CP Food & Beverage, Inc. v. U.S. Fire Ins. Co.
| Decision Date | 06 August 2018 |
| Docket Number | Case No.: 2:16-cv-02421-APG-GWF |
| Citation | 324 F.Supp.3d 1172 |
| Parties | CP FOOD & BEVERAGE, INC., Plaintiff v. UNITED STATES FIRE INSURANCE COMPANY, Defendant |
| Court | U.S. District Court — District of Nevada |
Daniel Joseph Licciardi, Jr., Shane W. Clayton, Durham Jones & Pinegar, Bradley S Slighting, Las Vegas, NV, for Plaintiff.
Carla Cash Crapster, John Randall Riddle, Strasburger & Price, LLP, Michael Keeley, Dallas, TX, Gil Glancz, Theodore J. Kurtz, Selman Breitman LLP, Las Vegas, NV, for Defendant.
Order Granting Motion for Summary Judgment
This is a dispute over whether an insurance policy covers a theft scheme run by several employees of plaintiff CP Food & Beverage, Inc. (CP). CP ran a club where patrons could buy "funny money" to tip waitresses or pay topless dancers. The waitresses and dancers could turn the funny money back into CP for cash. Certain CP employees overcharged customers' credit cards through various methods, including charging the credit card multiple times for the same bill, charging for bottles of alcohol that the employees kept for themselves, and charging for funny money that the customer never purchased and then cashing in the funny money with CP.
The scheme was uncovered after multiple customers complained to the police and disputed the charges with their credit card companies. CP paid chargebacks to the customers' credit cards in a total amount of $768,617.91, both in response to its contractual requirements with the credit card companies and also as part of an agreement with law enforcement. CP also incurred hundreds of thousands of dollars in professional fees to investigate and resolve issues with law enforcement and defrauded customers. However, if a customer did not dispute a charge or if the customer's dispute was not sustained, CP did not pay a chargeback.
During the course of the scheme, CP was covered by a commercial crime policy issued by defendant United States Fire Insurance Company (U.S. Fire). The policy covered "loss of or damage to ‘money’, ‘securities’ and ‘other property’ resulting directly from ‘theft’ committed by an ‘employee’, whether identified or not, acting alone or in collusion with other persons." ECF No. 26-6 at 4. The policy defines theft (which includes forgery) as "the unlawful taking of property to the deprivation of the Insured." Id. at 4, 15. Property covered by the policy is limited to property that CP owns or leases or that CP "hold[s] for others whether or not [CP is] legally liable for the loss of such property ...." Id. at 11. The policy does not cover a loss Id. at 6.
CP submitted a claim to U.S. Fire to recover the credit card chargebacks and professional fees, but U.S. Fire denied the claim. CP filed suit in this court against U.S. Fire, asserting claims for breach of contract, breach of the covenant of good faith and fair dealing, violations of the Unfair Claims Practices Act, and declaratory relief.
U.S. Fire moves for summary judgment on all claims, arguing the policy does not cover the employees' thefts because CP was not a direct victim of the theft. U.S. Fire contends CP instead is seeking to recover for its liability to the customers, which is not a covered loss. As for the bad faith claim, U.S. Fire contends it at least had a reasonable basis for denying CP's claim, and thus it did not act in bad faith as a matter of law. U.S. Fire also contends that CP has not identified any damages it suffered as a result of either the alleged bad faith or unfair practices.
CP responds that because the employees exchanged the funny money for cash from CP and because CP had to reimburse the customers for credit card charges, the employees stole from CP and the loss is covered under the policy. CP argues that it will be able to show bad faith because U.S. Fire did not investigate the claim and never asserted CP was not a direct victim of the theft until the present motion.1 It also contends that it will be able to show U.S. Fire engaged in unfair claims practices. Finally, CP argues that it has shown damages based on the chargebacks and professional fees incurred in investigating the claim.
Summary judgment is appropriate if the movant shows "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a), (c). A fact is material if it "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). An issue is genuine if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.
