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THE FEDERAL INSURANCE CO. v. SMITH

5

bank account." Id. at 66). When proceeds can be traced to an embez- zlement or conversion, courts in a majority of states considering the issue have allowed the wronged party to recover in two distinct sce- narios, among others. Many states allow the wronged party to recover life insurance proceeds from the beneficiary when the policy premi- ums were paid with embezzled funds, usually by imposing a resulting or constructive trust on the life insurance proceeds. 24 A.L.R. 2d 672 (1952). Similarly, in a majority of states that have ruled on the issue, a chattel purchased with stolen money can be recovered if the posses- sor did not give consideration for it. 38 A.L.R. 3d 1354 § 8 (1971). Nothing in Virginia law indicates that Virginia courts would not fol- low the majority on these issues; we believe Virginia courts would likely adopt the same approach in this case. In these scenarios, there were specific funds upon which a trust could be imposed, i.e., the pro- ceeds of the life insurance policy bought with stolen funds and the chattels bought with the stolen funds. Thus we believe Virginia would allow an action against an individual for funds transferred to that indi- vidual. Here, debts were paid with stolen funds and the question is whether Virginia would allow a conversion action in the absence of direct physical dominion and control over the proceeds. We hold that it would.

Susan Smith argues that she could not have converted the funds because she did not have sufficient dominion and control over them, and essentially that she was an innocent party to the conversion. While Susan Smith is assumed to have been acting in good faith, she gave no valuable consideration for any of the money that she directly controlled or that was paid to her accounts. The trial judge meticu- lously traced the embezzled funds to Susan Smith’s accounts, whether the ultimate account was a bank account, or the payment of her debts. In so doing, he considered four categories of checking transactions and found the requisite dominion and control by Susan Smith over each.

First, the trial judge considered what he called the clearest example of conversion. In this transaction, Myron Smith gave Susan Smith a $4,500 check, written on a USAA Savings Bank checking account ("USAA account") he held jointly with his brother. Susan Smith sub- sequently deposited the check into a North West Federal Credit Union account ("NWFCU account"), held jointly by Susan and Myron

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