The United States Court of Appeals, Fourth Circuit, has issued a ruling on the “one occurrence versus multiple occurrences” issue. This case is Beckley Mechanical v. Erie Insurance Property and Casualty Company, 2010 WL 1452616 (C.A.4 ( W.Va. )). Note that this case was not selected for publication in the Federal Reporter.

This action arose out of a claim for proceeds from an insurance policy providing coverage for loss caused by employee dishonesty. Over a period of time, Snyder, a bookkeeper employed by Beckley falsified records to conceal approximately 293 checks she drafted to herself, embezzling $424,024. She was charged with seven counts each of felony embezzlement and of falsifying records.

The crime policy in effect at the time applied to loss of money up to $10,000 per occurrence resulting from dishonest acts committed by an employee. The policy declared that “all loss caused by or involving one or more employees, whether the result of a single act or a series of acts is considered one occurrence”. Therefore, the insurer maintained that Snyder's embezzlement constituted one occurrence and consequently, paid $10,000 to the insured. Beckley filed a lawsuit seeking a declaratory judgment and alleging that the multiple acts of embezzlement by Snyder constituted separate acts and separate occurrences and that Erie was liable for payment for each unlawful draft. The district court ruled in favor of the insurer.

The appeals court reviewed the policy language and found no ambiguous, confusing, or deceptive language in the policy. The court said that the policy clearly defines an occurrence as including a series of acts for purposes of the employee dishonesty provision, and the coverage is $10,000 per occurrence. The ruling of the district court was affirmed.

In a footnote, the circuit court said that the fact that the employee was charged with and pled guilty to and was convicted of multiple counts of embezzlement did not establish the position that Snyder's acts should be considered to be multiple occurrences under the policy. The criminal history of the employee was judged to be not relevant to the judicial interpretation of the plain language of the crime policy.

Editor's Note: This ruling is consistent with standard crime policy language interpretation. Whenever a policy defines an occurrence such that all loss resulting from a series of acts is considered to be just one occurrence, an insured is climbing a very steep hill in trying to establish multiple occurrences. Policy language is not going to be ruled ambiguous just because the insured and the insurer disagree over its meaning.

Correctional Facility Inmate Seen as a Volunteer Worker

National Union brought a declaratory judgment action in response to a lawsuit filed by Hale. Hale alleges she was severely injured while working as an employee of Aramark Correctional Services in the kitchen area at West Virginia 's Southwestern Regional Jail. According to Hale, a mixer fell off a cart and crushed her foot. The cart was being pushed by Lambert at the time of the accident and Lambert was an inmate of the jail. Hale sued the state and the correctional facility, claiming Lambert was employed by the state and acted as an agent of the state at the time of her injury. This case is National Union Fire Insurance Company v. Lambert, 2010 WL 1607843 (S.D.W.Va.).

The dispute here centers on whether Lambert qualifies as a covered volunteer worker of the state under the terms of the policy issued to the state by National Union. The policy did not define the term “volunteer worker”. However, the court took note of the fact that other policies have defined a volunteer worker as a person who donates his or her work, one who acts at the direction of the insured and within the scope of duties determined by the insured, and one who is not paid by the insured for the work performed. Based on this, the court ruled that Lambert was indeed a volunteer worker.

The court said that Lambert chose to work for the state without compensation; he received no financial benefits for his work in the kitchen. Lambert testified that he considered himself a volunteer in that he was not required to work in the kitchen and he only worked there to get out of his cell for a period of time. And, Lambert did his job under the direction of Aramark supervisors.

National Union contended that Lambert was not an insured because inmates are traditionally excluded from liability policies. This is so since a jail authority does not have the same level of control over who it accepts onto its grounds as an ordinary employer has, and thus, the risk posed by those individuals for purposes of a liability policy would not ordinarily be contemplated by the insurer or the insured. The court said that this argument lacked merit. The court said that National Union could have predicted that the state might be held accountable for the actions of Lambert. The state had authority over which inmates it accepted into its work program and how they are supervised; therefore, National Union could have explicitly excluded inmates from its insurance coverage but chose not to do so.

