Emcor Grp., Inc. v. Great Am. Ins. Co.

• Decision Date: 27 March 2013
• Docket Number: Civil Action No.: ELH-12-0142
• Parties: EMCOR GROUP, INC, et al., Plaintiffs, v. GREAT AMERICAN INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Maryland

EMCOR GROUP, INC, et al., Plaintiffs,

v.GREAT AMERICAN INSURANCE COMPANY, Defendant.

Civil Action No.: ELH-12-0142

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

Date: March 27, 2013

MEMORANDUM OPINION

This case involves a dispute concerning insurance coverage under three successive commercial crime insurance policies issued by Great American Insurance Company ("GAIC"), defendant, to EMCOR Group, Inc. and three of its subsidiaries: The Poole and Kent Corporation ("PKC"), Forti/Poole and Kent LLC ("FPK"), and Monumental Investment Corporation (collectively, "Emcor"), plaintiffs. The policies were issued for annual periods beginning December 1, 2002 and ending December 1, 2005. In November 2005, Emcor notified GAIC of over $10 million in losses stemming from the fraudulent conduct of two former executives of PKC and FPK between 1999 and 2005. See Compl. ¶¶ 1, 16 (ECF 2); Sworn Proof of Loss, Compl. Exh. B, at 1 ("POL," ECF 2-2). On September 30, 2010, Emcor submitted a claim to recover for its losses. Through the GAIC policy in effect for the period December 1, 2004 to December 1, 2005, Emcor believes it had continuous coverage for its losses, dating to 1999, when Emcor was insured by Factory Mutual Insurance Company ("Factory Mutual"). Compl. ¶¶ 2-4, 17-19; see POL.¹ After GAIC failed to pay Emcor's claim, Emcor filed suit, alleging breachof contract. See Compl. ¶¶ 5, 81-88.²

The parties filed pre-discovery³ cross motions for partial summary judgment, asking the Court to determine, as a matter of law, the extent of coverage under the policies with respect to fraud occurring prior to December 1, 2004. Defendant contends that, under the terms of the GAIC policies, it is obligated to pay only for losses sustained as a result of acts committed during the policies that covered December 1, 2003 to December 1, 2005. See GAIC Motion for Partial Summary Judgment ("Motion," ECF 29) & Supporting Memorandum ("GAIC Memo," ECF 29-1). In a combined cross motion for partial summary judgment and opposition to GAIC's Motion, plaintiffs maintain that they are entitled to coverage for losses from fraudulent acts committed during the entire period of coverage by GAIC under all three of its successive policies, i.e., from December 1, 2002 to December 1, 2005, as well as for the period covered by a policy issued by Emcor's prior insurer, Factory Mutual, for the period December 1, 1999 to December 1, 2002. See Emcor Cross Motion ("Cross Motion," ECF 32) & Supporting Memorandum of Law ("Emcor Memo," ECF 33). Both motions are supported by exhibits.⁴

The motions have been fully briefed,⁵ and no hearing is necessary to resolve them. See Local Rule 105.6. For the reasons that follow, the Court will grant GAIC's Motion for Partial Summary Judgment and deny Emcor's Cross Motion for Partial Summary Judgment.

Factual Background

The GAIC Policies

Emcor held three successive one-year commercial crime insurance policies issued by GAIC between December 1, 2002 and December 1, 2005. See Reinhard Aff. ¶ 4. The first, GAIC Policy No. CRP 524-49-86-00, covered the period from December 1, 2002 to December 1, 2003 (the "2002 Policy," ECF 32-4). The second, GAIC Policy No. CRP 524-49-86-01, covered the period from December 1, 2003 to December 1, 2004 (the "2003 Policy," ECF 32-5). The third, GAIC Policy No. CRP 524-49-86-02, covered the period from December 1, 2004 to December 1, 2005 (the "2004 Policy," ECF 32-6). Each GAIC policy provided coverage to EMCOR Group, Inc. and certain subsidiaries, including PKC and FPK, for losses arising from "employee dishonesty." See Reinhard Aff. ¶¶ 3-4. The terms of the three policies were largelysimilar, but not identical.⁶

The 2004 Policy's "DECLARATIONS PAGE" indicated the applicable limits of coverage and deductibles. See id. at 14. It provided for a $20,000,000 limit of insurance for employee dishonesty, along with a $100,000 deductible, id., applied on a per-occurrence basis. And, it defined the "Policy Period" as "12/1/2004 to 12/1/2005." Id.

The scope and amount of coverage for employee dishonesty under the 2004 Policy was set forth in the "EMPLOYEE DISHONESTY COVERAGE FORM." It provided, in relevant part, 2004 Policy at 22-23:

B. LIMIT OF INSURANCE:

The most we will pay for loss in any one "occurrence" is the applicable Limit of Insurance shown in the Declarations.

