When South Dakota rancher Perle O’Daniel discovered that hundreds of his cattle had been stolen, he assumed that his insurance company would cover the loss. However, on Nov. 1, 2005, the 8th Circuit Court of Appeals held the insurer had no liability.

O’Daniel purchased an insurance policy from Minnesota-based NAU Country Insurance Co. for $1,400,400 of coverage. The policy covered physical loss of his livestock due to theft. However, it contained several exclusions, one of which was loss “by wrongful conversion

or embezzlement.”

In 2003 O’Daniel moved his cattle from his ranch to Midwest Feeders, a commercial feedlot in Onida, S.D. In September 2005, O’Daniel realized that he was missing 334 cows, 369 calves and 15 bulls and contacted NAU. However, NAU said that the feedlot converted O’Daniel’s cattle, and therefore the loss was not covered. Despite the confusing policy language, the court agreed.

“Where an entity has lawful control of the property and then converts or embezzles that property, coverage is not provided,” the court documents stated. “That is precisely what happened here.”