United States Court of Appeals

For the Eighth Circuit

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No. 18-1949

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C.S. McCrossan Inc.

lllllllllllllllllllllPlaintiff - Appellant

v.

Federal Insurance Company

lllllllllllllllllllllDefendant - Appellee

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Appeal from United States District Court

for the District of Minnesota - Minneapolis

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Submitted: March 14, 2019

Filed: August 6, 2019

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Before GRUENDER, BENTON, and GRASZ, Circuit Judges.

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BENTON, Circuit Judge.

C.S. McCrossan Inc. sued Federal Insurance Company for coverage under a

crime insurance policy. Both moved for summary judgment. The district court1

granted the Company’s motion. C.S. McCrossan Inc. v. Federal Ins. Co., 2018 WL

1The Honorable Joan N. Ericksen, United States District Judge for the District

of Minnesota. 
2180256 (D. Minn. Mar. 29, 2018). McCrossan appeals. Having jurisdiction under

28 U.S.C. § 1291, this court affirms. 

I.

TheCompany issued McCrossan an insurance policy for “EmployeeTheft” and

“Forgery”: 

(A) The Company shall pay the Parent Organization for direct loss

of Money, Securities, or Property sustained by an Insured

resulting from Theft or Forgery committed by an Employee

acting alone or in collusion with others.

. . . .

(D) The Company shall pay the Parent Organization for direct loss

sustained by an Insured resulting from Forgery or alteration of

a Financial Instrument committed by a Third Party.

(bolded words in original, defined in policy). The policy excluded from coverage

certain loss “committed by any authorized representative of an Insured.” An Insured

under the policy included McCrossan and its subsidiaries. 

Blakeley Properties, LLC and Stewart Properties, LLC own commercial rental

properties. Brookstone, Inc. and Valhalla Investments, Inc. were Blakeley’s and

Stewart’s respective agents to “manage, operate, control, rent and lease” several

properties. 

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Both hired Balderson Management, Inc. to manage these properties. Blakeley

separately hired Balderson as well.

Balderson’s owner and principal, Cynthia Balderson, managed properties with

the help of an “administrative person,” as relevant here, her daughter Stephanie

Castillo. Castillo was the primary user of Balderson’s property management system,

the sole copy of which was on her computer. Unlike Cynthia, her duties (and

authority) did not include signing checks from any accounts.

Castillo stole around $570,000 from Blakeley and $250,000 fromStewart over

the course of several years. She created fake invoices in the property management

system, printed checks (from Blakeley’s and Stewart’s accounts) payable to herself

or for her benefit, manipulated the system to show payment to a vendor, and forged

Cynthia’ssignature on each check. She pled guilty to eight counts of theft by swindle

and wassentenced to 80months’imprisonment. State v.Stephanie Lantgen Castillo,

No. 27-CR-15-503 (Minn. Dist. Ct. Hennepin Cty. Nov. 23, 2015) (sentencing order).

McCrossan submitted a claim to the Company, seeking coverage under the

“Forgery” and “Employee Theft” insuring clauses. The Company denied the claim. 

McCrossan sued for breach of the insurance policy. Both parties moved for summary

judgment. The district court granted summary judgment to the Company. It

concluded Stewart was not an Insured under the policy; Castillo was an authorized

representative of Blakeley, precluding coverage under “Forgery;” and Castillo was

not Blakeley’s employee, precluding coverage under “Employee Theft.” McCrossan

appeals. 

II.

This courtreviews de novo “the district court’s grant of summary judgment and

its interpretation of state insurance law.” Grinnell Mut. Reinsurance Co. v.

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Schwieger, 685 F.3d 697, 700 (8th Cir. 2012). “The question is whether the record,

viewed most favorably to the non-moving party, shows no genuine issue of material

fact and that the moving party is entitled to judgment as a matter of law.” Volk v. Ace

Am. Ins. Co., 748 F.3d 827, 828 (8th Cir. 2014). 

In this diversity action, Minnesota substantive lawcontrolsthis court’s analysis

of the insurance policy. Jerry’s Enters., Inc. v. U.S. Specialty Ins. Co., 845 F.3d

883, 887 (8th Cir. 2017). This court is “bound by the decisions of the Minnesota

Supreme Court” when interpreting Minnesota law. Integrity Floorcovering, Inc. v.

