American Commerce Ins. Brokers, Inc. v. Minnesota Mut. Fire and Cas. Co.

• Decision Date: 18 July 1996
• Docket Number: No. C9-95-499,C9-95-499
• Citation: 551 N.W.2d 224
• Parties: AMERICAN COMMERCE INSURANCE BROKERS, INC., Respondent, v. MINNESOTA MUTUAL FIRE AND CASUALTY COMPANY, Petitioner, Appellant.
• Court: Minnesota Supreme Court

Page 224

551 N.W.2d 224

AMERICAN COMMERCE INSURANCE BROKERS, INC., Respondent, v. MINNESOTA MUTUAL FIRE AND CASUALTY COMPANY, Petitioner, Appellant.

No. C9-95-499.

Supreme Court of Minnesota.

July 18, 1996.

Syllabus by the Court

1. The phrase "series of related acts" in a business insurance policy is not ambiguous.

2. Under the facts and circumstances of this case, two occurrences arose under the business insurance policy.

3. In determining whether acts of embezzlement are part of a "series of related acts," relevant factors include whether the acts are connected by time, place, opportunity, pattern, and most importantly, method.

Jon A. Hanson, Margaret K. Ackerman, Hanson Lulic & Krall, Minneapolis, for Appellant.

Linda S. Jensen, Messerli & Kramer, P.A., Minneapolis, for Respondent.

Heard, considered and decided by the court en banc.

OPINION

ANDERSON, Justice.

At issue in this appeal is whether the phrase "series of related acts" in a business insurance policy is ambiguous and, if it is not ambiguous, how many "occurrences" arose under the policy. Minnesota Mutual Fire and Casualty Company seeks review of a Minnesota Court of Appeals decision holding that the phrase "series of related acts" in an insurance policy with its insured, American Commerce, was ambiguous. Because that phrase was held ambiguous, the court of appeals declined to determine how many occurrences arose under the policy and remanded the case to the district court for a determination of American Commerce's reasonable expectation of insurance coverage for business losses caused by an employee who embezzled over $190,000 from American Commerce. We reverse and hold that the phrase "series of related acts" is not ambiguous and conclude that two occurrences arose under the insurance policy.

In 1992, respondent American Commerce Insurance Brokers, Inc. submitted a claim to appellant Minnesota Mutual Fire and Casualty Company for losses caused by employee embezzlement. During the period of embezzlement, American Commerce was insured under a Minnesota Mutual business insurance policy which provided coverage for losses resulting from employee dishonesty. The employee dishonesty coverage clause in the policy read as follows:

4. Employee Dishonesty

a. We will pay for direct loss of or damage to Business Personal Property, including money and securities, resulting from dishonest acts committed by any of your employees * * *.

c. The most we will pay for loss or damage in any one occurrence is the Limit of Insurance for Employee Dishonesty shown in the Declarations.

d. All loss or damage:

(1) Caused by one or more persons; or

(2) Involving a single act or series of related acts; is considered one occurrence.

(Emphasis added.)

At all times relevant to this appeal, American Commerce was an insurance agency specializing in obtaining liability insurance for taxicab owners and operators. American Commerce's customers often came directly to its office, filled out the necessary paperwork, and made premium payments on the spot. The customers frequently paid the premiums by cash ¹ or cashier's check rather than a business or personal check. American Commerce would then deposit the customer's payment in its own account and forward the customer's insurance application to the insurance carrier, together with American Commerce's check in payment of the premium.

After an internal investigation, American Commerce determined that one of its employees, Christee Lee Hartse, had embezzled over $190,000 between January 1, 1991 and February 1, 1992. ² Hartse's job duties included customer service and general bookkeeping. She was responsible for accepting insurance applications and payments from taxicab owners and operators and for forwarding the applications and payments to the appropriate insurance carrier. Her bookkeeping duties included preparing daily deposit slips, handling deposits, preparing payroll and other checks for signatures by authorized signers, and maintaining computerized financial records.

Hartse's position provided her with direct access to American Commerce's cash receipts and with ample opportunity to embezzle. Hartse embezzled by accepting cash payments for premiums from customers who purchased new or renewed insurance policies. She would advise those customers who did not have checking accounts that she could accept cash payments for premiums and that the premiums would be forwarded to the appropriate insurance company. She would then take the cash payments and convert them to her own use. Hartse also instructed at least three customers to leave the payee line blank when writing checks for payment of insurance. She then completed the checks, making them payable to her rather than the insurance carrier. She subsequently endorsed and negotiated the checks at a bank, converting the funds received to her own use. Hartse embezzled $179,201 by taking funds received from customers as insurance premiums.

