In Minnesota insurers are entitled to rescind their insurance policy when an application contains a material misrepresentation that increases the risk of loss. In National Credit Union Administration Board v. Cumis Insurance Society, Inc., 241 F.Supp.3d 934 (D. Minn. 2017) the court held that a credit union’s employee’s misrepresentations on the Fidelity Bond application regarding her own fraud could not be imputed to the credit union for purposes of coverage for the agent’s embezzlements.
In this case the insured credit union discovered that one of its managers, Ms. Cofell, had embezzled a substantial sum of money. The credit union was insured under a fidelity bond. Before the embezzlement was discovered, Cofell had applied to have that Fidelity bond renewed. The bond application asked if any director, officer, board committee member or employee had knowledge of or information regarding any claims which might be covered under the bond. Ms. Cofell answered “no” to those questions. It was undisputed in the case that Ms. Cofell’s responses were false since she was the one embezzling the funds at the time. Under Minnesota law the knowledge of an agent who engages in authorized actions is imputed to the principle. Under that rule, normally, Ms. Cofell’s knowledge would be imputed to the credit union. However, the agency rule was subject to an exception when the agent acted adversely to the principle solely for the agent’s own benefit. Because of this, the court held that the exception applied because Ms. Cofell’s motive in failing to disclose her embezzlement was to benefit herself to the detriment of the credit union.