National Union's motion for summary judgment was denied and the court ruled that the insurer was obligated to provide the state and Lambert with a defense.

Editor' Note: It is interesting that a court would consider an inmate to be a volunteer worker. In this case, Lambert was certainly not in jail as a volunteer; but then again, since the insurance policy did not define a volunteer worker, and since the insurer did not specifically exclude inmates from insured status, and since the inmate did volunteer to work in the kitchen, the ruling of the court is understandable.

The ISO CGL form does define a volunteer worker and makes such a person an insured while performing duties related to the conduct of the named insured's business. Even with this definition, however, an individual such as Lambert could be seen as a volunteer worker unless there is a specific applicable exclusion in the policy.

Garage Operations—Other Than Covered Autos

The standard Garage Coverage Form provides liability insurance to the insured for garage operations—other than covered autos and for garage operations—covered autos. In Consumers Insurance USA v. Davis, 2010 WL 1438823 (W.D.Mo.), the United States District Court had to decide if injuries caused in an auto accident were included in the “other than covered autos” category.

Davis sought damages for personal injuries sustained in an auto accident when Schroeder, while in the scope of his employment with Sell-Ur-Ride, was operating a vehicle that struck the motorcycle being operated by Davis . David sued both Schroeder and Sell-Ur-Ride. The insurer, Consumers Insurance, did not dispute the claim that the garage policy of Sell-Ur-Ride applied and paid the $100,000 limit of liability under the garage operations—covered autos section of the policy. However, Davis also sought payment under the garage operations—other than covered autos section of the policy and Consumers disagreed.

Davis contended that the other than covered autos coverage applied due to the managerial acts of William A. Schroeder who was the manager of Sell-Ur-Ride, and his negligent supervision of William F. Schroeder, who was the driver of the vehicle. Davis alleged that William A. was negligent in failing to monitor William F. and in failing to get medical clearance for William F. before allowing him to drive; William F. suffered from known mental fugues. Davis said that the claims involved operations that were necessary or incidental to a garage business and were independent of and divisible from the use of a motor vehicle. The insurer disagreed and said that the claims in this lawsuit directly related to the ownership, use, or maintenance of autos and so, the garage operations—covered autos provision was the exclusive coverage provision.

The court found that the circumstances in this case led to the conclusion that the managerial claims are separate from the covered auto claims. The court said that failure to monitor the driver and the decision to allow William F. to drive was a managerial act and this was independent of any use of a vehicle. The policy did provide coverage under the garage operations—other than covered autos section in addition to the covered auto coverage.

Editor's Note: The standard garage form applies to the garage operations of the named insured and this includes all operations necessary or incidental to a garage business. Exactly what is meant by “all operations necessary or incidental to a garage business” is generalized enough to be subject to an individual court's interpretation. This court decided that managerial decisions fit into this category. Therefore, under this decision, the insured was legally obligated to pay damages under both covered autos coverage and other than covered auto coverage. The decision also forced the insurer to pay the limit of liability under both parts of the garage insuring agreement.

The Insured, Any Insured, and General Liability Coverage

A general contractor that was named as an additional insured on liability insurance policies issued to two subcontractors brought an action against the insurer seeking a declaration as to its rights under the two policies. This case is James McHugh Construction Company v. Zurich American Insurance Company, 2010 WL 1542633 (Ill.App. 1 Dist.).

McHugh is a general contractor. When overseeing a construction project, McHugh subcontracts portions of the work to assorted subcontractors. In 2005, McHugh was the general contractor on a construction project at a building called The Chandler and McHugh subcontracted electrical work to JMS Electric. In 2007, McHugh was the general contractor for work on a rail station and he subcontracted work to Stevenson Crane Service. In both instances, employees of McHugh were injured on the job and sued the subcontractors, alleging negligence. Zurich was the insurer for both JMS and Stevenson. The subcontractors filed third-party complaints against McHugh alleging that McHugh's negligence contributed to the injuries. Since McHugh was an additional insured on both Zurich policies, it sought defense and indemnity from Zurich . The insurer denied coverage pursuant to the employer's exclusion in both policies and asserted that since both complaints alleged arose out of employment by McHugh, the exclusion applied. The circuit court granted judgment on the pleadings to the insurer and McHugh appealed.

