A Minnesota appellate court reversed a $25,000 fidelity-bond judgment because the insured toy maker failed to prove its sales manager acted with manifest intent to obtain a personal financial benefit beyond ordinary compensation.
Outcome: Reversed for appellant.
What happened
The facts of the case, in plain language.
Timothy Mohr worked for respondent approximately four months before the company discovered he had submitted $341,844 worth of false orders from five different accounts for its new line of infant toys, and he resigned upon being confronted with the orders.
At trial, respondent's accountant testified that the unrecoverable losses from the false orders, projected at $14,739 in the proof of loss, totaled $44,000, making the company's total loss approximately $62,000.
Respondent presented no evidence that Mohr submitted the false orders, ordered the special racks, or misused the company credit card with the intent to harm the company, and it failed to prove that Mohr financially benefited from his actions by means other than his salaries, commissions, fees, bonuses, promotions, and awards.
It was uncontroverted that Mohr gained nothing from the fraudulent acts except his regular salary and expenses, and the insurance contract expressly excluded such normal-course compensation from qualifying as an employee financial benefit.
The trial court found Princess Toys sustained losses in excess of $60,000 and ordered judgment for the manufacturer in the bond amount of $25,000, with interest from November 1981, the date the proof of loss was submitted, plus taxable costs and disbursements.
What the court decided
Benchmark Crafters, d/b/a Princess Toys, bought a fidelity bond—a policy protecting employers against losses from employee dishonesty—with $25,000 of coverage. In May 1981 it hired Timothy Mohr as national marketing and sales manager; about four months later the company discovered he had submitted $341,844 in false orders, and its total losses reached about $62,000. The trial court found the losses exceeded $60,000 and awarded the manufacturer the full $25,000 bond limit, plus interest from November 1981 and costs. The insurer appealed, contending the evidence was insufficient. The bond paid only for losses caused by acts committed with "manifest intent" both to harm the employer and to win the employee a financial benefit beyond ordinary pay. Because Mohr received nothing but his regular salary and expenses, and the insured proved no more, the Court of Appeals held the manufacturer failed its burden of proof and reversed.
- In an action on a fidelity bond executed to indemnify an employer against loss caused by the dishonesty or fraud of an employee, the employer bears the burden of proving by a reasonable preponderance of the evidence that the loss was caused by the employee's dishonest or fraudulent acts within the terms of the bond. (*91)
- A fidelity bond covers only losses caused by employee acts committed with manifest intent both to cause the insured to sustain a loss and to obtain a financial benefit for the employee other than salaries, commissions, fees, bonuses, promotions, awards, profit sharing, pensions, or other benefits earned in the normal course of employment. (*91)
- An employee's receipt of ordinary compensation, including salary and expenses earned in the normal course of employment before the fraud is discovered, does not satisfy the fidelity bond's requirement of manifest intent to obtain a financial benefit beyond normal-course compensation. (*91)
- An insured who documents substantial losses but cannot show that the dishonest employee acted with manifest intent to obtain a financial benefit beyond ordinary compensation has failed to carry its burden under the fidelity bond, and an unambiguous contract must be given effect as written regardless of the size of the documented loss. (*92)
- An insurer does not bring an appeal in bad faith by challenging the sufficiency of the insured's proof under a fidelity bond. (*92)
How the court reached its decision
The court's reasoning, step by step.
Whether the trial court's findings were supported by evidence sufficient to show the employee's acts satisfied the fidelity bond's coverage terms. Although Mohr submitted $341,844 worth of false orders and the company's total loss reached approximately $62,000, the insured presented no evidence that he acted with intent to harm the company, and it was uncontroverted that he gained nothing from the fraudulent acts except his regular salary and expenses; his four months of employment constituted only normal-course compensation expressly excluded by the contract. Because the insured failed to prove the second element of the two-part manifest-intent requirement, the trial court erred in finding the burden met, and the $25,000 judgment is reversed.
