Pain mounts for Telamon after reporting $5M theft

It's the kind of thing that keeps CEOs tossing and turning at night. A rogue worker's actions cost the company millions. And then to make matters worse, the insurance carriers brought on board to protect the business from just this sort of setback deny coverage, triggering a prolonged legal battle.

Such is the nightmare Telamon Corp., a Carmel-based provider of services to telecom companies and other industries, is experiencing after an executive at its New Jersey office allegedly stole more than $5 million in merchandise.

Telamon is a privately held firm, and its painful odyssey might not have come to light were it not for the lawsuit it filed last March against the Charter Oak Fire insurance Co. and the Travelers Casualty and Surety Company of America, both subsidiaries of Connecticut-based Travelers Insurance.

As that matter wends toward trial, federal prosecutors are lowering the boom on the executive, Juanita Berry, 45. A federal grand jury in Newark, N.J., in December indicted her on three counts of wire fraud. Berry has entered a plea of not guilty.

Here's the upshot: Berry served as a consultant to Telamon but in practice operated much like a traditional employee, even boasting the title vice president of major accounts. One of Telamon's services was to install and uninstall entire telecommunications systems, including the electronic circuit boards that serve as their brains.

Telamon bought some of the circuit boards and received others free from telecommunications carriers. According to the indictment, Berry, the most-senior manager at Telamon's Dayton, N.J., office and warehouse, sold new and used boards owned by Telamon as if they belonged to her company, J. Starr Communications Inc., and kept the proceeds - fraud she hid from higher-ups by altering company records.

Telamon says the wrongdoing was uncovered in June 2011. Any hope company officials had of receiving a hefty payout under their insurance coverage and putting the unpleasant experience behind them vanished quickly, however.

Rather than covering Telamon's entire loss, as the company believed was appropriate, the insurers launched an "exhaustive, expensive and expansive" investigation that lasted more than a year and included multiple depositions and requests for documents, according to the company's lawsuit.

Both insurers ultimately denied the claims, for reasons Telamon blasts as contradictory. Charter's attorneys cite language in that policy excluding coverage for "employees," a term that's not defined in policy documents.

On the other hand, while the Travelers Casualty & Surety policy specifically covers employee theft, attorneys for Travelers C&S say Berry failed to fit the definition of "employee" spelled out in that policy's documents.

As Telamon attorneys summed up in court papers, the insurers "denied all coverage for the theft-fraud loss under both policies on the grounds that the individual leased to Telamon was an 'employee' of Telamon, and simultaneously was not an 'employee' of Telamon."

Telamon notes that Travelers C&S sold its coverage under the name "Wrap+ Crime Policy," insurance it promoted as providing "seamless coverage to Telamon without any gaps in coverage."

Telamon's suit, filed in Hamilton Superior Court and later transferred to federal court in Indianapolis, accuses the insurers of breach of contract and acting in bad faith. It seeks unspecified compensatory and punitive damages.

A Travelers Insurance spokesman declined to comment beyond what was contained in court filings.

Telamon CEO Albert Chen could not be reached. Chen, a native of Taiwan, launched Telamon in 1985 after more than a decade with GTE. The 540-employee company - which ranks as the ninth-largest private firm in the Indianapolis area--branched out over the years and now also provides services in energy management, industrial assembly, business-process outsourcing and telehealth.

A $5 million loss is a hefty sum for a company the size of Telamon, which reported $530 million in 2012 revenue. And if the company's case against the insurers is unsuccessful, it appears to have little hope of recouping funds from Berry herself.

It's a mystery what became of the millions that prosecutors say Berry amassed by selling telecom circuit boards belonging to Telamon. In her pending criminal case, Berry said she lacked the means to hire her own counsel. As a result, she is being represented by a public defender.

Jason Barclay, a Barnes & Thornburg partner representing Telamon, called the circumstances the company finds itself in "really frustrating.

"They spent lots and lots of money on premiums with Travelers," he said. "Travelers represents itself as an umbrella insurance company. An umbrella means you never get wet in a storm."