In a Chicago breach of contract and breach of fiduciary duty case, the Illinois First District Court of Appeal has ruled that an insurance company may sue a bank for allowing embezzlement from one of the insurer’s clients. Continental Casualty Company v. American National Bank and Trust Company of Chicago, No. 1-07-0627 (Sept. 25, 2008).
Continental Casualty Company is the assignee of General Automation, Inc. GAI was the victim of $1.32 million worth of embezzlement by an accountant, Lawrence Cohn, who deposited $370,000 of the stolen money into his own account at American National Bank. (He also embezzled by paying his client’s money directly to the IRS to cover his own taxes.) The checks drew on GAI’s corporate account, also at ANB. After Cohn was caught, his former accounting firms settled with GAI, but the bank did not. Continental Casualty, the insurer for one of Cohn’s former firms, sued ANB as GAI’s assignee for allowing the fraudulent deposits, for breach of contract and violation of the Illinois Fiduciary Obligations Act.
The trial court dismissed the case on statute-of-limitations and insufficiency grounds. The appeals court reversed and remanded, but the trial court again stopped the case, granting summary judgment to ANB because the Illinois Joint Tortfeasor Contribution Act bars settlement requests from a settling party to a nonsettling party. This was the subject of the instant appeal.
On appeal, ANB argued that it was jointly liable with MCW, one of Cohn’s former accounting firms, for the applicable amount of Cohn’s embezzlement. Because Continental Casualty insured MCW, ANB argued that both it and Continental Casualty are jointly liable for the embezzlement. And by gaining an assignment of GAI’s claims, ANB argued, Continental Casualty sought an indirect contribution against ANB. This violates the Contribution Act, which says a settling defendant may not seek payment from a non-settling defendant. Continental Casualty replied that Cohn was not employed by MCW when he embezzled the $370,000, meaning the injury in the instant suit is not the same as the injury to MCW from Cohn’s other embezzlement schemes.
On review, the appeals court could not find evidence in the settlement with GAI as to whether the embezzlement was considered one scheme or more. However, it noted, the settlement did say Cohn was involved in “embezzlements,” which took place in different ways and while Cohn was at two different firms. This raises a genuine issue of material fact as to whether the injury to MCW is the same as the injury that has been assigned to Continental Casualty, which in turn raises doubts about whether the Contribution Act applies.
Because there is a genuine issue of material fact — the bar for denying summary judgment — the appeals court reversed and remanded the trial court’s summary judgment decision. It also dismissed various arguments that the claim is time-barred by pointing to facts in the record, some of which suggest that there are also genuine issues of fact on when and how the embezzlement should have been discovered.
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