Broan-Nutone, LLC, 521 F.3d 914, 917 (8th Cir. 2008). “If the Minnesota Supreme

Court has not spoken on a particular issue, [this court] must attempt to predict how

the Minnesota Supreme Court would decide an issue and may consider relevantstate

precedent, analogous decisions, considered dicta . . . and any other reliable data.” Id.

“The interpretation of an insurance contract is a question of law.” Jerry’s

Enters., 845 F.3d at 887, citing Midwest Family Mut. Ins. Co. v. Wolters, 831

N.W.2d 628, 636 (Minn. 2013). Minnesota courts use “general principles of contract

law” to interpret an insurance policy. Midwest Family, 831 N.W.2d at 636, citing

Thommes v. Milwaukee Ins. Co., 641 N.W.2d 877, 879 (Minn. 2002). The policy

“must be construed as a whole, and unambiguous language must be given its plain

and ordinary meaning.” Id., quoting Henning Nelson Constr. Co. v. Fireman’s

Fund Am. Life Ins. Co., 383 N.W.2d 645, 652 (Minn. 1986). “Provisions in an

insurance policy are to be interpreted according to both ‘plain, ordinary sense’ and

‘what a reasonable person in the position of the insured would have understood the

wordsto mean.’” Id., quoting Farmers Home Mut. Ins. Co. v. Lill, 332 N.W.2d 635,

637 (Minn. 1983). Exclusions are “construed strictly against the insurer.” Syfco v.

EncompassIndem. Co., 761 F.3d 867, 871–72 (8thCir. 2014), citing Thommes, 641

N.W.2d at 880. “An insured party bearsthe initial burden of demonstrating coverage,

and the insurer then bears the burden of establishing an applicable exclusion.” 

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Restaurant Recycling, LLC v. Employer Mut. Cas. Co., 922 F.3d 414, 417 (8th Cir.

2019), citing Midwest Family, 831 N.W.2d at 636. 

A.

McCrossan seeks recovery for Blakeley’s and Stewart’s losses. The policy

covers loss to an Insured. The Company admits Blakeley is an Insured. 

Stewart, however, is not. An Insured includes McCrossan and “any

Subsidiary.” Subsidiary is defined in the policy, as, in relevant part: 

any entity while more than fifty percent (50%) of the outstanding

securities representing the present right to vote for election of or to

appoint directors, trustees, managers, members of the Board of

Managers or equivalent positions of such entity are owned, or

controlled, by the Parent Organization, directly or through one or more

Subsidiaries.

While the policy was in effect, Stewart was wholly-owned by a McCrossan

individual. Without citing authority,McCrossan argues Stewart is an Insured because

it was not in a “materially different position” than other McCrossan-related entities

the Company admits are covered. The policy’s language calls for ownership or

control by McCrossan. Ownership and common management by McCrossan

individuals, even McCrossan board members, does not meet this test. Because

Stewart does not meet the policy’s definition of Subsidiary, it is not an Insured. See

Depositors Ins. Co. v. Dollansky, 919 N.W.2d 684, 691 (Minn. 2018) (“We

determine whether an insurance policy provides coverage by looking to the language

of the insurance policy itself.”). The district court properly granted summary

judgment to the Company on McCrossan’s claims for Stewart’s loss.

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B.

As for Blakeley’s loss, McCrossan claims coverage under the “Forgery” and

“Employee Theft” insuring clauses. 

TheCompany admits McCrossan met itsinitial burden to demonstrate coverage

under the “Forgery” clause. The Company argues, however, that the “Authorized

Representative” exclusion applies, which excludes from coverage: 

loss or damage due to Theft, Forgery, Computer Fraud, Funds

Transfer Fraud, Money Orders And Counterfeit Currency Fraud,

Credit Card Fraud or other fraudulent, dishonest or criminal act (other

than Robbery or Safe Burglary) committed by any authorized

representative of an Insured, whether acting alone or in collusion with

others, provided that this Exclusion (A)(14) shall not apply to otherwise

covered loss under Insuring Clauses (A), Employee Theft Coverage, or

(I), Client Coverage, resulting from Theft or Forgery committed by an

Employee acting in collusion with such authorized representative.

