Arlene Abady, et. al. v. Certain Underwriters at Lloyd’s London, 2012COA173 (October 11, 2012)

Hard money lenders are private investment companies that offer shorter term loans secured by real property when traditional commercial real estate loans are not available from banking institutions. Here, a hard money lender, CCI, insured against its own losses for want of fidelity by CCI’s own officers, with a fidelity bond from Lloyds. CCI officers allegedly committed fraud in attracting investors to invest in CCI, which made hard money loans to commercial real estate borrowers. Following CCI’s bankruptcy, investors sued Lloyds on behalf of CCI, and CCI itself,  to recover losses. Lloyds claimed its policy did not cover the investors’ losses. The court of appeals agreed. Indirect losses to investors are protected by liability policies, not fidelity bonds. Because Lloyds issued a fidelity bond to protect CCI directly, it did not cover indirect losses by investors.

http://www.courts.state.co.us/Courts/Court_Of_Appeals/Opinion/2012/11CA1870-PD.pdf

http://www.cobar.org/opinions/opinion.cfm?opinionid=8698&courtid=1

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