ic ti on s, whi ch

ha ve de ci de d th at an in su r e d ho ld s pr op ert y whe n it ex erci se s so m e de gr ee of care ,

cu st od y , or co nt ro l of th e fu nd s, ei th er by ph y si cal po ss es si on or so m e ot he r m an ne r. See, e.g ., Loe b Pro ps ., In c. v. Fed

. In s. Co

., 66 3 F. Su pp

. 2d 64 0, 64 6- 48 (W. D. Ten n.

20 09 ). W e d ecl in e to ad op t t hi s d efi ni ti on an d i ns te ad rel y up on th e p la in m ean in g

of th e wor d “ ho ld .” W e no te

, ho wev er, th at ev en un de r th is m or e st rin ge nt de fin it io n,

Avo n he ld th e fu nd s be cau se it ha d ph y si cal po ss e s s i o n of th e fu nd s on ce Carl so n
de po si te d th em in to Avo n’s acco un ts

. W e th eref or e reject Ban cIn su re’s arg um en t on

th is ba si s. Bec au se we fin d th at Avo n he ld th e fu nd s, we ne ed no t de te rm in e whe th er

Avo n was leg al ly liab le for th em

.

Thi rd

, Ban cIn su re arg ue s th at Avo n’s li ab il it y to th ird p a r t i e s , Fro se th an d

Im di ek e, di d n ot di rect ly res ul t fro m Carl so n’s frau du le nt act s. Ban cIn su re as se rts

th at whe re a t h i rd pa rty is th e ta rg et of th e em pl oyee’s act

, th e in su red -em pl oyer’s

li a b i li ty fo r a lo ss do es no t di rect ly res ul t fro m th e em pl oyee’s act io ns

. Bu t, un de r

Mi nn es ot a la w, a lo ss of th ird -p art y fu nd s en tru st ed to th e in su red th ro ug h em pl oyee

th eft or f rau d m ay be co ns id ered a lo ss “ res ul ti ng di rect ly fro m ” th e frau du le nt act s

of an em pl oyee. See RBC Dain Rau sc he r, 37 0 F. Su pp

. 2d at 89 0 (ho ld in g li ab il it y

to a th ird pa rty res ul ti ng fro m an em pl oyee’s frau du le nt co nd uc t un de r th e
ci rcu m st an ces of th is cas e co ns ti tu te d a di rect lo ss to th e in su red em pl oyer); Fi rs t

Nat’l Ban k of Fu ld a, Mi nn . v . B an cIn su re, In c., No. 0 0- 20 02 DDA/FLN, 2 00 1 W L

16 63 87 2, at *2 (D. Mi nn

. Dec. 21

, 20 01 ) (“ If a ba nk em pl oyee frau du le nt ly se ek s to

be ne fit hi m se lf th ro ug h act s th at ne ces sa ril y m ak e th e ba nk li ab le to a th ird pa rty, th e
ba nk su ffer s a l o s s ju s t a s if th e em pl oyee ha d ta ke n th e ba nk ’s fu nd s fo r hi s own

us e.” (ci ti ng Fi rs t Am

. St at e Ban k v. Co nt ’l In s. Co

., 89 7 F.2 d 31 9, 32 6 (8 th Ci r.

19 90 ) (ap pl y in g Io w a la w))). The lo ss to Avo n fro m Carl so n’s frau du le nt co nd uc t

is a di rect lo ss be cau se Carl so n act ed frau du le nt ly to be ne fit hi m se lf by pr ot ect in g hi s

-8

-in te res t an d di d so th ro ug h a ct s wh ic h wo ul d n eces sa ril y m ak e Avo n li ab le to th ird

pa rti es , Fro se th an d Imdiek e.

