Opinion ID: 30554
Heading Depth: 2
Heading Rank: 3

Heading: Wall Unauthorized Pay Increase Claim

Text: 33 We next consider whether the district court erred in granting Mid-Continent's summary judgment motion on the Wall unauthorized pay increase claim. 34 Performance argues that unauthorized pay increases are covered by the policy as a matter of law because Wall's salary increase was not earned and was not obtained in the normal course of employment. Mid-Continent argues that summary judgment in its favor was appropriate because unauthorized pay increases are excluded under the terms of the policy as a matter of law. 35 The district court determined that the policy does not provide coverage for unauthorized pay increases due to employee dishonesty. The district court rejected Performance's argument that in the normal course of employment is ambiguous and that the phrase does not cover salary increases obtained through fraud. The district court instead found that the language means that the policy does not reimburse the insured for the salaries paid to an employee during the time that an employee was committing acts of dishonesty against the insured, although the loss incurred by the act of dishonesty may be covered. 16 36 We agree with the district court. According to the policy, employee dishonesty includes instances where an employee dishonestly obtains a financial benefit, but the financial benefit must be one other than employee benefits earned in the normal course of employment, including: salaries... The plain language of the policy excludes unauthorized salaries obtained due to employee dishonesty. 37 Though Performance argues that the Wall salary increases are covered losses because the benefits were not earned in the normal course of employment because they were due to fraud and the funds were not earned because they were stolen, the one Texas court to consider this language specifically rejected those arguments. See Dickson v. State Farm Lloyds, 944 S.W.2d 666, 668 (Tex. App.—Corpus Christi 1997, no writ). In Dickson, an insured filed a claim under his employee dishonesty policy to obtain reimbursement for losses based on two employees manipulating the time card system to obtain extra compensation. Id. at 668. The court noted that there were no Texas cases construing the policy language at issue but that courts of several sister states had found that the exclusion bars coverage for employee benefits that were dishonestly obtained. See id. The Dickson court concluded that when an employee has dishonestly or fraudulently obtained for himself only salary or other such employee benefits, the policy unambiguously excludes coverage. 17 Id. The majority of courts that have considered this exclusion agree. See Mun. Sec., Inc. v. Ins. Co. of N. Am., 829 F.2d 7, 9-10 (6th Cir.1987) (interpreting exclusion to exclude an employee's increased commissions obtained by fraud); James B. Lansing Sound, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 801 F.2d 1560, 1567 (9th Cir.1986) (finding, under California law, that commissions on fraudulent sales were clearly excluded); Hartford Accident & Indem. Ins. Co. v. Wash. Nat'l Ins. Co., 638 F.Supp. 78, 82-84 (N.D.Ill.1986) (holding that fraudulently obtained commissions were excluded); Benchmark Crafters, Inc. v. Northwestern Nat'l Ins. Co. of Milwaukee, 363 N.W.2d 89, 91 (Minn.Ct.App.1985) (excluding loss due to an employee submitting false orders to obtain salary and benefits); Mortell v. Ins. Co. of N. Am., 120 Ill.App.3d 1016, 76 Ill.Dec. 268, 458 N.E.2d 922, 929 (1983) (excluding commissions due to unauthorized trading). 38 A few cases in other jurisdictions support Performance's construction of the policy language. In Cincinnati Insurance Co. v. Tuscaloosa County Parking & Transit Authority, for example, the Alabama Supreme Court, considering nearly identical policy language, found that unauthorized salary increases obtained due to employee dishonesty were covered losses because salaries means only authorized salaries and the salaries were stolen, not earned. 827 So.2d 765, 767-68 (Ala. 2002). This holding is supported by two other cases. See FDIC v. St. Paul Fire & Marine Ins. Co., 738 F.Supp. 1146, 1160 (M.D.Tenn.1990), modified on other grounds, 942 F.2d 1032 (6th Cir.1991); Klyn v. Travelers Indem. Co., 273 A.D.2d 931, 709 N.Y.S.2d 780, 781 (N.Y.App.Div. 2000) (finding coverage when an insured's comptroller paid himself excessive salary and bonuses). 39 Though Dickson, as a Corpus Christi Court of Appeals case, is not binding this court, we believe it likely that the Texas Supreme Court would adopt its reasoning and interpret the policy language to exclude coverage, particularly because the Dickson holding is the majority view. Looking at the plain language of the policy, the interpretation rejecting coverage makes sense. If in the normal course of employment means not obtained through employee dishonesty, the policy language excluding salaries would become mere surplusage. That is, the language excluding salaries presumes that there are acts of employee dishonesty that result in increased employee benefits that the insured and insurer agreed to exclude from coverage. Further, as one court noted, unearned salaries and commissions are nevertheless still salaries and commissions and therefore belong to the generic category of employee benefits that are normally earned in the course of employment. Hartford Accident & Indem. Ins. Co., 638 F.Supp. at 84. 40 Turning to the facts of this case, our result is clear. Wall obtained unauthorized salary increases for herself and another employee while employed by Performance. This loss is not covered by the plain language of the policy, which exempts salaries from the category of employee dishonesty losses. Though the district court did not rely on Dickson, 18 we find it persuasive here. Thus, we conclude that there is no coverage as a matter of law and we affirm summary judgment in favor of Mid-Continent on the Wall salary claim. 41