Insurer avoids payment on employee fidelity policy after theft of $700,000.00

The Tooling, Manufacturing and Technologies Association (TMTA) is a trade group.  It insured itself against employee misconduct through an employee fidelity policy with the Hartford Fire Insurance Company.  It sells insurance to members and collects premiums through a subsidiary called TMTA Insurance Agency, and the premiums from these sales are apparently its primary source of income. 

Although TMTA is the sole owner of the Agency and although it listed several subsidiary operations as "named insureds" under the Hartford policy, it did not list TMTA Agency separately.  Thus, when Mark Tyler pilfered premiums totaling more than $700,000.00 from the Agency, Hartford argued that TMTA had suffered no loss because the losses were incurred only by the Agency.  TMTA argued that this defense elevated form over substance, since the premiums would have accrued entirely to TMTA and were merely collected by the Agency.

The District Court ruled that reading the insurance policy's technical terms, regardless of what was intended, the insurer had not agreed to cover any loss that was directly suffered by an entity that was not a "Named Insured."  On that basis, it denied TMTA's policy claim.  The trade organization appealed.  The Sixth Circuit majority upheld the decision of the lower court.