The Ohio Supreme Court undertook a review of a case in which a court of appeals found that an employee dishonesty claim was covered under a policy issued by the insurer, reversing the trial court in the process.

It was alleged that the owner-president of an incorporated escrow company misappropriated funds in his control that belonged to a savings and loan association. Litigation had followed denial of coverage by the fidelity insurer of the escrow company because the acts of the company president were, according to the insurer, expressly excluded by policy provisions.

The pertinent insuring agreement covered loss ". . . .resulting directly from one or more fraudulent or dishonest acts committed by an Employee, acting alone or in collusion with others. . . ."

"Employee" was defined in the policy to mean "any natural person (except a director or trustee of the Insured, if a corporation, who is not also an officer or employee thereof in some other capacity) while in the regular service of the Insured in the ordinary course of the Insured's business during the policy period and whom the Insured compensates by salary, wages or commissions and has the right to govern and direct in the performance of such service, but does not mean any broker, factor, commission merchant, consignee, contractor or other agent or representative of the same general character. . . ."

Of special note, the policy was subject to an exclusion for ". . . .loss due to any fraudulent, dishonest or criminal act by any Insured or a partner therein, whether acting alone or in collusion with others. . . ."

The savings and loan association argued that the escrow company was an entity distinctly separate from its president and was the "insured" within the meaning of the policy. The insurer said that the owner-president was his company's "alter ego" (second self). The Ohio Supreme Court determined that any loss sustained by the named insured as a result of its owner-president's criminal acts "is not covered under the policy but, rather, is expressly excluded from coverage. There could be no equitable subrogation for the benefit of the savings and loan association as "no subrogee may succeed to the rights not possessed by its subrogor. (Chemtrol Adhesives, Inc. v. American Manufacturers Mutual Insurance Company. (1989), 42 Ohio St. 3d 40, 537 N.E. 2d 624.)

The judgment of the court of appeals was reversed and judgment was entered in favor of the insurance company and against the insured and its judgment creditor, the savings and loan association.

(THRIFT FEDERAL SAVINGS & LOAN ASSOCIATION OF CLEVELAND v. OVERTON; HOME SAVINGS & LOAN COMPANY, Appellee v. FIDELITY & DEPOSIT COMPANY OF MARYLAND, Appellant. Ohio Supreme Court. No. 89-1545. December 5, 1990. 56 Ohio St. 3d 48. CCH 1991-92 Fire and Casualty Cases, Paragraph 3193.)