F o u r t h, Ban cIn su re arg ue s th at Carl so n di d no t act wit h “ m an ife st in te nt ” t o

cau se Avo n to su st ai n a lo ss or to ob ta in an im pr op er fin an ci al be ne fit to hi m se lf or

an ot he r. Und er th e te rm s of th e Bo nd

, th e em pl oyee m us t co m m it th e frau du le nt act

wit h th e req ui si te in te nt

. Thi s in te nt i s d e f i n e d as “ m an ife st in te nt ” “ to cau se th e

In su red to s u s t a i n su ch lo ss ” or “ to ob ta in im pr op er fin an ci al be ne fit fo r th e

Em pl oyee or an ot he r pe rs on or en ti ty.” Mi nn es ot a cas e la w de fin es “ m an ife st in te nt ”

as whe n a pe rs on in te nd s th e na tu ral co ns eq ue nc es of hi s act io ns or om is si on s. Fi rs t

Nat’l Ban k of Fu ld a, 20 01 W L 16 63 87 2, at *2 (ci ti ng Tran sa m eri ca In s. Co

. v. FDIC,

46 5 N.W .2d 71 3, 71 6 (Mi nn

. Ct

. App

. 19 91 ) aff’d in pa rt and rev ’d in pa rt on ot he r

gr ou nd s, 4 89 N.W .2d 22 4 (Mi nn . 19 92 )). Here, Ca rls on act ed wit h m an ife st in te nt

to ob ta in im

pr op er fin an ci al be ne fit to hi m se lf be cau se he co m m it te d th e frau du le nt

act s to pr es erv e hi s in ve st m en t in th e ad va nc e m on ey sc he m e. The reco rd is cl ear th at

Carl so n so ug ht th e in ve st m en ts of bo th Fro se th an d Im di ek e in an at te m pt to pr ot ect

th e $6 0,0 00 he al read y co nt rib ut ed of hi s own fu nd s. Thi s is ev id en ced by Carl so n’s

co rres po nd en ce wi t h Herd eri ng whe re he de sc rib ed co nt in ue d pl an s to pr ov id e
ad di ti on al fu nd s as “ ris ky,” bu t no te d “ [W] ha t ha ve we go t to lo se ? Paying m or e ta x
is be tt er th an no t get ti ng an y th in g ou t of thi s.” W e ag ree with th e di st ric t co ur t th at

“ Carl so n’s act io ns an d om is si on s pl ai nl y sh ow he co m m it te d frau d in or de r to ob ta in

an im pr op er fi na nc ia l b en efi t.”

Fi na ll y , Ban cIn su re arg ue s th at

, ev en if th e Bo nd co ve red th is lo ss , Avo n di d

no t sa ti sf y th e pr oo f-o f-l os s an d su it -li m it at io ns pr ov is io ns

. W it h res pe ct to th e pr oo fof -lo ss pro vi si on , Ban cIn su re as se rts th at Avo n di d no t pr ov id e a d ul y swo rn pro of

of lo ss wit hi n s i x mo nt hs of di sc ov ery, as req ui red by th e te rm s of th e Bo nd

. The

Bo nd de fin es di sc ov ery in two way s: “ whe n a di rect or [o r] of fic er .

. . fir st be co m es

aware of fact s whi ch wou ld cau se a reas on ab le pe rs on to as su m e th at a lo ss of a type

co ve red by th is Bo nd ha s or wil l be in cu rred ” or “ whe n a di rect or [o r] of fic er

. . .

-9

-rece iv es no ti ce o f an act ua l or pot en ti al cl ai m in whi ch it is all eg ed th at th e In su red

is li ab le to a th ir d p a r t y u n de r ci rcu m st an ces whi ch , i f tru e, wou ld co ns ti tu te a lo ss

un de r th is Bo nd .”

W e ag ree wit h th e di st ric t co ur t th at Avo n pr ov id ed a du ly swo rn pr oo f of lo ss
wit hi n si x m on th s of th e earl ie st da te on whi ch it co ul d ha ve fil ed a pr oo f of lo ss —t he

da te whe n th e ex act am ou nt of t he jud gm en t was en te red , Feb ru ary 17

