Definition of "occurrence": two recent decisions get it right.

• Author: Mrozek, Donald L.
• Position: Mississippi

This month, Donald L. Mrozek and Robert M. Konop report on two recent cases interpreting the definition of "occurrence" in commercial crime policies.

The question of whether multiple acts of employee dishonesty should be treated as a single "occurrence", or as separate multiple "occurrence(s)" under a fidelity policy, continues to be the subject of much litigation. This article will discuss two recent cases that sided with the insurer, finding that multiple acts of dishonesty committed by one employee were a single "occurrence", and that all resulting loss was subject to a single Limit of Insurance. A word of caution is necessary as both cases are currently being appealed.

In Madison Materials Co., Inc. v. St. Paul Fire & Marine Insurance Co., (21) St. Paul insured Madison Materials for losses caused by Employee Dishonesty under a series of continuously renewed policies from 1991 to 2003. During this period of time, the Madison Materials employee embezzled $1,469,148.53, with losses occurring in each of the years from 1992 to 2002. St. Paul's investigation of the claim confirmed the embezzlement, and as a result, St. Paul tendered its $350,000 limit of liability for losses occurring and discovered during the policy period January 26, 2000 to January 26, 2003. Madison Materials claimed that the St. Paul policies covered the entire $1,469,148.53 of loss on the theory that it was entitled to recover the policy limits for each year the St. Paul policies were in effect. Despite Madison Materials' curious theory of recovery, the federal district court distilled its analysis down to two issues: the applicable policy period and the St. Paul policy's definition of occurrence. (22) This article discusses only the court's analysis of the policy's occurrence definition. St. Paul's policy contained the following Limitation of Insurance provision:

[t]he most We will pay for loss in any one "occurrence", is the applicable limit of insurance shown in the DECLARATIONS. The policy defined "occurrence" as:

... an act or series of related acts involving one or more "employees". It was St. Paul's contention that the policy's definition of "occurrence" and its Limitation of Insurance provision unambiguously stated that the multiple acts of embezzlement of its employee should be treated as one "occurrence", thus subject to one Limit of Insurance.

Madison Materials cited the Mississippi Supreme Court's opinion in Universal Underwriters Insurance Co. v. Buddy Jones Ford as controlling precedent for its position that St. Paul's policy language was ambiguous, and should therefore be interpreted to provide separate limits of $350,000 for each year that the embezzlements occurred. (23) The policy in Buddy Jones Ford contained slightly different limitation language from that in the St. Paul policy:

... the most We will pay: (a) under EMPLOYEE DISHONESTY is the limit stated in the declarations as applicable to a LOSS caused by one or more EMPLOYEES, or to all LOSS caused by one EMPLOYEE or in which the EMPLOYEE is concerned...