The parties dispute whether Castillo was an “authorized representative” of Blakeley,

a term not defined in the policy.

The most relevant case is National City Bank of Minneapolis v. St. Paul Fire

& Marine Ins. Co., 447 N.W.2d 171 (Minn. 1989). There, an insured bank sought

coverage under a bond after making a loan in reliance on fake stock certificates. Id.

at 173. At issue was whether the insured bank complied with the bond’srequirement

that “the Insured, its correspondent bank or other authorized representative”

physically possess the certificates before making the loan. Id. at 174. The insured

bank received the certificates after making the loan; another bank had them while the

insured bank negotiated it. Id. The court concluded the lack of agency relationship

precluded the other bank from being an “authorized representative” of the insured

bank under the bond. See id. at 176. “It was a mere coincidence” that the other bank

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had the certificates while the insured bank negotiated the loan. Id. “[T]husthere was

no act making [the other bank] an ‘authorized representative’ of [the insured bank].” 

Id. (agreeing with the trial court that the other, possessing bank “did not serve as an

authorized representative of [the insured bank] in this transaction for the purposes of

possessing the certificates as contemplated under the [b]ond”). 

This court is bound by the Minnesota Supreme Court’s instruction that “being

an ‘authorized representative’ has an agency requirement.” Id. Here, it is undisputed

that Blakeley made Balderson its agent for property management, Blakeley knew

Castillo worked at Balderson on its accounts, and Blakeley did not object to her

working there. The district court thus correctly applied agency principlesto conclude

that Castillo metNational Bank’s agency requirement. See Semingson v. Stockyards

Natl. Bank, 203 N.W. 412, 413 (Minn. 1925) (“If an agent employs a subagent for

his principal, by authority of the principal, express or implied, the subagent is the

agent of the principal.”); Hartford Fire Ins. Co. v. Clark, 727 F. Supp. 2d 765, 775

(D. Minn. 2010), quoting Restatement (Third) Of Agency § 3.15 cmt. c (2006)

(“Implied consent to appoint subagents is . . . present when an agent is itself a person

that is not an individual, such as a corporation.”), and § 3.15 cmt. b (“When an agent

is itself a corporation or other legal person, its officers, employees, partners, or

members who are designated to work on the principal’s account are subagents.”). Cf.

Wolfson v. Beris, 295 N.W.2d 562, 565 (Minn. 1980) (trial court correctly applied

agency principles to find that real estate agent was subagent of seller, even though

seller did not “know of” or “authorize” agent’s actions, because agent “acted on [the

seller’s] part in accord with the custom of the industry”), citing Restatement

(Second) of Agency § 5(1) (1958).

True, as McCrossan contends, National City does not say that agency is the

only requirement to be an authorized representative. However, the authorized

representative exclusion unambiguously applies here, where Blakeley’s

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empowerment of Castillo to act on its behalf enabled her crime.2

See BancInsure,

Inc. v. Highland Bank, 2012 WL 6217375, at *6–7 (D. Minn. Dec. 4, 2012)

(concluding that one bank was the “authorized representative” of another bank

because their “intentionalrelationship” metNationalCity’s agency requirement). See

also Volk, 748 F.3d at 828–29 (“Minnesota courts rely on dictionaries for the plain

and ordinary meaning of an undefined term.”); Stop & Shop Cos., Inc. v. Federal

Ins. Co., 136 F.3d 71, 74 (1st Cir. 1998) (consulting Black’s Law Dictionary and

Webster’s Third New International Dictionary to conclude “authorized

representative” unambiguously covers “a person or company empowered to act on an

entity’s behalf”); Telamon Corp. v. Charter Oak Fire Ins. Co., 850 F.3d 866, 871

(7th Cir. 2017) (adopting Stop &Shop’s definition); Stanford Univ. Hosp. v. Federal

Ins. Co., 174 F.3d 1077, 1085 (9th Cir. 1999) (construing “the ‘authorized

representative’ language . . . narrowly since it is in an exclusion clause” and agreeing

with Stop & Shop).

