'Taking by deception' covered by crime policy for Texas tax firm
The appeals court remanded the case to a Dallas County district court to consider what other alleged losses resulted "directly from" Weaver's theft.
A simple or not-so-simple dispute over the meaning of “theft” led to a take-nothing judgment on an $11 million insurance coverage claim, but the Dallas appeals court reversed, paving the way for a trial.
In Ryan LLC v. National Union Fire Insurance Co. of Pittsburgh, Pa., 2023 Tex. App. LEXIS 1625 (Tex. App. 2023), the Fifth District Court of Appeals concluded a Ryan employee, Sean Weaver, committed theft by unlawfully taking illegally claimed commissions.
The amount of Weaver’s unearned commissions was $346,612, but in reaching that conclusion the appeals court resolved in part the contested issue of what constituted coverage for theft in an insurance policy.
The appeals court remanded the case to a Dallas County district court to consider what other alleged losses resulted “directly from” Weaver’s theft.
Ryan, a Dallas-based global tax services firm, employed Weaver as director of its Transaction Tax Practice Group in Virginia from 2011-2015. That practice group specialized in identifying overpayment of sales and use taxes to state and local taxing authorities.
Weaver and the employees he supervised earned fees based on a percentage of refunds recovered for major corporations. From October 2011 to December 2014, Weaver implemented a scheme to submit fraudulent tax returns on behalf of clients to the state tax collection agencies of Virginia, Texas and Florida. This resulted in significant increased earnings for Weaver and staff in his department.
Ryan’s internal procedures uncovered irregularities that led to an investigation and discovery of the scheme. Weaver was terminated and eventually convicted of mail fraud and money laundering, according to court documents.
Ryan had crime coverage with National Union, an AIG company, and filed a claim for losses for unearned bonuses and commissions, expenses related to the internal investigation, payments to outside firms that assisted the investigation, resolution payments to the Texas Comptroller, and lost fees to affected clients.
National Union said there was no coverage for the claimed losses, but offered to reimburse the $346,612 commission paid to Weaver, “under a complete reservation of rights.”
Ryan filed suit alleging breach of contract and violations of the Texas Insurance Code. National Union moved for summary judgment, arguing Ryan could not prove there was a “theft” because there was no taking of Ryan’s property; since the money belonged to third parties, Ryan never owned it.
The 191st District Court granted National Union’s motion and entered a take-nothing judgment.
On appeal, both parties agreed their motions would be limited to legal issues and any remaining discovery on fact issues would be conducted after the appellate court ruling.
National Union maintains Weaver did not steal money. Rather, he started a chain reaction that caused money to improperly flow from taxing authorities to Ryan’s clients.
“In support of its argument, National Union points to the fact that Weaver was not convicted of theft but was instead convicted of mail fraud and money laundering,” Justice Michael J. O’Neill stated as the opinion’s author.
National Union relied on Tesoro Refining & Marketing v. National Union, 96 F. Supp. 3d 638 (W.D. Tex. 2015), a 2015 Western District of Texas ruling concerning the same crime coverage policy. Tesoro filed a claim after discovering that its own credit manager was falsifying letters of credit pertaining to a petroleum distributor client that fuel was sold to. Tesoro lost because the court ruled Tesoro’s manager never exercised control over the fuel sold; therefore, there was no theft.
Ryan argued Tesoro does not apply because Weaver did exercise control of a commission he obtained through deception.
The Fifth District agreed, stating, “An unlawful taking includes taking by deception.”
“We conclude that the $346,612 paid to Weaver was an unlawful taking by Weaver to the deprivation of Ryan and, thus, there is coverage under the Employee Theft provision of the policy,” O’Neill wrote.
Having decided that coverage exists, the Fifth District remanded the case to the trial court with instructions that it should decide what standard should apply to determine if Ryan’s remaining alleged losses directly result from Weaver’s theft.
“The trial court should also be given an opportunity to consider the parties’ arguments concerning the alleged statutory violations,” the Fifth Court said.
Ryan is represented by a Haynes and Boone legal team in the Dallas office, and National Union is represented by the Clark Hill firm, also in Dallas. Neither side responded to requests for comment.