PECO Energy Co. v. Boden

• Decision Date: 31 August 1995
• Docket Number: No. 94-1883,94-1883
• Citation: 64 F.3d 852
• Parties: 42 Fed. R. Evid. Serv. 1354 PECO ENERGY COMPANY v. Kenneth Henry Edmund BODEN; London & Hull Maritime Insurance Company Limited; Insurance Company of North America (U.K.) Limited; The Yorkshire Insurance Company Limited; Indemnity Maritime Assurance Company Limited, Appellants.
• Court: U.S. Court of Appeals — Third Circuit

Page 852

64 F.3d 852

42 Fed. R. Evid. Serv. 1354

PECO ENERGY COMPANY v. Kenneth Henry Edmund BODEN; London & Hull Maritime

Insurance Company Limited; Insurance Company of North

America (U.K.) Limited; The Yorkshire Insurance Company

Limited; Indemnity Maritime Assurance Company Limited, Appellants.

No. 94-1883.

United States Court of Appeals, Third Circuit.

Argued June 15, 1995.

Decided Aug. 31, 1995.

Dante Mattioni, Mattioni, Mattioni & Mattioni, Philadelphia, PA, Michael G. Chalos, Harry A. Gavalas, Martin F. Marvet (argued), Chalos & Brown, New York City, for appellants.

Elizabeth K. Ainslie (argued), Ainslie & Bronson, Philadelphia, PA, for appellee.

Before: STAPLETON, McKEE, and ROSENN, Circuit Judges.

OPINION OF THE COURT

ROSENN, Circuit Judge.

This appeal primarily raises a number of intriguing insurance law questions, one of which, the allocation of a deductible among several insurance carriers, is novel. The insured entered into a series of "all risks" policies covering property losses during the policy period. When the insurers rejected the claim of the insured, PECO Energy Company (PECO), it brought a diversity action in the United States District Court for the Eastern District of Pennsylvania. The jury found that PECO sustained theft losses aggregating $1,229,029 over a period of six years.

The district court held that the combined thefts constituted a single occurrence and that it took place in the sixth year of the insurance coverage. The court therefore applied the $100,000 deductible set forth in the policy for that year. Accordingly, it entered judgment of $1,129,029 for PECO against Kenneth Henry Edmund Boden representing Lloyds Underwriters, London & Hull Maritime Insurance Company Limited, Insurance Company of North America (U.K.) Limited, The Yorkshire Insurance Company Limited, Indemnity Maritime Assurance Company Limited (collectively the Underwriters). The Underwriters timely appealed. We vacate and remand.

I.

PECO is a Pennsylvania electric utility with its principal place of business in Philadelphia. In September 1984, it contracted with Diesel Services, Inc. (DSI), an independent trucking company, to haul its fuel oil to various PECO generating facilities. DSI transported PECO oil until November 1990 when PECO discovered that DSI had been stealing a portion of the oil on a regular basis.

In November 1985 PECO entered into a contract for insurance covering property losses for one year from four independent insurance companies and six syndicates at Lloyds of London. Between November 1986 and October 1991, PECO and the Underwriters renewed five one-year insurance policies. The Underwriters for each policy varied from year to year, but the policies remained essentially the same. The policies insured "GOODS and/or MERCHANDISE OF EVERY DESCRIPTION WHATSOEVER incidental to [PECO's] business but consisting principally of FUELS ... shipped in and/or over ... [a]gainst all risks of physical losses or damage however caused." Both parties agree that these policies cover the theft of fuel oil.

Each policy provided that covered losses were subject to a deductible. The 1985-86 policy states that:

from the amount of each loss or combination of losses arising out of any one occurrence, an amount equal to 1% of the total value of the property to which loss or damage occurred shall be deducted. This deductible, however, shall not be less than $10,000, nor more than $20,000.

Each of the remaining policies provided that there shall be deducted "from the amount of each loss or combination of losses arising out of any one occurrence, US$100,000 any one loss or occurrence."

At trial, PECO acknowledged that it did not have any direct evidence of DSI thefts, except for a limited number observed by PECO investigators in 1990. Nonetheless, PECO posited at trial that DSI had been stealing from it for the duration of the contract between them and that these thefts aggregated between 9.1% and 20% of the oil transported by DSI during the 62 month period that the Underwriters insured PECO.

