Employee dishonesty coverage in a businessowners policy, carried by an insurance agency that specialized in liability insurance for taxicab owners and operators, was written with a limit of $10,000 for each occurrence, subject to a $250 deductible per occurrence. Settlement of a claim by the insured for embezzlement of nearly $200,000 by an employee over a one year period hinged on the meaning of "occurrence."

The pertinent policy language stated: "The most we will pay for loss or damage in any one occurrence is the Limit of Insurance for Employee Dishonesty shown in the Declarations ....All loss or damage....involving a single act or series of related acts....is considered one occurrence."

The offending employee was responsible for taking insurance applications and payments from the customers, most of whom came to the office for the paper work and to pay their premiums in cash, and forwarding applications and premium payments to the various insurance companies. The limited number of customers who paid by check were asked to leave the payee line blank. It was undisputed that she converted nearly $180,000 of premium payments to her own use. Also performing bookkeeping duties, she issued unauthorized payroll and petty cash checks to herself during the year in excess of $13,000.

In the course of legal action initiated by the insured to recover the full amount of its loss, the trial court concluded that the various acts of embezzlement were a series of related acts within the parameters of two occurrences, the premium handling and the check writing. On appeal, the court found the phrase "series of related acts" in the insuring agreement to be ambiguous. The matter then rested with the Minnesota Supreme Court.

The high court considered the insured's argument that 155 separate losses of insured property occurred and the insurance company's contention that there were two occurrences to which the insurance applied. The court said that "....the phrase 'series of related acts' is intended to encompass a continuous embezzlement scheme and to limit the amount of coverage accordingly." One occurrence was the premium embezzlement; the other, the unauthorized writing of checks on office accounts. The insurer's obligation was $20,000; $10,000 for each of the two methods employed by the offender.

The judgment of the appeal court was reversed in favor of the insurer and against the insured.

Editor's Note: A significant observation of the Minnesota Supreme Court was that a negative perception of the insurance industry could follow if each of 155 losses were treated as a separate occurrence. If there were a $10,000 occurrence limit subject to a $250 deductible (as in this case) and each loss amounted to $100, there would be no recovery.

(AMERICAN COMMERCE INSURANCE BROKERS, INCORPORATED, Respondent v. MINNESOTA MUTUAL FIRE AND CASUALTY COMPANY, Petitioner-Appellant. Minnesota Supreme Court. No. C9-95-499. July 18, 1996. CCH 1996 Fire and Casualty Cases, Paragraph 5775.)