, 20 12

. And

,

ev en if Avo n di d no t co m pl y , Ban cIn su re su ffer ed no pr ejud i c e f r o m an y de la y in

rece iv in g pr o o f o f lo ss whe n it was well aware of th e po te nt ia l li ab il it y fo r th e lo ss

an d was de fen di ng Avo n in th e un de rlyin g su it

. F u r t h e r , ev en if Avo n co ul d ha ve

pr ov id ed pro of

of l os s at an earli er d at e, Ban cIn su re i s es to pp ed fro m ass ert in g t hi s

req ui rem en t be cau se it le d Avo n to be li ev e th e D&O Po li cy co ve red th e lo ss an d th at

pu rs ui ng co ve rag e un de r th e Bo nd was fu ti le

. A l t h o u g h th e di st ric t co ur t fo un d

Ban cIn su re waiv ed th e pr oo f-o f-l os s req ui rem en t, e s to pp el is th e m or e ap pr op ria te

le ga l pr in ci pl e whe n th e ba si s fo r rel ie vi ng Avo n of th is req ui rem en t is Ban cIn su re’s

m is r e p r e s e n t at io n th at th e D&O Po li cy co ve red th e lo ss

. Co m pa re L & H Tra ns p.,

In c. v. Drew Age nc y, I nc ., 40 3 N.W .2d 22 3, 22 7 (Mi nn

. 19 87 ) (ex pl ai ni ng th at

es to pp el is ap pr op ria te whe n an in su r e r m ak es a m is rep res en ta ti on up on whi ch

an ot he r pa rty de tri m en ta ll y rel ie s an d i t w o u l d be “ un jus t, in eq ui ta bl e, or

un co ns ci on ab le ” to al lo w th e in su rer to as se rt th e de fen se ), wit h Rel ia nc e Mo to r Co

.

v. St

. Pau l Fi re & Mar in e In s. Co

., 20 6 N.W

. 65 5, 65 6 (Mi nn

. 19 26 ) (“ [W] ai ve r m ay
be in ferr ed fro m an y wor ds or co nd uc t of th e in su rer’s au th or iz ed of fic ers or ag en ts

,

ev in ci ng an in te nt io n on th e pa rt of th e in su rer no t to in si st on co m pl ia nc e wit h t he

req ui rem en ts o f t h e p o l i c y in res pe ct to pr oo fs of lo ss , an d cal cu la te d to le ad th e

in su red to be li ev e th at th ey wil l no t be in si st ed on .”). Avo n rel ie d up on Ban cIn su re’s

rep res en t a t i on th at th e D&O Po li cy co ve red th e lo ss to it s de tri m en t by fai li ng to

pu rs ue co ve rag e un de r th e Bo nd

. W e th eref or e ho ld th at Ban cIn su re is es to pp ed fro m

as se rti ng th is req ui rem en t as a ba si s fo r de nyin g c ov erag e u nd er t he Bo nd

.

-1 0-W it h res pe ct to th e su it -li m it at io n pr ov is io n, Ban cIn su re as se rts th at Avo n di d

no t co m m en ce th e act io n wit hi n two y ears of th e lo ss , on ly in it ia ti ng th is act io n in

Octo be r 20 12 w h en it was fir st aware of th e lo ss , at la te st

, in Octo be r 20 09

. The

di st ric t co ur t de te rm in ed Ban cIn su re was es to pp ed fro m as se rti ng th is de fen se

. W e

ag ree. See L & H Tran sp ., 40 3 N.W .2d at 22 7 (ex pl ai ni ng es to pp el is ap pr op ria te to

ba r a n i n s ur er fro m as se rti ng ti m e-l im it at io n de fen se whe n in su rer m ak es

m is rep res en ta ti o n s u p o n w hi ch th e in su red rel ie s to it s de tri m en t). Est op pe l is

ap pr op ria te he re fo r th e sa m e reas on s it i s a p p r o p ria te wit h res pe ct to th e pr oo f-o flo ss req ui rem en t: Ban cIn su re m is rep res en te d to Avo n th at it wou ld pr ov id e co ve rag e

un de r th e D&O Po li cy an d Avo n reli ed up on th is m is rep res en ta ti on to it s det riment
by no t pu rs ui ng co ve rag e u n d e r t h e Bo nd

. W e th eref or e co nc lu de th at th e di st ric t

co ur t di d no t err in gr an ti ng su m m ary jud gm en t in fav or of Avo n on th e ba si s th at th e

Bo nd co ve red th e lo ss

.

III.

