The Eastern District of Pennsylvania recently ruled that an insurer did not need to pay more than its single occurrence policy limit in connection with a $3 million employee theft claim.  In Wescott Electric Company v. Cincinnati Insurance Company, the Court granted Cincinnati Insurance Company’s (“Cincinnati”) motion to dismiss the claims brought against it for its failure to provide additional coverage.

This lawsuit was initiated by Wescott Electric Company (“Wescott”) after a Wescott employee stole almost $3 million from the company between 2003 and 2013.  During the relevant period, Wescott had four consecutive insurance policies from Cincinnati.  Each policy lasted for three years with the fourth policy beginning in 2013.  Importantly, the employee’s theft was discovered during the policy period of the fourth policy.  As a result, Cincinnati paid Wescott the policy limit of $100,000 for a single “occurrence” of employee theft.

Wescott’s breach of contract claim against Cincinnati was two-fold.  First, Wescott argued that it was entitled to coverage under the 2013 policy as well as under the 2010 policy.  Second, Wescott argued that the employee’s theft constituted more than one “occurrence” under either the 2010 or 2013 policy.  In response, Cincinnati filed a motion to dismiss.  The Court ruled in Cincinnati’s favor, stating that Wescott was only entitled to coverage for a single “occurrence” of employee theft under the 2013 insurance policy.

The Court reached its conclusion in two separate steps.  First, the Court determined that only the 2013 policy provided coverage to Wescott because the theft was not discovered until after the 2010 policy ended.  In reaching its decision, the Court flatly disagreed with Wescott’s request to rewrite its 2010 policy to expand the period of coverage.

By way of background, the four consecutive insurance policies did not contain uniform language.  Specifically, the policies issued in 2004 and 2007 stated that Cincinnati “will pay only for covered loss discovered no later than one year from the end of the policy period.”   These policies ended in 2007 and 2010, respectively, and the employee’s theft was not discovered until 2013.  Thus, neither the 2004 or 2007 policies provided Wescott with coverage.  Significantly, the 2010 and 2013 policies contained more limited discovery language.  These policies stated that Cincinnati’s coverage only applied to losses which were discovered by Wescott during the policy period, rather than one year from the end of the policy period as in the 2004 and 2007 policies.

Essentially, Wescott requested that the Court rewrite the 2010 policy to include the larger, one-year discovery window found in its 2004 and 2007 policies.  Wescott argued that it reasonably expected the 2010 policy to contain the same one-year discovery window as the former policies and was not put on notice of the change.  The Court disagreed with Wescott’s position, finding that its contention was insufficient to rewrite the 2010 policy.  In so finding, the Court emphasized a “Notice to Policyholders” issued by Cincinnati in 2008 that announced the change in discovery-based coverage.

Furthermore, the Court referenced Standard Venetian Blind Company v. American Empire Insurance Company when explaining that because the exclusions in the policy were clearly worded and conspicuously displayed, the insured could not avoid their enforcement simply by arguing that he failed to read or did not understand them.  Applying the case to the instant matter, the Court determined that the Cincinnati discovery period language was far more “conspicuously displayed” than even the language in Standard Venetian.  The Court also pointed out that the discovery period language was the very first paragraph of the “Commercial Crime Coverage Form.”

Second, the Court determined that only one “occurrence” of employee theft had transpired under the 2013 policy.  In reaching its conclusion, the Court mainly relied on the plain meaning of “occurrence” found in the definition section of the “Commercial Crime Coverage Form.”  Specifically, the Court found the language in the definition to be unambiguous and stated that the employee’s “series of acts” in stealing from Wescott qualified as a single “occurrence” because they were “committed” by a single employee both before and during the relevant policy period.  Therefore, the Court concluded that the definition limits the amount of coverage for all thefts occurring during the 2013 policy period to $100,000.

Thanks to Zhanna Dubinsky for her contribution for this post.  Please write to Vito A. Pinto for further information.