Whether the employee's pre-discovery employment compensation can serve as the financial benefit required by the bond's second manifest-intent element. Respondent argued that Mohr's four months of employment before the fraud was discovered was the financial benefit satisfying the second element, but the contract's express exclusion forecloses that reading; Mortell v. Insurance Company of North America, construing an identical provision, held the terms unambiguous and enforceable as written. Normal-course compensation cannot satisfy the financial-benefit element, so the insured's argument fails.
Whether the bond's plain-language coverage requirements must be enforced as written. The provision defining dishonest and fraudulent acts states the two-part manifest-intent requirement in plain terms, and Mortell reached the same construction of an identical provision. Since the contract is unambiguous, it must be given effect, requiring reversal of a judgment awarded without proof of the required elements.
Key quotes from the opinion
Notable passages from the opinion, in the court's own words.
Cases the court relied on
Earlier decisions the court cited as authority for its ruling.
Cases that cite this one
15 later published cases cite this decision.
- HARTFORD ACC. & INDEM. INS. v. Wash. Nat. Ins. (District Court, N.D. Illinois 1986)
- Hartford Accident & Indemnity Insurance v. Washington National Insurance (District Court, N.D. Illinois 1986)
- 3BC Properties, LLC v. State Farm Fire & Casualty Co. (Ill. App. Ct. 2020)
- Renasant Bank v. St. Paul Mercury Insurance Co. (District Court, N.D. Mississippi 2017)
- Performance Autoplex II Ltd. v. Mid-Continent Casualty Co. (5th Cir. 2003)
- ABC Imaging of Washington, Inc. v. TRAVELERS INDEMNITY COMPANY OF AMERICA (Md. Ct. Spec. App. 2003)
- Cincinnati Ins. Company v. Tuscaloosa Parking Auth. (Ala. 2002)
- Resolution Trust Corporation v. Fidelity And Deposit Company Of Maryland (3d Cir. 2000)
- Resolution Trust Corp. v. Fidelity & Deposit Co. of MD,et al. (Part II) (3d Cir. 2000)
- Auburn Ford Lincoln Mercury, Inc. v. Universal Underwriters Insurance (United States District Court for the Middle District of Alabama 1997)
- Dickson v. State Farm Lloyds (Tex. App. 1997)
- North Jersey Savings & Loan Ass'n v. Fidelity & Deposit Co. (N.J. Super. Ct. App. Div. 1993)
- Federal Deposit Insurance v. St. Paul Fire & Marine Insurance (District Court, M.D. Tennessee 1990)
- Judge v. Burnhope (In re Leedy Mortgage Co.) (United States Bankruptcy Court, E.D. Pennsylvania 1987)
- Morgan, Olmstead, Kennedy & Gardner, Inc. v. Federal Ins. Co. (District Court, S.D. New York 1986)
This list shows which later cases cite this one. It does not say how they treated it, and no review of that has been done. Not a substitute for Shepard’s or KeyCite — verify before relying.
Full opinion
The complete text of the court's opinion as published.
Opinion
OPINION
Plaintiff-respondent Princess Toys, a toy manufacturer insured by defendant-appellant Northwestern National Insurance Company of Milwaukee, a fidelity bonding company, brought an action against the bonding company seeking indemnity under a commercial blanket bond for losses it sustained as the result of fraudulent and dishonest acts by its former sales manager.
The trial court found that Princess Toys sustained losses in excess of $60,000. It ordered judgment for the manufacturer in the amount of the bond ($25,000) with interest from November 1981, the date the proof of loss was submitted to the insurance company, and taxable costs and disbursements. Appellant claims the evidence is not sufficient to support the verdict. We agree and reverse.
FACTS
Respondent, Benchmark Crafters, d/b/a Princess Toys, manufactures and sells plush stuffed animal toys. In 1978 it purchased fidelity bond insurance from appellant Northwestern National Insurance Company of Milwaukee. The insurance contract provided coverage up to $25,000 for any loss to respondent directly resulting from the fraudulent or dishonest acts of an employee. The contract defines dishonest and fraudulent acts as:
only dishonest and fraudulent acts committed by such Employee with the manifest intent:
(a) To cause the Insured to sustain such a loss; and
(b) To obtain financial benefit for the Employee, or for any other person or organization intended by the Employee to receive such benefit, other than salaries, commissions, fees, bonuses, promotions, awards, profit sharing, pensions or other employee benefits earned in the normal course of employment.
