The Supreme Court of Wisconsin recently issued an opinion in Leicht Transfer & Storage Co. v. Pallet Central Enterprises, Inc. (2019 WI 61) which examines the limited nature of commercial crime coverage under standard insurance policies. Leicht had been the victim of “theft by the use of fraudulent invoices”. Payments were made by Leicht for pallets that were based on forged delivery tickets. When Leicht discovered that the payments were for pallets it never ordered or received, it filed a claim to its insurer, Hiscox Insurance Company under the “forgery or alteration” coverage. Hiscox denied the coverage asserting that the “tickets” were not “checks” or an actual “direction to pay” as required by the policy, but merely “represented a direction to pay”. Essentially the Court found that “functional proxies” for covered events are NOT covered. The denial was upheld by the Supreme Court.

The Court’s reasoning and holding may apply to other situations and exposures, particularly where independent contractors or vendors or agents (non-employees) are concerned or perpetrate the mis-deed. In light of the opinion, consideration should be given to adding an endorsement that expands the definition of employee to include independent contractors, vendors and agents in order to avoid this type of exposure and loss.