Blakeley authorized Balderson to act on its behalf for property management. 

Balderson’s duties included managing bank accounts, all accounting (rental billing,

deposits, distributions, and disbursements), approving invoices, and maintaining

property managementsoftware. (The scope of the duties Blakeley granted Balderson

and reserved for itself is detailed by the district court. C.S. McCrossan, 2018 WL

2180256, at *3–4.) Blakeley knew that Balderson performed its duties through

Cynthia and Castillo. See Rommel v. New Brunswick Fire Ins. Co., 8 N.W.2d 28,

32 (Minn. 1943) (“[A corporation] must act through or by means of human

direction.”). Blakeley’s grant of authority to Balderson thus empowered them to

2McCrossan argues that equating “authorized representative” with “agent” is

inconsistent with other provisions in the insurance policy. It does not object to

defining “authorized representative” to cover “a person or company empowered to

act on an entity’s behalf.” This court need not address whether McCrossan’s

proposed definition requiring “authority to bind” is reasonable, making “authorized

representative” ambiguous. McCrossan itself does not view the formulations “as

meaningful[ly] different.” 

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work on its behalf. See Stanford Univ., 174 F.3d at 1085 (“There would be no force

or effect to the exclusionary clause if the term ‘authorized representative’ did not

include employees and officers of the authorized company.”); Stop & Shop, 136 F.3d

at 74–75 (noting an authorized company “may carry out its obligations . . . only

through the acts of its officers and employees,” and rejecting that acts by the

authorized company’s officers could not fall under an “authorized representative”

exclusion).

Not every individual working for an authorized representative is also an

authorized representative. The facts of each case determine whether the individual

is empowered to act on the principal’s behalf. Contrary to McCrossan’s argument

that Castillo lacked authority, her (undisputed) duties—done on behalf of

Blakeley—included: bookkeeping (including processing invoices and printing

checks), inputting vendor information, collecting rents, following up on propertyrental leads, making cold calls, and handling tenant requests. The sole copy of the

propertymanagement system—necessary to Castillo’s scheme—was on her computer,

and Cynthia rarely accessed it. Cynthia testified that she planned to have Castillo

take over Balderson once she retired, and, in connection with that, Castillo was

getting more involved in tenant issues. Jane McCrossan, Blakeley’s manager,

testified that she knew and was not surprised that independent auditors decided to

interview Castillo aboutfraud as a standard part of two of McCrossan’s annual audits. 

Though Castillo’s position was an “administrative person,” McCrossan swore in its

proof of loss that “Castillo was responsible for co-managing the McCrossan

Subsidiaries’ properties and leasing those properties out.” Castillo’s role at

Balderson authorized her to conduct the activities that led to her crimes, thus the

authorized representative exclusion applies. See Colson Servs. Corp. v. Insurance

Co. of N. Am., 874 F. Supp. 65, 69 (S.D.N.Y. 1994) (concluding company was

plaintiff’s authorized representative where it was given authority to act as plaintiff’s

agent in choosing investments and plaintiff “could have chosen to monitor [it] more

closely to ensure that it was exercising its authority appropriately, but chose not to do

so”). Cf. Telamon, 850 F.3d at 871 (consultant was corporation’s authorized

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representative where, despite a lack of express authorization in her employment

agreements “to do the specific activity that gave rise to the theft,” her “actual role

grew over time to reach matters far beyond the [a]greements’ terms,” and her duties

authorized her “to conduct the very activity that led to her crime”).

In light of these facts, Castillo’s lack of check-signing authority does not

preclude her from being an “authorized representative,” as McCrossan argues. The

term’s unambiguous meaning does not impose such a requirement. See Storms, Inc.

v. Mathy Const. Co., 883 N.W.2d 772, 776 (Minn. 2016) (“When a contractual

provision is unambiguous, we do not ‘rewrite, modify, or limit its effect by a strained

construction.’”), quoting Valspar Refinish, Inc. v. Gaylord’s,Inc., 764 N.W.2d 359,

364–65 (Minn. 2009). Nor does the exclusion’s plain language. Asthe district court

noted, it reaches a range of acts unconnected to check-signing authority. The

exclusion applies to acts committed by “any authorized representative,” not just

authorized representatives with authority to sign checks. See Kubota Credit Corp.,

U.S.A. v. Federal Ins. Co., 2012 WL 12033876, at *5–7 (C.D. Cal. Apr. 2, 2012)

(construing the same exclusion at issue here, noting “the plainmeaning of ‘authorized

representative[]’ . . . only requires a grant of ‘authority,’ not necessarily a grant of

‘fiscal authority’”). 

