A leading insurer is moving to void a $2.3 million bond, charging that a Missouri bank’s misrepresentations enabled a years-long, multimillion-dollar insider theft.
Great American Alliance Insurance Company has taken Exchange Bank of Missouri to federal court, filing a complaint that accuses the bank of securing a Financial Institution Bond through a series of material misstatements about its internal controls and oversight. The insurer’s action, filed in the United States District Court for the Western District of Missouri, seeks both rescission of the bond and a declaration that the policy is void from the outset.
At the heart of the dispute is the bank’s application for coverage, which Great American claims was riddled with inaccuracies. The insurer alleges that Exchange Bank misrepresented the strength of its audit functions, internal controls, segregation of duties, and restrictions on employee remote access. These representations, Great American contends, were critical to its decision to issue the bond and set its terms and premium.
The complaint details a sequence of events that began to unravel in October 2023. According to the filing, Megan Dougherty, who held multiple positions at Exchange Bank – including vice president of information technology, audit officer, and customer services representative – was found to have transferred $2,350,997.82 from customer accounts into her own, over a period stretching from 2007 to 2023. The thefts, the insurer says, were discovered after a customer inquiry prompted an internal investigation. Dougherty was confronted on Oct. 13, 2023, and, according to Exchange Bank, admitted to stealing funds from customers’ accounts. She pleaded guilty to bank fraud on July 25, 2024.
The insurer’s complaint is precise in its allegations. First, it claims the bank stated that employees were required to take annual vacations and were prohibited from accessing their workstations during those periods. The complaint alleges that Dougherty had remote access and used it to transfer funds from customer accounts to her own while out of the office. Second, the bank represented that everyone with access to the real-time, end-to-end banking platform was prevented from waiving customer account penalties. Great American alleges Dougherty was able to waive penalties, helping her conceal unauthorized withdrawals. Third, the bank claimed that duties were sufficiently segregated to prevent a single employee from controlling a transaction from origination to posting. The insurer alleges Dougherty was able to control transactions from beginning to end, including issuing cashier’s checks and depositing them into her personal accounts.
Great American’s complaint also highlights the bank’s representations regarding its audit function. The application stated that internal audits were performed monthly by employees who had no authority to post transactions to the accounts being audited. According to the complaint, Dougherty was responsible for both posting transactions and auditing the accounts, a lack of segregation that allegedly enabled her to carry out the scheme undetected for years.
The bond at issue covered “loss resulting directly from dishonest or fraudulent acts committed by an Employee, acting alone or in collusion with others.” The policy also included a clause stating: “No statement made by, or on behalf of, the Insured, whether contained in the Application or otherwise, shall be deemed to be a warranty of anything except that it is true to the best of the knowledge and belief of the Insured.”
Great American alleges that the misrepresentations in Exchange Bank’s application were material and induced the insurer to issue the bond. The complaint states that, had the insurer known the true state of the bank’s controls and procedures, it would not have issued the bond or would not have issued it on the same terms or for the same premium.
The insurer is seeking to rescind the bond and obtain a declaration that it is void ab initio, meaning from the beginning. Great American also seeks a declaration that it owes no obligation to cover Exchange Bank’s loss under the bond.
It is important to note that these are allegations only, as set out in the complaint, and no findings of fact have been made by the court.
