## Facts

- Trade Development Bank, a Swiss bank, purchased a fidelity bond in 1968 from Continental Insurance Company providing up to $5,000,000 coverage for “any loss through any dishonest, fraudulent or criminal act” of bank employees, including property loss, anywhere, alone or in collusion.
- Louis Gerard Salerian, manager of the securities department at the bank’s Chiasso, Switzerland branch, conducted unauthorized securities transactions from mid-1969 to April 1970 using bank and customer funds, intending to keep any profits for himself.
- Salerian’s selections declined sharply, producing losses exceeding $2,000,000.
- He concealed the activity and losses by falsifying bank and customer records, including fictitious transactions, false prices for real transactions, and false valuations sent to customers.
- The fraud was uncovered in April 1970 after Salerian confessed; the bank notified the insurer and engaged auditors.
- The bank settled customer claims arising from the misconduct, paying $819,520.
- Continental denied liability under the bond, asserting defenses including lack of covered loss, customer authorization/ratification, and the bank’s alleged supervisory failures.

## Issues

1. Whether the jury verdict finding a covered loss “through” an employee’s dishonest or fraudulent acts under the fidelity bond was supported by the evidence.
2. Whether the bank’s alleged negligence or inadequate internal controls could bar or limit recovery absent express bond language.
3. Whether customer authorization or ratification of transactions defeated the bank’s claim that it suffered a covered loss caused by employee dishonesty.
4. Whether the trial court’s evidentiary rulings—especially concerning customer settlements and proof of loss—were erroneous and sufficiently prejudicial to require a new trial.

## Decision

- The Second Circuit affirmed the judgment for the bank.
- The court held the evidence supported the jury’s finding that Salerian engaged in dishonest and fraudulent conduct and that the bank’s loss resulted “through” that conduct within the bond’s coverage.
- The court rejected the insurer’s attempt to avoid coverage based on the bank’s alleged lack of vigilance, treating supervision and detection arguments as insufficient to defeat coverage on this record.
- The court found no reversible error in the challenged evidentiary rulings, including admission of settlement-related evidence as relevant to the bank’s loss.
- The affirmed judgment awarded $2,045,932 in damages plus $171,205 in prejudgment interest (total $2,217,137).

## Legal Principles

- Fidelity bonds covering “any loss through any dishonest, fraudulent or criminal act” apply to losses caused by an employee’s intentional misuse of funds and falsification of records in connection with unauthorized securities activity.
- Absent express policy language, an insured’s negligence in supervision or internal controls generally does not bar recovery for employee dishonesty covered by a fidelity bond.
- Customer settlements paid by a bank because of an employee’s dishonest acts may be admissible and may support the bank’s proof of its own covered loss when reasonably connected to the misconduct.
- Appellate review of alleged trial error in evidentiary rulings focuses on prejudice; discretionary evidentiary decisions will not justify a new trial without a showing of reversible error.

## Conclusion

The court upheld a substantial jury award under a fidelity bond, concluding that an employee’s unauthorized trading and falsification of records constituted covered dishonesty and that neither asserted supervisory negligence nor alleged evidentiary missteps justified disturbing the verdict.


Trade Dev. Bank v. Cont'l Ins. Co., 469 F.2d 35 (2d Cir. 1972)