The jury found that the DSI stole $1,229,029 worth of fuel from PECO, equal to 6.1% of the fuel transported by DSI, and that the thefts were part of a single continuous plan or scheme. The jury also determined that the Underwriters had not acted in bad faith toward the insured. The district court held that DSI's thefts constituted one occurrence because they were part of a single continuous scheme and that this occurrence took place during the 1990-91 policy period. The court applied the $100,000 deductible provided for in the 1990-91 policy and entered judgment of $1,129,029 for PECO against the 1990-91 Underwriters. The Underwriters then moved to amend or correct the judgment and/or for a new trial or a judgment as a matter of law. The district court denied these motions and the Underwriters timely appealed. ¹

II.

A federal court must apply the choice of law rules of the forum state when it is sitting in diversity. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Pennsylvania law provides that "the place having the most interest in the problem and which is the most intimately concerned with the outcome is the forum whose law should be applied." In re Complaint of Bankers Trust Co., 752 F.2d 874, 882 (3d Cir.1984). PECO and the Underwriters executed the insurance contracts at issue in this case in Pennsylvania and the oil which DSI stole was transported within Pennsylvania. Additionally, the policies contain a choice of law clause designating Pennsylvania law as the law controlling any disputes which arise under the policies. Therefore, the district court correctly concluded that Pennsylvania law applies to this case.

In Pennsylvania, interpreting an insurance contract is a question of law to be resolved by a court. Vale Chemical Co. v. Hartford Acci. & Indem. Co., 340 Pa.Super. 510, 490 A.2d 896, 899 n. 4 (1985), rev'd on other grounds, 512 Pa. 290, 516 A.2d 684 (1986). We apply plenary review to legal determinations made by the district court. Louis W. Epstein Family Partnership v. Kmart Corp., 13 F.3d 762, 765-766 (3d Cir.1994).

On appeal, the Underwriters contend that: (1) the series of thefts is not one occurrence; (2) if all of the thefts are one occurrence, the occurrence took place in 1984, when the Underwriters did not insure PECO; (3) a full deductible applies to each theft in which event the defendants would have no liability or alternatively a full deductible applies to each policy period which would reduce liability substantially; (4) the jury made mathematical errors in calculating PECO's damages; (5) the district court erred in awarding damages to PECO for oil stolen after March 1988 because PECO failed to take reasonable measures to stop DSI stealing after having been warned of DSI thefts; and (6) the district court abused its discretion by admitting certain testimony into evidence.

III.

A.

The threshold question on appeal is whether the multitude of thefts over the six-year period constituted a single occurrence. In a careful and exhaustive opinion denying the Underwriters' post-trial motions, the district court held that the thefts in this case constituted a single occurrence. Whether the losses here constituted one occurrence or amounted to a number of occurrences, as contended by the Underwriters, can have a significant impact on the amount of the liability, if any. Unfortunately, the policies do not provide a relevant definition of occurrence. ² If each theft amounted to an occurrence, then each became subject to the deductible provisions of the policy. If, however, all of the thefts constituted a single occurrence, then the deductible provision of the policy surfaced only once. We therefore look to other sources for assistance in defining this term. To determine "whether bodily injury or property damage is the result of one occurrence or multiple occurrences, the majority of courts have looked to the cause or causes of the bodily injury or property damage...." B.R. Ostrager & T.R. Newman, Handbook on Insurance Coverage Disputes Sec. 9.02 (7th ed. 1994) (internal quotation, emphasis and brackets omitted).

In Appalachian Ins. Co. v. Liberty Mut. Ins. Co., we held that "an occurrence is determined by the cause or causes of the resulting injury" and noted that a court should determine "if there was but one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damage." 676 F.2d 56, 61 (3d Cir.1982) (citations and internal quotation omitted). If there is only one cause for all of the losses, they are part of a single occurrence. Id.; see also Armotek Industries, Inc. v. Employers Ins. of Wausau, 952 F.2d 756, 762 (3d Cir.1991) (policy defined "occurrence" as " 'an accident, including continuous or repeated exposure to conditions, which results in ... property damage....' "); Business Interiors, Inc. v. Aetna Cas. & Sur. Co., 751 F.2d 361 (10th Cir.1984) (series of forty acts of forgery by dishonest employee are deemed a single occurrence).

The jury found that DSI instituted its scheme to steal from PECO in 1984 and continued stealing from PECO until it discovered the thefts in 1990. The jury also found that each theft was a part of a larger scheme and that the scheme to steal was the proximate cause of each theft. We therefore hold that when a scheme to steal property is the proximate and continuing cause of a series or combination of thefts, the losses for liability insurance purposes constitute part of a single occurrence. Accordingly, the district court committed no error in concluding that numerous thefts by DSI amount to one occurrence.

B.

The district court concluded that the policies in this case were "occurrence" policies. "An occurrence policy provides coverage for any 'occurrence' which takes place during the policy period. Under this type of policy, it is irrelevant whether the resulting claim is...