Trade Development Bank v. Continental Insurance Co.
United States Court of Appeals for the Second Circuit
469 F.2d 35 (1972)
- Written by Steven Pacht, JD
Facts
The Trade Development Bank (bank) (plaintiff) was a Swiss bank. The Continental Insurance Company (insurer) (defendant) issued a fidelity bond to the bank obligating the insurer to indemnify the bank for up to $5 million for any loss due to any bank employee’s dishonesty, fraud, or criminal act. Between 1969 and 1970, a bank employee in Switzerland fraudulently used the bank and the bank’s customers’ funds for his own securities transactions. The transactions proved to be unwise, resulting in a $2 million loss for the bank. The employee was able to perpetrate his fraud because Swiss banks could act as stockbrokers for their clients. The bank maintained record-keeping controls for authorized securities transactions, but the employee’s unauthorized transactions were either not registered or were falsely recorded in the bank’s records. The bank sought payment from the insurer pursuant to the fidelity bond. The bank sued the insurer upon the insurer’s refusal to pay.
Rule of Law
Issue
Holding and Reasoning (Mansfield, J.)
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