Hartse also embezzled by issuing unauthorized checks to herself. In addition to receiving her semi-monthly payroll checks, Hartse caused additional payroll checks to be made payable to her in precisely the amount of her semi-monthly payroll checks. Pursuant to this scheme, Hartse issued nine unauthorized payroll checks between 1991 and 1992. The unauthorized payroll checks totalled $7,443. Hartse also issued eight unauthorized petty cash checks payable to her from American Commerce's checking account between April 1991 and January 1992, totalling $6,000. Hartse embezzled approximately $13,443 from American Commerce by issuing unauthorized checks to herself.

After discovering Hartse's embezzlement, American Commerce submitted a claim to Minnesota Mutual under its employee dishonesty coverage for the losses caused by Hartse's embezzlement. American Commerce's employee dishonesty coverage provided for $10,000 in coverage for each occurrence, subject to a $250 deductible per occurrence. After American Commerce submitted its claim, Minnesota Mutual tendered payment of the $10,000 coverage limit to American Commerce, based on Minnesota Mutual's position that Hartse's acts of embezzlement constituted only one occurrence. Finding the tendered payment insufficient, American Commerce brought suit against Minnesota Mutual, alleging that Hartse's acts were multiple occurrences because they were not related, or in the alternative, that the insurance provision defining occurrence as a "series of related acts" was ambiguous, and thus must be construed in favor of American Commerce. After discovery and the filing of cross-motions for summary judgment, Minnesota Mutual changed its position by conceding that Hartse had employed not one, but two distinct methods of embezzlement. In its order, the district court noted that it was "undisputed" that Hartse used two methods: pocketing payments received as insurance premiums, embezzling $179,201.30 by this method, and issuing unauthorized payroll checks and petty cash checks to herself, embezzling $13,443.06 by this method. The court also defined the meaning of occurrence in the policy, stating that:

In the context of employee dishonesty, an occurrence is a number of dishonest things done by an employee which follow one another in time and are connected to each other in some manner. * * * Ms. Hartse's series of dishonest acts are related because they are connected to one another by time, place, opportunity, and modus operandi.

Based on this conclusion, the court ordered Minnesota Mutual to pay American Commerce $20,000 for losses caused by two occurrences. ³

American Commerce appealed to the court of appeals, which reversed. American Commerce Ins. v. Minnesota Mut. Fire & Casualty Co., 535 N.W.2d 365 (Minn.App.1995). The court of appeals held that the phrase "series of related acts" in the insurance policy was ambiguous and remanded the case to the district court for a determination of what would constitute American Commerce's reasonable expectation of coverage in the circumstances presented by this case. Id. at 371-72. Minnesota Mutual appeals, arguing that the phrase "series of related acts" is not ambiguous and that the court of appeals erred in remanding to the district court the issue of American Commerce's reasonable expectations under the insurance policy.

I.

On appeal from summary judgment, this court must address two questions: (1) whether there are any genuine issues of material fact, and (2) whether the lower courts erred in their application of the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn.1990). The question of whether ambiguity exists in an insurance policy is one of law which this court reviews de novo. Hammer v. Investors Life Ins. Co., 511 N.W.2d 6, 8 (Minn.1994).

The language of an insurance policy will be held ambiguous only if it is reasonably subject to more than one interpretation. Columbia Heights Motors v. Allstate Ins. Co., 275 N.W.2d 32, 34, 36 (Minn.1979). If an ambiguity exists, the court construes the language against the insurer. Id. However, the court must "fastidiously guard against the invitation to 'create ambiguities' where none exist." Columbia Heights Motors, 275 N.W.2d at 36 (citing Farkas v. Hartford Acc. & Indem. Co., 285 Minn. 324, 173 N.W.2d 21 (1969)). If no ambiguity exists, there is no reason for construction, and the court is bound to attribute the usual and accepted meaning to the phrase. Bobich v. Oja, 258 Minn. 287, 294, 104 N.W.2d 19, 24 (1960).

Minnesota Mutual argues that the phrase "series of related acts" is clear and unambiguous. It argues that this phrase is intended to encompass a continuous embezzlement scheme in which the dishonest employee converts funds from an employer by a common scheme or series of related acts on a constant basis. American Commerce counters by arguing that the phrase is ambiguous. Further, it maintains that separate, discrete, wrongful acts should not be deemed part of a "series of related acts" if, as...