3M’s Insurers Off the Hook for Ponzi Scheme Losses

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille

3M Co. can’t force its liability insurers to cover losses it suffered by investing its employee benefit plan assets with investment advisers engaged in a Ponzi scheme ( 3M Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA , 2017 BL 181419, 8th Cir., 15-3495, 5/31/17 ).

The U.S. Court of Appeals for the Eighth Circuit ruled May 31 that 3M’s blanket crime policy didn’t cover the investment losses it sustained through its relationship with WG Trading Company LP. The general partners of WG ultimately pleaded guilty to federal criminal charges for operating a Ponzi scheme involving the fraudulent diversion of hundreds of millions of dollars over a 13-year period.

Although it recovered the money it invested with WG, 3M said its liability insurers should be forced to cover the lost earnings 3M should have received from WG’s legitimate investments. The Eighth Circuit disagreed, finding that 3M’s liability policy only covered losses of property in which the company had “ownership"—and lost earnings didn’t qualify.

The decision was written by Judge James B. Loken and joined by Chief Judge Lavenski R. Smith and Judge Steven M. Colloton. It affirms a 2015 ruling by a federal judge in Minnesota.

Barnes & Thornburg and Blank & Rome represented 3M. 3M’s insurers were variously represented by Winthrop & Weinstine; Zelle LLP; Franzblau & Dratch; Frenkel & Lambert; Meagher & Geer; Robins & Kaplan; Bassford & Remele; and Cousineau & McGuire.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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