A California federal court ruled that an E&O insurance policy’s misappropriation-of-funds exclusion barred coverage for a company sued over a negligent background check that failed to reveal a candidate’s criminal history. The employee subsequently embezzled over $1 million from the client. The court found the exclusion unambiguous, held that the claim arose from the embezzlement, and rejected arguments invoking concurrent proximate cause. The insurer’s summary judgment was granted, including on breach of the implied covenant of good faith.

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