The Termination Provision in Fidelity Insurance Policies: Practitioners Discuss a Split in Authority

Courts are split over the applicability of the termination provision in commercial crime policies. Some courts hold that the termination provision applies only if a manager becomes aware of an employee’s dishonest conduct during the policy period. (See Waupaca Northwoods, LLC v Travelers Cas. & Sur. Co. of Am., No. 10-C-459, 2011 BL 109466 (E.D. Wis. Apr. 25, 2011). Other courts, such as the Appellate Division of the Supreme Court of New York, Third Department, have held that a policy terminates upon inception as to the particular employee, if the manager knew of prior dishonest acts at the time the policy was issued. (See Capital Bank & Trust Co. v. Gulf Ins. Co., 2012 NY Slip Op 00451 (App. Div. Jan. 26, 2012). Which is the more sound holding?