Lincoln Technical Institute v. Federal Ins. Co.

• Decision Date: 30 June 1994
• Docket Number: No. CIV 93-1536-PHX-SMM.,CIV 93-1536-PHX-SMM.
• Citation: 927 F. Supp. 376
• Parties: LINCOLN TECHNICAL INSTITUTE OF ARIZONA, INC., an Arizona corporation, et al., Plaintiffs, v. FEDERAL INSURANCE COMPANY, an Indiana corporation, Defendant.
• Court: U.S. District Court — District of Arizona

927 F. Supp. 376

LINCOLN TECHNICAL INSTITUTE OF ARIZONA, INC., an Arizona corporation, et al., Plaintiffs, v. FEDERAL INSURANCE COMPANY, an Indiana corporation, Defendant.

No. CIV 93-1536-PHX-SMM.

United States District Court, D. Arizona.

June 30, 1994.

Sharon Brook Shively, Sacks, Tierney & Kasen, P.A., Phoenix, AZ, for Lincoln Technical Institute of Arizona, Inc., Universal Technical Institute of Texas, Inc.

William F. Haug, Jeff R. Wilhelm, Julianne C. Wheeler, Jennings & Haug, Phoenix, AZ, for Federal Insurance Company.

MEMORANDUM OF DECISION AND ORDER

McNAMEE, District Judge.

INTRODUCTION

On March 29, 1994, Defendant filed a Motion for Summary Judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. Plaintiffs responded in opposition to the Motion and cross-moved for summary judgment. The motions have been fully briefed and are now ready for the Court's consideration.

STANDARD OF REVIEW

Summary judgment is appropriate when the movant shows "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.Pro. 56(c). "One of the principal purposes of the summary judgment rules is to isolate and dispose of factually unsupported claims." Celotex Corporation v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986).

The disputed fact(s) must be material. Id. Substantive law determines which facts are material. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, 477 U.S. 242, 249, 106 S.Ct. 2505, 2510-11, 91 L.Ed.2d 202 (1986).

The dispute must also be genuine. A dispute about a material fact is genuine if "the evidence is such that a reasonable jury could return a verdict for the non-moving party." Id. at 249, 106 S.Ct. at 2510-11. There is no issue for trial unless there is sufficient evidence favoring the non-moving party. If the evidence is merely colorable or is not significantly probative, summary judgment may be granted. Id. at 249-50, 106 S.Ct. at 2510-11. In a civil case, the question is:

whether a fair-minded jury could return a verdict for the plaintiff on the evidence presented. The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff.

Id. at 252, 106 S.Ct. at 2512.

The moving party who has the burden of proof on the issue at trial must establish all of the essential elements of the claim or defense for the court to find that the moving party is entitled to judgment as a matter of law. Fontenot v. Upjohn, 780 F.2d 1190, 1194 (5th Cir.1986); Calderone v. United States, 799 F.2d 254, 259 (6th Cir.1986); cf. High Tech Gays v. Defense Indus. Sec. Clearance Office, 895 F.2d 563 (9th Cir.1990) (discussing moving party's differing burdens when it bears burden of persuasion at trial, and when the non-moving party bears the burden of persuasion at trial). However, the moving party need not disprove matters on which the opponent has the burden of proof at trial. Celotex, 477 U.S. at 322, 106 S.Ct. at 2552. Thus, summary judgment is proper if the non-moving party fails to make a showing sufficient to establish the existence of an essential element of his case on which he will bear the burden of proof at trial. Id.

FACTS

Plaintiffs are educational facilities. Effective April 1, 1989, Defendant Federal Insurance Company hereinafter "Federal" issued a crime insurance policy to Plaintiffs. The policy provided coverage in the amount of $100,000.00 for employee theft subject to a $1,000.00 deductible. The policy's coverage limit was increased to $1,200,000.00 with a $25,000 deductible to be effective on and after November 14, 1991. Plaintiffs cancelled the policy effective April 1, 1992.

On June 16, 1992, Defendant Federal was advised by Plaintiffs that Anita Parker, the Accounting Manager in Plaintiff's Houston, Texas office, may have stolen money from the Plaintiffs. Subsequent investigation led to the determination that Ms. Parker had, in fact, stolen monies from Plaintiffs. Ms. Parker stole (1) $8,550.00 before the effective date of any policy between Plaintiffs and Defendant; (2) $310,666.72 between April 1, 1989 and November 13, 1991; (3) $20,678.00 between November 14, 1991 and April 1, 1992; and (4) $7,513.26 after April 1, 1992. Thus, Plaintiffs sustained a loss of $310,666.72 while they carried an insurance policy with $100,000.00 policy limit, and a $20,678.00 while they carried a policy with a $1.2 million limit, but with a $25,000.00 deductible.

Defendant paid the $100,000.00 policy limit to Plaintiffs on August 12, 1993 for the losses sustained between April 1, 1989 and November 13, 1991. Plaintiffs, however, wanted the $1.2 million policy limit provided by the November 14, 1991 increase to apply to all thefts occurring prior to the policy's April 1, 1992 termination date. Defendant disagreed, and Plaintiff filed suit.