While exclusions are construed narrowly against the insurer, viewing the

record most favorably to McCrossan, the authorized representative exclusion

unambiguously excludes coverage here because Castillo acted as Blakeley’s

authorized representative. See Latterell v. Progressive N. Ins. Co., 801 N.W.2d 917,

921 (Minn. 2011) (Courts “must fastidiously guard against the invitation to create

ambiguities where none exist.”), quoting Columbia Heights Motors, Inc. v. Allstate

Ins. Co., 275 N.W.2d 32, 36 (Minn. 1979).

As for coverage under “Employee Theft,” McCrossan argues that if Castillo

was Blakeley’s authorized representative, she must have been its employee. As

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relevant here, an “Employee” means any “Contractual Independent Contractor.” The

policy defines that term as: 

any natural person independent contractor while in the regular service

of an Organization in the ordinary course of such Organization’s

business, pursuant to awritten contract between suchOrganization, and

either (A) such natural person independent contractor, or (B) any other

entity acting on behalf of such natural person independent contractor,

for services.

McCrossan/Blakeley did not have a written contract for services with Castillo. 

Blakeley did have a contract with Balderson. Viewing the record most favorably to

McCrossan, Balderson was not acting on behalf of Castillo.

The parties agree that acting “on behalf of” means “in the interest of,” “as the

representative of,” or “for the benefit of.” Harleysville Ins. Co. v. Physical Distrib.

Servs., Inc., 716 F.3d 451, 460 (8th Cir. 2013), quoting Webster’s Third New

International Dictionary 198 (1993). McCrossan argues Balderson acted for the

benefit of Castillo, relying solely on Colony Tire Corp. v. Federal Ins. Co., 217 F.

Supp. 3d 860 (E.D.N.C. 2016). There, a plaintiff sought coverage under the same

employee-theft clause at issue here after two alleged “contractual independent

contractors” fraudulently used their payroll-and-tax-services corporation to embezzle

the plaintiff’s funds. See Colony Tire, 217 F. Supp. 3d at 863, 866. Analyzing the

same language at issue here in light of North Carolina law, that court concluded the

corporation acted on behalf of its two owners “when it contracted with plaintiff for

the purpose of facilitating the [owners’] embezzlement.” Id. at 867. The court noted

“the purpose of [the corporation’s] existence was to facilitate the [owners’]

embezzlement,” and “there is no evidence in the record that anyone benefitted from

[its] operations other than the [owners].” Id. Colony Tire is inapposite here. First,

Balderson’s contractual relationship with Blakeley started before Castillo joined

Balderson. Though she worked there when Blakeley hired Balderson directly, that

contract was recommended when the companies’ relationship started (again, before

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she joined Balderson). Second, Cynthia owned Balderson, not Castillo, and the

purpose of its existence was not to facilitate Castillo’s crime. 

Still relying on Colony Tire, McCrossan calls it an “absurd result” that

Castillo’s actions are not covered—despite McCrossan not giving her authority to

sign checks—while a crime committed byCynthia—an authorized signer—would be

covered as employee theft. Analyzing Cynthia’s acts under Colony Tire presents

different facts and law than present here. Castillo’s acts are not covered by the plain

and ordinary meaning of the insurance policy here. See Engineering & Const.

Innovations, Inc. v. L.H. Bolduc Co., 825 N.W.2d 695, 705 (Minn. 2013) (“[W]e

will not ‘read an ambiguity into the plain language of a policy in order to provide

coverage.’”), quoting Farkas v. Hartford Accident & Indem. Co., 173 N.W.2d 21,

24 (Minn. 1969). 

The district court properly granted the Company summary judgment on

McCrossan’s claims for Blakeley’s loss.

* * * * * * *

The judgment is affirmed.

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