A business organization and its subsidiary company carried comprehensive crime insurance that included employee dishonesty commercial blanket coverage. The pertinent insuring provided for payment of loss of money, securities and other property ``. . . .to an amount not exceeding in the aggregate the amount stated in the Table of Limits of Liability applicable to this Insuring Agreement 1A through any fraudulent or dishonest act or acts committed by any of the Employees, acting alone or in collusion with others.'' The limit of liability for coverage under the insuring agreement was $250,000. Recovery provisions made clear that payment of loss did not reduce the insurer's liability for other losses, whenever sustained.

The insured submitted a claim in excess of $340,000 for losses caused by the dishonesty of two employees of the subsidiary company, a vice president and the general manager. Each operated checking accounts in the names of fictitious companies and submitted fraudulent invoices to their employer for payment of equipment rental, materials and services. Each had the authority to approve invoices and each received, for his personal use, the payments disbursed to ``his own'' non-existent companies. The second device used by the offenders was approval, each for the other, of payment of fraudulently claimed personal expenses. This accounted for approximately one-half of the insured's total loss.

The insurer, after investigation of the matter, notified the insured that its maximum liability on the entire claim was $250,000 and promptly paid that sum. In the course of legal proceedings then initiated by the insured, the insurer filed a motion for summary judgment in support of its contention that it was not liable for the balance of the insured's loss because of collusion on the part of the participants. Trial court entry of judgment in its favor was appealed by the insured.

The insured contended that neither of the individuals involved in the defalcations was aware that the other was "fraudulently diverting the plaintiff's funds nor instrumental in the perpetuation of such defalcations. . . ." The appeal court, however, found from the evidence that the two collaborated in their efforts to defraud. They were inextricably implicated in the schemes when they signed and cosigned checks payable to nonexistent companies. They knowingly approved each other's expense reports "to defalcate plaintiff's funds for personal expenses."

The court said: "The impact of the totality of all of these facts and circumstances established as a matter of law without reasonable contrary inferences a knowing collaboration . . . to assist each other in defrauding the company, thereby invoking the provision of the policy limiting liability for collusive conduct among more than one employee."

The entry of summary judgment by the trial court was affirmed in favor of the insurance company.

(PURDY COMPANY OF ILLINOIS ET AL., Appellants v. TRANSPORTATION INSURANCE COMPANY, INC., Appellee. No. 1-88-2306. Appellate Court of Illinois, First District, Fifth Division. February 1, 1991. 568 North Eastern Reporter 2d 318. Also see CCH 1991 Fire and Casualty Cases, Paragraph 3099.)