When 5 + 3 = 1

COMMERCIAL PACKAGE POLICY – EMPLOYEE DISHONESTY COVERAGE – NUMBER OF OCCURRENCES – ANTI-STACKING PROVISION 
Dan Tait, Inc. v. Farm Family Cas. Ins. Co.
(Sup. Ct., Albany Co., 7/2/2018)

Over a five-year period, plaintiff's former bookkeeper stole approximately $500,000 from his employer by: (1) making unauthorized purchases with company credit cards; (2) making unauthorized withdrawals from the company's line of credit; and (3) taking company inventory for personal use.  Plaintiff made a claim for employee dishonesty coverage to its commercial package insurer, Farm Family.

Deeming the former bookkeeper's course of dishonest acts committed over multiple policy periods to constitute one "occurrence" under the language of the policy, Farm Family paid $15,000, representing the limit of the employee dishonesty coverage for one policy period.  Plaintiff sued.

Under the subject policy, Farm Family agreed to pay for the direct loss of business property or cash "resulting from dishonest acts committed by [the named insured's] employees acting alone or in collusion with other persons[.]" The policy further provided that "[t]he most [Farm Family] will pay for loss or damage in any one occurrence is [the policy limit of $15,000]" and that "[a]ll loss or damage . . . [c]aused by one or more persons; or. . . [i]nvolving a single act or series of acts . . . is considered one occurrence" under the policy.

The policy also contained what the motion court characterized as "robust anti-stacking language", which provided:

If any loss is covered: (1) Partly by this insurance; and (2) Partly by any prior cancellation or terminated insurance that we or any affiliate had issued to you or any predecessor in interest; the most we will pay is the larger of the amount recoverable under this insurance or the prior insurance. We will pay only for loss or damage you sustain through acts committed or events occurring during the Policy Period. Regardless of the number of years this policy remains in force or the number of premiums paid, no Limit of Insurance cumulates from year to year or period to period.

On the issue of the number of occurrences, Supreme Court rejected plaintiff's asserted reliance on the "unfortunate-event test" and held that the former bookkeeper's series of thefts from plaintiff constituted "one occurrence" under the policy and, therefore, was subject to the $15,000 limit applicable to losses arising from employee dishonesty.

With respect to the anti-stacking issue, Supreme Court rejected plaintiff's argument that the policy was ambiguous and held:

Based on the foregoing, the Court concludes that [plaintiff] cannot recover an amount in excess of $15,000, representing "the larger of the amount recoverable under" any one of the insurance policies that were in effect during the multi-year period in which [the former bookkeeper]'s dishonest acts were committed.

If Supreme Court is right that there are no prior reported decisions of the New York courts that speak directly to the "occurrence" issue, we may see this case head to the Appellate Division, Third Department.  Stay tuned. 

Homeowners Insurer Found Not Obligated to Defend or Indemnify for Racial Discrimination Claim

HOMEOWNERS – OCCURRENCE – RACIAL DISCRIMINATION CLAIM – INTENTIONAL ACT EXCLUSION
Reiss v. United Services Auto. Assn.
(Sup. Ct., Nassau Co., decided 6/4/2008)

Brownlee and Schwaneman sued Reiss and others in New York federal court for racial discrimination. USAA disclaimed and denied coverage based on: (1) the lack of an alleged accident or "occurrence"; and (2) applicability of the "intentional or purposeful acts" exclusion of Reiss's homeowners policy. Travelers (Automobile Insurance Company of Hartford, CT) defended Reiss in that action under her umbrella policy with Travelers and eventually settled that case for $20,000. Reiss and Travelers then commenced this action against USAA for recovery of the $20,000 settlement, plus defense costs.

In denying plaintiffs' motion for partial summary judgment and granting USAA's cross motion for summary judgment, Nassau County Supreme Court Justice Thomas Phelan found that the underlying federal court complaint did not allege an "occurrence", but instead alleged intentional acts by the insured which fell within policy exclusions:

Defendant was obligated to defend and indemnify plaintiff Reiss under the terms of the Homeowner s policy if the complaint can be reasonably interpreted to allege an "occurrence" within the policy definitions. If the complaint alleges "intentional acts" on the part of the insured, it is excluded from coverage. The claimed "personal injuries" are essentially emotional distress, embarrassment, humiliation, inconvenience, anxiety and frustration. Whether these constitute personal injuries" within the policy definitions is relevant only if they were caused by an "occurrence" and not by an intentional act."

An occurrence within the policy definition is an accident, or continuous exposure to harmful conditions, leading to personal injury. An intentional act by the insured is one which is purposeful. None of the allegations of the complaint constitute [sic] an accident, and therefore they are not occurrences. The alleged misconduct by the insured includes refusal to accept tendered payment in accordance with the lease, commencement of an unwarranted eviction proceeding, and the refusal to obey a lawful stay of eviction, all of which were motivated by racial discrimination. These are clearly intentional acts by the insured which fall within the policy exclusions.

Even if the complaint were to contain language sounding in negligence and alleging carelessness, it would not alter the fact that the operative fact giving rise to the claim for recovery is the unlawful eviction. (Desir v. Nationwide Mutual Fire Insurance Company, __ N.Y.S.2d __, 2008 WL 1823427 (2nd Dept.), 2008 Slip Op. 03578).

Since there is no legal basis upon which the insurer could be liable for coverage, there was no obligation to provide a defense or to indemnify the insured.

20 Heifers, 1 Road, 2 Cars, 3 Occupants & 2 Collisions -- How Many "Occurrences"?

I'm heading to Rochester this morning for a conference on a case in which my office represents a farm insurer. DJ action is pending and our motion for summary judgment is ready to be filed and served. Facts from our memorandum of law are:

On May 1, 2003 at 10:46 p.m. a group of between 10-20 heifers was located in a roadway known as State Highway Route 39 ("Route 39") in close proximity to the boundaries of Wyoming and Livingston Counties in New York State. On that date and time two automobiles traveling in opposite directions on Route 39 collided with some of the cows in the roadway. One was driven by Eric who was the sole occupant of the vehicle. The other was driven by Jessica. Shane was a passenger in her vehicle. The Livingston County Sheriff's Department investigated. Although the Deputy Sheriff conducting the investigation completed two accident reports of the event, the reports described the two accidents as occurring at the exact same time and at the same location. The only difference in describing the two accidents on the reports was that Jessica's vehicle struck a cow while traveling eastbound and Eric's vehicle struck cows as it was traveling westbound.

Sounds like a law school final exam question, don't it? Policy has a $200,000 per occurrence liability coverage limit and there are two injured plaintiffs in underlying actions. How many occurrences? Hint: New York courts utilize an "unfortunate event" test and look at the cause of the accident, not merely the effects.

Who says that insurance coverage law isn't interesting?

Post Script: I'm back. The two underlying personal injury actions settled. My insurer client paid only one limit ($200K). All counsel at the conference but one agreed with me that there was only one "occurrence". Strong case law support for this in New York. Won't have to file that motion now. Good result. Right result.