The court of appeals noted that it was uncontested that McHugh is an additional insured under the Zurich policies. And, it was uncontested that both policies excluded coverage for bodily injury to an employee arising out of and in the course of employment by “the insured”. The contested point as the court saw it was this: is McHugh “the insured” under the exclusion such that it applies to bar coverage for the claims?

McHugh argued that the term “the insured” is ambiguous because it is not defined in the policies and so, can be construed to apply either to any insured seeking coverage or only to the named insured. Zurich responded that the term is clear and refers to the insured party seeking coverage for a particular claim, no matter whether that insured is the named insured or an additional insured. The appeals court agreed with the trial court in holding that the word “the” creates an ambiguity only if there is some basis in the policy to conclude that “the” refers to someone specific other than McHugh in this instance. There is no such basis in this instance.

The appeals court found no language in the policies that would lead anyone to think “the insured” refers only to the named insured. Moreover, both parties agree that “an insured” refers to both the named insured and any additional insureds. Why then, asked the court, should “the insured” be interpreted any differently from “an insured”? The court said the obvious reading of “the insured” is the insured seeking coverage. This means that both the named insured and additional insureds are equally subject to the exclusion, that the additional insured's coverage is limited to the same extent as the named insured's; otherwise, the additional insured would receive more protection under the policy than the named insured.

The decision of the trial court was affirmed. Because the claims are for bodily injury to McHugh's employees allegedly suffered in furtherance of McHugh's projects, Zurich need not provide coverage for those claims.

Editor's Note: This ruling by the appellate court indicates that use of the word “the” refers to a particular party. If an exclusion applies to “the” insured, that means the exclusion applies only to that particular insured and not to all of the insureds. Insurance policy language can be very confusing, especially if the word or phrase is not defined. However, when a policy uses the word “the” or a phrase like “that particular part”, the intent is to limit the reference to a certain definite party or item.

Targeted Tender Doctrine Discussed

In River Village I, LLC v. Central Insurance Companies, 919 N.E.2d 426 (2009), the Appellate Court of Illinois, First District, Fifth Division, discussed the targeted tender doctrine. This doctrine allows an insured who is covered by multiple and concurrent insurance policies to select which insurer he wants to defend and indemnify him regarding a specific claim. The insured essentially can choose which insurer among his several co-insurers will participate in the claim against him. He can elect one insurer over another, or even deactivate coverage with an insurer he previously selected in order to invoke exclusive coverage with another. This doctrine allows an insured who has paid for multiple coverage to protect his interests among the insurers he chooses.

This doctrine can come into conflict with “other insurance” clauses that insurers have placed in their policies and which attempt to render otherwise primary insurance as excess over any other collectible insurance. So, it may be helpful to clarify when the doctrine is invoked. (Note that currently, only Illinois and Washington have expressly adopted the targeted tender rule; nevertheless, information on the doctrine may be of use to readers.) The common and determinative element is that the insurance at issue—that held by the insured and provided by his multiple insurers—originated from primary policies. In other words, all the insurers stood in the same position with respect to the potential duty of defense and indemnification owed to the insured. It is in this situation, where the concurrent multiple policies held are primary policies, that the targeted tender rule prevails and allows the insured to select which insurer will defend and indemnify him. A markedly different situation can occur when an insured is covered by multiple insurers providing different types of coverage.

Policies concurrently held by an insured are not always all primary; an insured may hold primary insurance from one insurer and at the same time, excess coverage from another. In such an instance, when the insurers do not stand in the same position with respect to a potential duty of coverage, an insured cannot use his targeted tender right to choose to impose a coverage duty on an insurer with an other insurance excess provision in its policy to the exclusion of other co-insurers with which he holds primary policies. The targeted tender doctrine would not allow an insured to request the application of an excess policy before he exhausts all his primary coverage.