Bec au se we co nc lu de th at th e di st ric t co ur t di d no t err in ho ld in g th at th e Bo nd

co ve red Avo n’s lo ss an d th e Bo nd pr ov id es co m pl et e co ve rag e, we ne ed no t co ns id er

Avo n’s cro ss -ap pe al th at th e di st ric t co ur t erre d in gr an ti ng su m m ary jud gm en t in

fav or of Ban cIn su re on th e ba si s th at th e D&O Po li cy di d no t co ve r Avo n’s lo ss

. See

C r o ss -Ap pe ll an t’s Br. 19 n.4 (“ Affi rm in g th e di st ric t co ur t’s ru li ng co nc ern in g th e

Bo nd in all res pe ct s wo ul d m oo t Av on ’s cro ss -ap pe al .”).

IV.

W e ne xt co ns id er whe th er th e di st ric t co ur t err e d in it s cal cu la ti on of

pr ejud gm en t in te res t award ed to Avo n in it s or de r on bo th pa rti es ’ Ru le 59 (e) m ot io ns

to al te r or am en d th e jud gm en t. W e rev ie w a di st ric t co ur t’s ru li ng wit h res pe ct to a

-1 1-Ru le 59 (e) m ot io n fo r ab us e of di sc ret io n. P e r k i n s v. U.S. W es t Co m m c’ns

, 13 8 3

F.3 d 33 6, 34 0 (8 th Ci r. 19 98 ). A di s tri ct co ur t ab us es it s di sc ret io n whe n it rel ie s

up on cl earl y erro ne ou s fact ua l fin di ng s or le ga l co nc lu si on s. Id

. Ban cIn su re arg ue s

th at th e di st ric t co ur t erre d by ca lc ul at in g pr ejud gm en t in t e r e s t f ro m th e da te Avo n

req ue st ed in de m

nif ic at ion

, ra ther th an fro m th e da te Avo n act ua ll y pa id th e se tt le m en t

an d d efen se co st s, an d t hu s al lo wed Avo n t o re co ve r m or e th an it was e nt it le d t o.

Und er Mi nn es ot a St at ut e § 6 0A.0 81 1:

[a]n in su red who pr ev ai ls in an y cl ai m ag ai ns t an in su rer ba se d on th e in su rer’s br each or rep ud ia ti on of

, or fai lu re to fu lfi l l

, a d u t y to pr ov id e

se rv ic es or m ak e pa y

m en ts is en ti tl ed to reco ve r te n pe rcen t pe r an nu m in te res t on m on et ary am ou nt s du e un de r th e in su ran ce po li cy , cal cu la te d
fro m th e da te th e req ue st fo r pa y m en t o f t h o se be ne fit s was m ad e to th e in su rer.

The pa rti es di sa gr ee on th e st an da rd of rev ie w. W e no t e t h a t o u r co ur t ha s 3

ap pl ie d bo th an ab us e-o f-d is cret io n an d de no vo st an da rd of rev i e w t o R ul e 59 (e)

m ot io ns

. Co m

pa r e R o ud y

bu sh v. Zab el

, 81 3 F.2 d 17 3, 17 8 (8 th Ci r. 19 87 ) (ci ti ng Harri s v. Ark

. Dep ’t of Hum an Serv s., 77 1 F.2 d 41 4, 41 6- 17 (8 th Ci r. 1 9 8 5 ) ) (ap pl y in g ab us e-o f-d is cret io n st an da rd of rev ie w to Ru le 59 (e) m ot io n)

, w i t h
Co m pu tro l, In c. v. Newtr en d, L.P., 20 3 F.3 d 10 64

, 10 69 -7 0 (8 th Ci r. 20 00 ) (ap pl y in g de no vo rev ie w to su bjec t of Rul e 59 (e) m ot io n)

. Bu t “ whe n fa ced wit h con fli ct in g
pa ne l op in io ns , th e earl ie st op in io n m us t be fo ll owe d, as it sh ou ld ha ve co nt ro ll ed th e

su bs eq ue nt pa ne ls th at crea te d th e co nf li ct .” Mad er v. Uni te d St at es , 65 4 F.3 d 79 4,
80 0 (8 th Cir . 20 11 ) (en ba nc ) (in te rn al qu ot at io n m ark s om it te d)

