In First United Methodist Church of Stillwater, Inc. v. Philadelphia Indemnity Insur. Co., 2016 OK CIV APP 59, First United’s finance manager embezzled nearly $200,000 between 2009 and 2012. First United gave notice to Philadelphia of the thefts in January 2013 that it discovered in December 2012. Philadelphia conducted an investigation and ultimately paid First United the limit of liability under the 2013 Policy in the amount of $50,000. First United brought this action for breach of contract because it claims it has coverage under the separate insurance policies in 2011 and 2012, each with a limit of liability of $50,000 for the thefts that occurred during those policy years and discovered within the timeframe specified in the 2011 Policy and 2012 Policy. Philadelphia denies it is in breach and contends it has fulfilled its contractual obligation under the policy presently in effect, the 2013 Policy.
On cross motions for summary judgment the trial court found for the insured policy holder, and the appellate court affirmed. In affirming, the Oklahoma Court of Civil Appeals relied upon E.J. Zeller, Inc. v. Auto Owners Insurance Company, No. 4-14-04, 2014 WL 5803028 (Ohio Ct. App. Nov. 10, 2014) (unpublished), wherein the Ohio appellate court examined multiple provisions of similar insurance policies , determined the policy provisions were unambiguous, and determined the insured had coverage under each of two separate policies. The limits of insurance did not exclude coverage under other policies, so long as the loss was discovered within a year of the policy period, there could be coverage; and the non cumulation provision did not limit coverage under prior policies.
The policy provisions and discussion of them are below.
The policies defined Occurrence as “Act or series of related acts involving one or more persons. . .” The policies’ “Limits of Insurance,” provides:
The most we will pay for loss in any one “occurrence” is the applicable Limit of Insurance shown in the Coverage Summary. . .
In addition, the policy said “Discovery Period for Loss We will pay only for covered loss discovered no later than one year from the end of the policy period.” The policies also contained a “Non-Cumulation of Limit of Insurance” (non-cumulation provision) which states “Regardless of the number of years this insurance remains in force or the number of premiums paid, no Limit of Insurance accumulates from year to year or period to period.”
The policy period provision excludes any loss caused by acts of employee dishonesty outside the policy period from coverage. Thus, losses attributable to acts that occurred during prior policy periods would not be covered under the current policy. However, this provision does not clearly state that coverage under prior policies for those losses is excluded by the current policy. It is merely a limit of coverage under the current policy.
As to discovery of loss, the court stated the provision creates a “temporal limit as to when a limit must be discovered”; the provision, however, “does not cause the current policy to exclude coverage under prior policies.” Once a year has passed, however, “the policy coverage expires and can no longer provide any coverage for any losses. Thus, while this provision in the current policy does nothing to limit recovery under prior policies, coverage can be defeated under a prior policy, so long as it contains this provision and losses were not discovered within one year after the end of the respective policy periods.”
The “prior loss” provision specifically limits coverage for an individual loss that is covered under two policy periods. However, as discussed, each policy only covers losses caused by acts that occur inside of the policy period. Any loss attributable to acts that occur solely outside the policy period are automatically excluded under each policy. Thus, this provision cannot apply to an individual loss attributable only to acts inside the policy period of a single policy, as that loss will only be covered by one policy. Instead, this provision applies when acts occurring in two separate policy periods contribute to an individual loss. Under those circumstances, this exclusion would allow the insured to have the benefit of whichever policy provided greater coverage for that individual loss, but not be allowed to claim that loss under two different policies periods.
The Zeller Court, unlike the courts who considered the meaning of comparable prior loss provisions in Reliance, Wausau and Madison, specifically emphasized the “any loss” language of the provision as applying to an individual loss instead of the “all loss” language defining occurrence. The court further stated:
Notably, this provision does not utilize the term “occurrence.” It applies to individual losses, not to an aggregation of losses. Indeed, were this provision to apply when an “occurrence” was partly covered by two policies, then an occurrence would necessarily include losses covered under prior policies. However, as this provision is written, it only applies when a loss spans multiple policy periods. Thus, while this provision limits recovery for an individual loss that spans multiple policy periods, it does not otherwise exclude coverage under prior policies that are attributable to acts that occurred solely during that policy period.
The non-cumulation provision specifically applies to multiple policies. However, it does not operate to exclude coverage under prior policies.
This provision is specifically limited to “this insurance.” While “this insurance” is not defined in the policy, when it is used elsewhere it is only in reference to the current policy, not to all policies issued by the insurers. Indeed, the Prior Loss exclusion operates when a loss was covered under “this insurance” and any prior insurance issued by the insurers. Thus, the definition of the term “this insurance” cannot include any prior insurance. As a result, the NonCumulation provision only operates in the event that “this insurance,” i.e. the current policy, is extended or otherwise covers multiple years. When each policy period is covered by a different contract for insurance, this exclusion does nothing to limit recovery to a single policy.
The Court concluded:
While we do not agree with the conclusion reached by those courts who have found no ambiguity in similar contract provisions, we do not find Philadelphia’s arguments concerning the non-cumulation provision unreasonable. Philadelphia argues the non-cumulation provision23 restricts coverage for employee dishonesty to the definition of “occurrence” (“all loss caused by, or involving” an employee “whether the result of a single act or series of acts”); that is, to one occurrence (though the acts occurred over many years) regardless of the number of successive, separate policies the insured has purchased. According to Philadelphia’s reasoning, the non-cumulation provision acts to restrict coverage to only the current year’s policy and Limits of Liability (e.g., $50,000) and to exclude coverage under prior policies for an occurrence that took place within a prior year’s policy period.
The Zeller Court’s comprehensive analysis of multiple provisions of insurance contracts similar to those present here, however, is instructive and persuasive that another interpretation of the policy language – one that does not restrict recovery for an occurrence that occurs in separate policy periods to only one policy period – is also reasonable. Even if Philadelphia meant to limit recovery for occurrence spanning many years and multiple policies, as written the policy language can be reasonably interpreted to limit recovery to the aggregate of losses incurred within one policy period regardless of the number of thefts or dishonest acts by an employee, but does not preclude recovery for an occurrence within a particular policy period, and, thus, does not preclude recovery for an occurrence that also occurs in another policy period, even if the theft or dishonest acts are committed by the same employee. Consequently, because the provisions herein discussed are susceptible to more than one reasonable interpretation, the terms are ambiguous, and are to be construed against Philadelphia, who crafted the contract language, and in favor of First United as a matter of law.