Martinez, Inc.: Eleventh Circuit Finds No Coverage Under Crime Policy Where Insured's CEO-CFO Made Misrepresentations In Policy Application

The recent decision of the Eleventh Circuit Court of Appeals in Scottsdale Indemnity Company v. Martinez, Inc. addresses the difficult issue of what happens where the application for fidelity coverage has been completed by the same employee who is perpetrating a fraud against the insured. In deciding in favour of the insurer, the Eleventh Circuit relied on the wording of the crime coverage's misrepresentation warranty, and did not expressly address the "adverse interest" principle or the "sole representative" exception to that principle.

The Facts

The insured, Martinez, Inc. ("MBS"), carried on business as a building maintenance company servicing commercial properties. The principal of MBS, Greg Martinez, spent most of his time performing building maintenance services for MBS's clients. In 2004, MBS hired Brenda Walters as its accountant. Walters later became the Chief Financial Officer and Chief Executive Officer. Walters' duties included handling the company's