DISCUSSION

I. THE GOVERNING POLICY PROVISIONS

The insurance policy expressly limits the policy's benefits to the policy limits in effect at the time the loss was sustained or the amount recoverable under the policy, whichever is the smaller. See Section 3.6 of the Policy. This section is clear an unambiguous and is therefore entitled to a construction consistent with the plain meaning of the terms. See, e.g., Thomas v. Liberty Mut. Ins. Co., 173 Ariz. 322, 325, 842 P.2d 1335, 1338 (Ct.App.1992); Mid-Century Ins. Co. v. Duzykowski, 131 Ariz. 428, 430, 641 P.2d 1272, 1274 (1982); Stearns-Roger Corp. v. Hartford Acc. & Indem. Co., 117 Ariz. 162, 571 P.2d 659 (1977).

The increased policy limit effective November 14, 1991 was issued with an endorsement which specifically provided that the increased amount of coverage would apply only to losses sustained on or after the effective date of the additional coverage provided by the endorsement. See Endorsement No. 7. Given the clear language of this provision, the Court may not "take the easy way out by inventing an ambiguity and then resolving it to find coverage where none exists under the policy." Security Ins. Co. of Hartford v. Andersen, 158 Ariz. 426, 428, 763 P.2d 246, 248 (Ct.App.1988).

II. LOSSES SUSTAINED

Federal's fidelity insurance policy is not an "occurrence" or "accident" based comprehensive general liability policy. Rather, it is a crime insurance policy which covers direct losses that stem from an employee's wrongful act. See generally State v. Glens Falls Ins. Co., 125 Ariz. 328, 609 P.2d 598 (Ct.App.1980).

Plaintiffs attempt to argue that the term "loss sustained" is ambiguous simply because it is not defined in the insurance contract. It is not. The "loss sustained" language in the policy is governed by the general rule of insurance law that a "loss" under a direct coverage crime insurance policy occurs when the insured parts with money due to the fraud or dishonesty of an employee. See, e.g., Pacific-Southern Mort. Trust Co. v. Insurance Co. of North Am., 166 Cal.App.3d 703, 710, 212 Cal.Rptr. 754, 757 (1985); Fidelity Sav. & Loan Ass'n v. Republic Ins. Co., 513 F.2d 954, 956 (9th Cir.1975); cf. First Am. Title Ins. Co. v. St. Paul Fire & Marine Ins. Co., 971 F.2d 215 (9th Cir.1991); California Union Ins. v. American Diversified Sav. Bank, 948 F.2d 556 (9th Cir.1991). Applying this rule to the present case, Anita Parker embezzled money from the Plaintiffs on a number of occasions. Each time she stole monies, the Plaintiffs "sustained" a "loss" within the plain and non-ambiguous meaning of the "loss sustained" provision in paragraph 3.6 of the insurance policy.

III. DOCTRINE OF REASONABLE EXPECTATIONS

A. The Doctrine Generally

It is well-settled law in Arizona that the terms of an insurance contract are to be strictly construed in favor of the insured and against the insurer. See, e.g., Roberts v. State Farm Fire & Cas. Co., 146 Ariz. 284, 705 P.2d 1335 (1985) (other citations omitted). As explained above, though, the policy provisions and endorsements in question in this case are unambiguous regarding the effective dates of the increased coverage even when strictly construed. Plaintiff attempts to get around the unambiguous provisions of the policy by invoking the doctrine of reasonable expectations. This doctrine, however, is not applicable to the facts and circumstances presented by this case.

In 1984, the Arizona Supreme Court adopted the principle that courts should adopt and honor the reasonable expectations of the insureds. See Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 140 Ariz. 383, 682 P.2d 388 (1984). This doctrine relieves an insured from certain standardized clauses of agreements which are not negotiated when the drafter has reason to believe that the insured would not have assented to the terms in question had he or she known of the terms. Gordinier v. Aetna Cas. & Sur. Co., 154 Ariz. 266, 742 P.2d 277 (1987). Application of this doctrine, however, is limited to certain circumstances. As the Darner court noted, "since most insureds develop a reasonable expectation that every loss will be covered by their policy, ... the reasonable expectation concept must be limited by something more than the fervent hope usually engendered by a loss." Millar v. State Farm Fire & Cas. Co., 167 Ariz. 93, 97, 804 P.2d 822, 826 (Ct.App. 1990) (citing Darner, 140 Ariz. at 390, 682 P.2d at 395), review denied, 168 Ariz. 144, 811 P.2d 1081 (1991). Thus, the insured's expectation of coverage must be objectively reasonable. Id.

B. Plaintiff's Alleged Lack of Adequate Notice

Plaintiff contends the doctrine of reasonable expectations should apply because they, as the insureds, did not receive full and adequate notice of the terms in question. See Gordinier, 742 P.2d at 284. There is simply no evidence to support this conclusory assertion....