The party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and identifying those portions of the record that demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The burden then shifts to the non-moving party to set forth specific facts demonstrating there is a genuine issue of material fact for trial. Fairbank v. Wunderman Cato Johnson , 212 F.3d 528, 531 (9th Cir. 2000). I view the evidence and reasonable inferences in the light most favorable to the non-moving party. James River Ins. Co. v. Hebert Schenk, P.C. , 523 F.3d 915, 920 (9th Cir. 2008).
The parties dispute whether the theft scheme is a covered loss under the policy. U.S. Fire contends it is not because the scheme stole money from the customers, not CP, and CP was returning that stolen property through credit card chargebacks as a form of restitution or disgorgement. U.S. Fire argues the policy requires the loss to CP be directly caused by the employee theft, and it was not here because the employees stole from the customers and then used the stolen funds to buy alcohol or funny money from CP. CP responds that because the employees obtained cash from CP using the funny money, they stole from CP so the loss is covered.
Courts addressing similar policy language about a loss resulting directly from an employee's theft have fallen into two camps. Some courts view the policy language as equivalent to a proximate cause analysis. See Tooling, Mfg. & Techs. Ass'n v. Hartford Fire Ins. Co. , 693 F.3d 665, 675 (6th Cir. 2012) (collecting cases). Others employ the "direct means direct" rule, meaning that the employer's property must be stolen (or a third party's property where the employer acts as bailee or trustee), and the employer's third-party liability to a defrauded customer is not covered. See id. at 673, 676 (); Vons Cos., Inc. v. Fed. Ins. Co. , 212 F.3d 489, 492-93 (9th Cir. 2000) ().2
"When interpreting state law, [I am] bound by the decision of the highest state court." In re Kekauoha-Alisa , 674 F.3d 1083, 1087 (9th Cir. 2012). The Supreme Court of Nevada has not yet addressed with which of these two camps it would side. "Absent a controlling state court decision," I must "predict how the highest state court would decide the issue." Id. at 1087-88.
"An insurance policy is a contract that must be enforced according to its terms to accomplish the intent of the parties." Farmers Ins. Exch. v. Neal , 119 Nev. 62, 64 P.3d 472, 473 (2003). To determine whether a loss is covered, I look to the policy's language. Fourth St. Place v. Travelers Indem. Co. , 127 Nev. 957, 270 P.3d 1235, 1239 (2011), as modified on reh'g (May 23, 2012). I must read the policy as a whole and "from the perspective of one untrained in law or in the insurance business." Id. (quotation omitted). I give policy terms "their plain, ordinary and popular connotations." Id. (quotation omitted).
I will not rewrite unambiguous provisions or increase the insurer's obligation to the insured that the parties intentionally and unambiguously limited. United Nat'l Ins. Co. v. Frontier Ins. Co. , 120 Nev. 678, 99 P.3d 1153, 1157 (2004) (en banc). However, if a term in an insurance policy is ambiguous, I construe it against the insurer as the drafter of the policy. Fourth St. Place , 270 P.3d at 1239. A term is ambiguous if it "creates reasonable expectations of coverage as drafted." Id. (quotation omitted). Thus, I "interpret an insurance policy to effectuate the reasonable expectations of the insured." Id. (quotation omitted).
In determining whether a term is ambiguous, I do not view it "standing alone, but rather in conjunction with the policy as a whole ... to give a reasonable and harmonious meaning and effect to all its provisions." Id. (quotation omitted). I "look to the entire contract of insurance for a true understanding of what risks are assumed by the insurer and what risks are excluded." Nat'l Union Fire Ins. Co. of State of Pa. v. Reno's Exec. Air, Inc. , 100 Nev. 360, 682 P.2d 1380, 1383 (1984). I must give every word of the policy effect if possible and avoid rendering any of its provisions meaningless. Bielar v. Washoe Health Sys., Inc. , 129 Nev. 459, 306 P.3d 360, 364 (2013).
I predict Nevada would follow the "direct means direct" rule and hold the policy language at issue does not cover third party claims or investigation costs. Starting with the policy's plain language, it covers loss resulting "directly" from an employee's theft. ECF No. 26-6 at 4. If proximate cause were sufficient, that would...
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