C. DEDUCTIBLE:

1. We will not pay for loss in any one "occurrence" unless the amount of loss exceeds the Deductible Amount, shown in the Declarations. We will then pay the amount of loss in excess of the Deductible Amount, up to the Limit of Insurance.

D. ADDITIONAL EXCLUSIONS, CONDITION[S] AND DEFINITIONS: In addition to the provisions in the Crime General Provisions Form, this Coverage Form is subject to the following:

1. Additional Definitions:

b. "Occurrence" means all loss caused by, or involving, one or more "employees," whether the result of a single act or series of acts.

The 2004 Policy included the following language in its "GENERAL CONDITIONS," see id. at 18-19:

4. Duties in the Event of Loss: After you discover a loss or a situation that may result in loss of, or loss from damage to, Covered Property,you must:

a. Notify us as soon as possible.

b. Submit to examination under oath at our request and give us a signed statement of your answers.

c. Give us a detailed, sworn proof of loss within 120 days.

d. Cooperate with us in the investigation and settlement of any claim.

5. Extended Period to Discover Loss: We will pay only for covered loss discovered no later than 1 year from the end of the Policy Period.

* * *

10. Loss Sustained During Prior Insurance:

a. If you, or any predecessor in interest sustained loss during the period of any prior insurance that you or the predecessor in interest could have recovered under that insurance except that the time within which to discover loss had expired, we will pay for it under this insurance, provided:

(1) this insurance became effective at the time of cancellation or termination of the prior insurance; and

(2) this loss would have been covered by this insurance had it been in effect when the acts or events causing the loss were committed or occurred.

b. The insurance under this Condition is part of, not in addition to, the Limits of Insurance applying to this insurance and is limited to the lesser of the amount recoverable under:

(1) this insurance as of its effective date; or

(2) the prior insurance had it remained in effect.

11. Loss Covered Under This Insurance and Prior Insurance Issued by Us or Any Affiliate: If any loss is covered:

a. partly by this insurance; and

b. partly by any prior cancelled or terminated insurance that we or any affiliate had issued to you or any predecessor in interest;the most we will pay is the larger of the amount recoverable under this insurance or the prior insurance.

Regardless of the number of years this insurance remains in force or the number of premiums paid, no Limit of Insurance cumulates from year to year or period to period.

* * *

14. Policy Period:

a. The Policy Period is shown in the Declarations.

b. Subject to the Loss Sustained During Prior Insurance condition, we will pay only for loss that you sustain through the acts committed or events occurring during the Policy Period.

Additionally, the 2004 Policy provided a "DIMINUTION IN DEDUCTIBLE ENDORSEMENT," which stated, id. at 53:

A. With respect to a loss for which coverage is provided by this policy and which is sustained partly during the period of other policies providing coverage for such loss issued to the insured . . . and terminated or cancelled or allowed to expire as of the inception date of this policy, the amount of the deductible that is applicable to the portion of the loss sustained during this policy period shall be reduced in whole or in part by:

1) The amount of the loss which is sustained during the period of other policies if such loss is less than the amount of the deductible applicable to the loss under these other policies, or

2) The amount of the deductible applicable to the loss sustained by the insured during the other policies if the applicable deductible is less than the amount of the loss sustained during that period.

Each GAIC policy in issue included the terms outlined above. But, each policy provided for payment of a separate premium. See, e.g., 2004 Policy at 14 (showing premium of $82,500 for 2004 Policy, "payable at inception"). Significantly, at the time one GAIC policy became effective, the prior GAIC policy was terminated. For example, the Declarations page of the 2004 Policy's "Crime Coverage Part" said, id. at 14: "By acceptance of this coverage part, you give usnotice cancelling prior Policy or Bond Nos. CRP 524-49-86-01 [the 2003 Policy], the cancellation to be effective at the time this Coverage Part becomes effective."

It appears that only three modifications were made to the GAIC policies over the course of Emcor's coverage. First, both the 2003 and 2004 policies carried "Endorsement No. 8," which defined "employee" to include "temporary employees," see 2004 Policy at 48; 2003 Policy at 53, whereas the 2002 Policy did not include "temporary employees" within the definition of "employee." Second, the 2004 Policy added Motorola, Inc., Freddie Mac, and Wachovia to the "Schedule of Loss Payees." Compare 2004 Policy at 5 (listing loss payees), with 2003 Policy at 10 (listing loss payees) and 2002 Policy at 8 (listing loss payees). Third, the amount of the premium increased from $75,000 in the 2002 Policy to $82,500 in the 2003 and 2004 policies. Compare 2004 Policy at 14 and 2003 Policy at 20 (both showing $82,500 premium) with 2002 Policy Declaration Sheet (ECF 46-2 at 2) (showing $75,000 premium).⁷

The Factory Mutual Policy

Prior to 2002, Emcor held a commercial crime policy with Factory Mutual (the "FM Policy," ECF 32-3), which covered the period between December 1, 1999 and December 1, 2002. See FM Policy at 2 ("Policy Period: From: December 1, 1999 To: December 1, 2002"...