. W e fin d no cas es
ap pl y in g a de no vo st an da rd of r ev ie w th at pr ed at e ou r cas es ap pl y in g a n a bu se -o fdi sc ret io n st an da rd

. As su ch

, we rev ie w th is ch al le ng e to th e Ru le 59 (e) m ot io n fo r ab us e of di sc ret io n. W e no te

, ho wev er, th a t “wh ere th e Ru le 59 (e) m ot io n se ek s

rev ie w of a pu rel y le ga l qu es ti on , ‘[l]itt le tu rn s

. . . on whe th er we la be l th e rev ie w of
th is pa rti cu la r qu es ti on ab us e o f d i s c r e ti on or de no vo , fo r an ab us e-o f-d is cret io n
st an da rd do es no t m ean a m is ta ke of la w is be y on d ap pe ll at e co rrec ti on .’ ” Hen le y v. Bro wn, 68 6 F.3 d 63 4, 63 9 (8t h Cir. 20 12 ) (al te rat io ns in or ig in al ) (q uo ti ng Koo n v. Uni te d S ta te s, 5 18 U.S. 81 , 10 0 (1 99 6) ).

-1 2-Not ab ly, th e st at ut e do es no t co nt ai n a n “as ot he rwis e pr ov id ed by co nt ract ”

ex cep ti on th at ot he r pr ejud gm en t in te res t st at ut es un de r Mi nn es ot a la w co nt ai n. See,

e.g ., Mi nn

. St at

. § 54 9.0 9 (“ Exc ep t as ot he rwis e pr ov id ed by co nt ract

. . . pr ev erd ic t

. . . int eres t o n p ecu ni ary da m ag es sh al l b e co m pu te d a s [f

ol lo ws.]”).

The di st ric t co ur t di d no t err in cal cu la ti ng pr ejud gm en t in te res t fro m th e da te

whe n Avo n fir st req ue st ed in de m n i f ic at io n— Ja nu ary 12

, 20 12

. The la ck of an

“ ex cep t as oth erwi se pr ov id ed by co nt ract ” ex cep ti on in th e la ng ua ge of Mi nn es ot a

St at ut e § 60 A.08 11 ren de rs Ban cIn su re’s a rg um en t th at th e la ng ua ge of th e Bo nd

di ct at es whe n pr ejud gm en t in te re s t i s t o be as se ss ed irr el ev an t. Fu rth er, cas e la w
fro m th e Dis tri ct of Mi nn es ot a su pp or ts th e co nc lu si on th at th e la ng ua ge of th e st at ut e

it se lf is un am

bi gu ou s an d sh ou ld be ap pl ie d as writ te n. See Owato nn a Cl in ic -Ma y o
Heal th Sy s. v. Med

. Pro te ct iv e Co

. of Fo rt W ay ne , In d., 71 4 F. Su pp

. 2d 96 6, 96 9 (D.

Mi nn

. 20 10 ) (“ The co ur t de te rm in es th a t if th e Mi nn es ot a Su pr em e Co ur t were to

in te rp ret § 60 A.08 11

, it wou ld fin d th at th e st at ut e is pl ai n an d un am bi gu ou s.”)

. And

ou r co ur t ha s reco gn iz ed th e po ss ib il it y o f ov erco m pe ns at io n whe n pr ejud gm en t

in te res t is award ed pu rs ua nt to Mi nn es ot a la w. See Mar vi n Lum be r & Ced ar Co

. v.

PPG In du s., In c., 40 1 F.3 d 90 1, 91 8 (8 th Ci r. 20 05 ) (“ The pr ev ai li ng pa r t y i s fu ll y

c o mp e ns at ed (in de ed

, m or e th an fu ll y co m pe ns at ed whe n pr ev erd ic t in te res t i s

or de red on d a mag es th at were no t in cu rred whe n su it was fil ed ).”). All of th es e

fact or s su pp or t th e co nc lu si on th at th e di st ric t co ur t di d no t e r r i n it s cal cu la ti on of

pr ejud gm en t i nt eres t.

V.

Fo r th e fo reg oi ng reas on s, t he jud gm en t o f th e d is tri ct co ur t i s af fir m ed

.

__ __ __ __ __ __ __ __ __ __ __ __ __ __ __

-1 3-