DGG & CAR, Inc., doing business as Metrol Security
Services (Metrol) discovered that John Wallace Brown (Brown), an accounting
employee, had embezzled more than $500,000 over a five-year period by forging
company checks. Metrol purchased employee fidelity policies from Employers
Mutual Casualty Company (EMC) for the plan years 2000 to 2001 and 2001 to 2002.
Covered property was money and employee dishonesty was defined as dishonest
acts committed by an employee with the manifest intent to cause loss and obtain
a financial benefit. The policy promised to pay loss sustained through acts
committed or events occurring at any time and discovered during the policy
period, subject to a $50,000 limit per occurrence. Occurrence was defined as
all loss caused by or involving one or more employees, whether the result of a
single act or a series of acts. This definition was the point of dispute
between Metrol and EMC.
Metrol filed a claim seeking reimbursement for its entire
loss, arguing that each act of theft was a separate occurrence. EMC stated that
Brown's series of thefts constituted a single occurrence and that it owed only
$50,000, filing a declaratory judgment action to that effect. Metrol
counterclaimed, alleging breach of contract and bad faith. Cross motions for
summary judgment followed, focused on the definition of occurrence. The trial
court concluded that the policy was ambiguous as to whether each act of theft
was itself an occurrence or whether all acts of theft were a single occurrence.
It awarded Metrol up to $50,000 for each theft. In a memorandum decision, the
court of appeals reversed, reasoning that a series of thefts committed by one
employee constituted one occurrence and that Metrol's recovery was subject to
the $50,000 occurrence limit for the series of thefts. Metrol petitioned for a
review by the Supreme Court because the case concerned a matter of first
impression in Arizona and because the definition of occurrence regularly
appears in employee fidelity and commercial crime insurance policies.
On review, the Supreme Court determined that the loss
resulting from the embezzlement of a single employee, even though including a
number of thefts, was a series of acts, each following the other and that the
policy plainly considered such loss as a single occurrence and subject to the
$50,000 limit per occurrence. It determined that most courts interpret similar
language in similar situations the same way.
Metrol also maintained that the policy was ambiguous and
stated that the phrase "all loss" in the definition of occurrence is
unclear because it uses the word in the singular. It argued that the word
"loss" is ambiguous and that when used in these policies actually
refers to each individual theft in a series of thefts and that a loss was
sustained each time an employee stole money. The court studied these arguments
and found Metrol's reading of all definitions unpersuasive. Metrol also stated
that, because certain courts had found this language ambiguous, it must be
subject to more than one reasonable interpretation. The court rejected this
argument as well and stated that varying judicial interpretations do not
automatically render an insurance policy ambiguous. Metrol pointed out that it
was entitled to recover for nearly 300 "acts" but did not argue that
it was entitled to recover for two "series of acts" in two plan
years.
The Supreme Court concluded that Metrol had not suggested
any public policy that supported its construction of the policy. For this and
all the other reasons stated, it vacated the court of appeals decision,
reversed the decision of the superior court and remanded to the trial court for
proceedings consistent with its opinion.
Supreme Court of Arizona, En Banc. Employers Mutual Casualty
Company, an Iowa corporation, Plaintiff/Counterdefendant/Appellant, v. DGG
& CAR, Inc., d/b/a Metrol Security Services, an Arizona corporation,
Defendant/Counterclaimant/Appellee. No CV-07-0280-PR. Feb 14, 2008. 218 ARIZ.
262, 183 P.3d 513
EMPLOYMENT DISHONESTY POLICY CLEARLY DEFINES AN OCCURRENCE
Christee Lee Hartse was an employee of American Commerce Insurance Brokers, Inc .(American). American discovered that Hartse took advantage of her access to company funds by using a variety of techniques to embezzle more than $190,000. This substantial amount of money was stolen during a thirteen month period starting in January, 1991.
After discovering the loss, American looked to their insurer, Minnesota Mutual Fire and Casualty Insurance Company (MMFC), for payment under their Employment Dishonesty policy. Originally MMFC agreed to pay its policy limits of $10,000, considering Hartse’s various theft schemes to be one occurrence. In supporting its settlement decision, MMFC relied on the policy’s wording that defined a series of related acts to be a single occurrence. American filed suit to collect under the basis that Hartse’s activities represented multiple occurrences that would enable the company collect its total loss.
MMFC filed cross motions, asking that the court recognize that it was obligated to pay according to a single occurrence. However, before a decision was issued, the carrier re-evaluated Hartse’s embezzlement methods and conceded that there were two distinct occurrences. The carrier offered to pay its policy limits for both occurrences ($20,000). The trial court reviewed the parties’ arguments and ruled that MMFC was obligated to pay $20,000 for two occurrences; one involving fraudulently handling transactions with American’s clients and the other for fraudulent transactions with MMFC. American appealed the decision favoring the insurer.
An appellate court interpreted the situation similarly to American. It also saw the reference to "a series of related acts" as ambiguous and ordered that the case be remanded. MMFC took its turn to appeal, claiming that the policy’s wording and intent toward occurrences was clear. A higher court reviewed the situation. It focused attention on whether the wording was ambiguous and what were the number of occurrences. After reviewing the competing arguments, the court decided that applying a broadest reading of occurrences would, depending on the size of losses, result in bad public policy by generating either limitless collections on large occurrences or no payments on minor occurrences (which all fall under a deductible). The higher court also reviewed relevant cases on the matter. In the end it decided that a reasonable reading of the policy would result in recognizing two distinct occurrences. It reversed the appellate court’s decision, re-establishing the lower court order to pay American $20,000.
American Commerce Insurance Brokers, Inc., Respondent, vs. Minnesota Mutual Fire and Casualty Company, petitioner, Appellant. No. C9-95-499. State Of Minnesota Supreme Court Filed: July 18,1996.
http://www.lawlibrary.state.mn.us/archive/supct/9607/c995499.htm [downloaded 9/11/02]