*91 The contract also contains an exclusion for “potential income, including but not limited to interest and dividends, not realized by the insured because of a loss covered under the Bond.”
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In May 1981, respondent hired Timothy Mohr as its national marketing and sales manager. His job involved working with sales representatives throughout the country, attending trade shows, and soliciting new business from large retail operations.
He worked for respondent approximately 4 months before the company discovered that Mohr had submitted $341,844 worth of false orders from five different accounts for respondent’s new line of infant toys. The projected sales for this line of toys was estimated between $25,000 to $40,000 for the first year. Mohr also ordered $8,500 worth of display racks to be used in retail stores for the infant toys. Upon being confronted with these orders, Mohr resigned.
Respondent filed a proof of loss statement within the time required under the contract. Respondent claimed the following losses:
Unauthorized use of Company’s
American Express credit card $10,518
Special Display Racks $8,554
Unrecoverable Losses from False Orders In excess of $14,739
Policy Limit $25,000
Total Claim $25,000
At trial respondent’s accountant testified that the unrecoverable losses from the false orders projected to be $14,739 in its claim turned out to be $44,000. Thus, the company’s total loss was approximately $62,000.
Respondent presented no evidence that Mohr submitted the false orders, ordered the special racks and misused the company credit card with the intent to harm the company. There is no clear evidence that Mohr used the company credit card for other than business purposes. The manufacturer only presented evidence of losses incurred as a result of the false orders. It also failed to prove, as required by the contract, that Mohr financially benefited from his actions by means other than his salaries, commissions, fees, bonuses, promotions, awards, etc.
ISSUES
1. Are the findings of the trial court supported by the evidence?
2. Is this appeal brought in bad faith?
ANALYSIS
In an action on a fidelity bond executed to indemnify employer against loss caused by dishonesty or fraud of an employee, the employer has the burden of proving by a reasonable preponderance of the evidence that the loss was caused by the dishonest or fraudulent acts of the employee within the terms of the fidelity bond. Village of Plummer v. Anchor Casualty Co., 240 Minn. 355, 61 N.W.2d 225 (Minn. 1953).
The plain language of the insurance contract requires that there must be proof of a manifest intent first to harm the employer and second to obtain financial benefit for the employee other than the benefits earned in the normal course of employment.
It is uneontroverted that Mohr did not gain anything except his regular salary and expenses from the fraudulent acts. Respondent argues that Mohr’s 4 months of employment before the fraud was discovered is the financial benefit to Mohr which satisfies the second element. However, the terms of the insurance contract clearly exclude this argument.
The court in Mortell v. Insurance Company of North America, 120 Ill.App.3d 1016, 76 Ill.Dec. 268, 458 N.E.2d 922 (Ill.App.Ct. 1983), dealing with an identical insurance provision, held the terms were unambiguous and must be given effect as written.
Since respondent failed to prove the second element of the two elements of proof necessary to recover against the insurance *92 company, the trial court erred in finding respondent met its burden of proof.
In light of this, it is not necessary to discuss whether respondent met its burden of proof on the intent to harm element.
2. There is no merit to respondent’s argument that this appeal was brought in bad faith.
DECISION
There is no evidence that respondent met his burden of proof required under the insurance contract. Since the contract is unambiguous, it must be given effect. We reverse.
Continue your research
- Cases applying the two-part manifest-intent requirement to fidelity bond claims
- Cases addressing whether ordinary salary or pre-discovery compensation satisfies the financial-benefit element
- Secondary sources on fidelity bond claims and proof of employee-dishonesty losses
Case-law data current through September 30, 2026. Source: CourtListener bulk data.