A decision last week reinforces a harsh reality for policyholders who conduct business through corporations or limited liability companies: if the person or officer controlling the company commits fraud in the course of an insurance claim, the insurer can usually deny coverage not just to that wrongdoer, but to the entire business. 1 The case involves the “innocent insured” doctrine, which is what I wrote my juris doctoral thesis about in 1982 and noted in “Is a 22-Year-Old Punk Law Student’s Doctoral Thesis About The Reasonable Expectations Doctrine of Insurance Contract Interpretation Stupid or Standing the Test of Time?”
The case involved the Press Bar and Parlor in St. Cloud, Minnesota, which was destroyed by fire on February 17, 2020. The fire was later determined to have been intentionally set by Andrew Welsh, who was the chief executive officer of Timeless Bar, Inc., and the managing member of Horseshoe Club, LLC. Both companies were insured under a businessowners policy (BOP) issued by Illinois Casualty Company.
After the fire, Andrew Welsh and Jessie Welsh, his former wife and the only other owner of the two companies, submitted a sworn proof of loss to the insurance company. The document falsely claimed that the fire was of unknown origin and had not been caused by any intentional act. A law enforcement investigation, however, concluded that Andrew had used gasoline to set the fire. He later pleaded guilty to arson and admitted that the scheme was designed to obtain insurance proceeds. Based on these facts, Illinois Casualty denied the claim under three separate exclusions in the policy. One was for misrepresentation and fraud, another for dishonest or criminal acts, and a third for intentional acts intended to cause loss.
The business entities and Jessie Welsh filed suit, asserting that the actions of Andrew Welsh should not be imputed to them and that they were entitled to coverage as innocent parties. The District Court disagreed and granted summary judgment to the insurance company. The Eighth Circuit affirmed.
In doing so, the appellate court made several critical determinations. First, it held that even though Andrew Welsh was not individually named in the policy, his role as the controlling officer meant that his conduct was effectively the conduct of the corporate insureds. Second, the court rejected the application of Minnesota’s innocent co-insured doctrine to corporate entities, finding no precedent in Minnesota law to extend those consumer protections beyond individual insureds. Third, the court found that the policy exclusions clearly applied because the misrepresentations about the origin of the fire were made by an individual with actual authority to act on behalf of the insured businesses.
This ruling is especially important for those who operate businesses through formal legal entities. It demonstrates that Minnesota courts will strictly apply agency principles in the insurance context, even in cases of serious wrongdoing by a single controlling person. Corporations and LLCs, by law, can act only through their agents. When an agent commits fraud while exercising authority on the company’s behalf, such as submitting a claim or signing a proof of loss, the legal consequences of that fraud fall squarely on the insured entity.
What makes the outcome even more sobering is that Jessie Welsh, who held an ownership interest and played an administrative role in the business, was left with no path to recovery. The court ruled that she lacked standing because she was not a named insured under the policy. The innocent co-insured doctrine, which has protected individual spouses and partners in past Minnesota decisions, did not extend to her situation as a co-owner of a company.
Business owners should understand that coverage under a commercial insurance policy can be jeopardized not just by arson or dishonesty, but by who submits the claim and how they do it. When one person controls the flow of information to the insurance company, and that person lies, the entire claim can unravel.
Corporate entities may not benefit from the same equitable doctrines that protect individuals. As courts see it, businesses are expected to bear the risks of those they empower to act on their behalf. That’s a reminder that honesty in the claims process is not only the best policy, it may be the only path to preserving coverage.
These situations are delicate, and the innocent insured should always seek independent legal counsel when faced with any implication that another may have committed fraud or misrepresentations.
Thought For The Day
“The truth will set you free, but first it will make you miserable.”
—James A. Garfield
1 Timeless Bar v. Illinois Casualty Co., No. 24-2245 (8th Cir. July 22, 2025). See also, Timeless Bar appellate brief and Illinois Casualty appellate brief.
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