DALLAS - Yesterday, the Fifth Court of Appeals reversed a take-nothing judgment in favor of National Union Fire Insurance Company in a breach of contract lawsuit.
The lawsuit was brought by Ryan, LLC, a global tax services firm.
According to the Fifth Court’s opinion, a Ryan employee was involved in a scheme to secure higher commissions and submitted fraudulent tax returns. When the scheme was discovered, Ryan terminated the employee and notified affected clients and relevant authorities. Ryan also determined that it paid the employee $346,612 in unearned commissions.
Ryan had previously purchased an insurance policy from National Union, titled “Management Liability, Professional Liability, Crime Coverage and Kidnap and Ransom/Extortion Coverage for Private Companies,” the opinion states.
Ryan filed a claim with National Union seeking coverage for amounts that fall into five categories of losses:
- $2,091,566 in bonus and commission compensation paid to the employee and other employees;
- $3,934,083.85 spent on internal employee labor and expenses to investigate the fraud;
- $777,243.59 paid to outside vendors for assistance with forensic analysis and data hosting;
- $1,095,140 paid to the Texas Comptroller to resolve the employee’s potential liability; and
- $3,129,227.47 in lost professional fees that Ryan either waived or paid back to its affected clients.
National Union denied the claim but did offer to reimburse Ryan for the net loss it incurred in connection with the commissions paid to the employee, the opinion states.
Ryan filed suit against National Union, asserting claims for breach of contract and violations of the Texas Insurance Code. National Union moved for summary judgment on both no-evidence and traditional grounds, arguing that it was entitled to judgment as a matter of law because Ryan could not meet its burden of proof to establish that coverage existed under the policy.
Specifically, National Union asserted Ryan could not prove there was a “theft” because there was no “taking” of Ryan’s property by the employee, the opinion states.
Court records show that the trial court denied Ryan’s motion for partial summary judgment without further explanation and granted National Union’s motion, entering a take-nothing judgment in its favor.
On appeal, Ryan questioned whether the trial court erred in granting National Union’s traditional and no-evidence motions for summary judgment, and in denying its cross-motion.
The Fifth Court concluded there is coverage under the policy, reversing the trial court’s judgment and remanded the case.
“Having found that (the employee) committed theft by unlawfully taking $346,612 in commissions, we reverse the trial court’s take-nothing judgment in favor of National Union and remand this case to the trial court for further proceedings consistent with this opinion,” the opinion states.
Case No. 05-22-00286-CV