Southeast Bakery Feeds, Inc. v. Ranger Ins. Co., 73363

Citation974 S.W.2d 635
Decision Date11 August 1998
Docket NumberNo. 73363,73363
PartiesSOUTHEAST BAKERY FEEDS, INC., Carolina Bakery Feeds Inc., and Bakery Feeds Corp., Plaintiffs/Respondents, v. RANGER INSURANCE COMPANY, Defendant/Appellant.
CourtCourt of Appeal of Missouri (US)

Ronald C. Willenbrock, Amelung, Wulff & Willenbrock, P.C., Julie S. Paez, St. Louis, for defendant/appellant.

Steven H. Schwartz, Brown & James, P.C., John P. Rahoy, St. Louis, for plaintiffs/respondents.

CRANE, Presiding Judge.

Plaintiffs, insured corporations, were refused coverage under the Employee Dishonesty Coverage Form of two commercial crime policies because they did not discover an employee's theft until more than one year after the policies expired. The trial court entered summary judgment in plaintiffs' favor on their breach of contract claim against insurer on the grounds that the policies were "occurrence" policies and insurer was not prejudiced by the late discovery. We reverse and remand on the grounds that these policies were not "occurrence" liability policies, but were indemnity policies which validly limited insurer's liability to losses discovered within one year after the policies expired. Accordingly, the policies did not cover a claim which plaintiffs discovered more than one year after the policies expired.

The material facts are undisputed. Plaintiffs, Southeast Bakery Feeds, Inc., f/k/a Southeast By-Products, Inc., Carolina Bakery Feeds, Inc., and Bakery Feeds Corp. are foreign corporations with an office in the City of St. Louis, Missouri. On September 20, 1989 defendant, Ranger Insurance Company [Ranger], issued policy No. GPP 30 19 22 to plaintiffs, which expired on September 20, 1990. On September 20, 1990 Ranger issued policy No. GPP 30 32 14, which expired on September 20, 1991. Both policies were Commercial General Liability policies. Commercial Crime Coverage, which included an Employee Dishonesty Coverage Form, was added to the first policy on June 12, 1990 and was included in the second policy which expired on September 20, 1991. Plaintiffs eliminated this coverage in subsequent policies.

The Crime General Provisions Form of the Commercial Crime Coverage Part contained the following conditions applicable to all crime coverage forms contained within the policies:


. . . . .

3. Discovery Period for Loss: We will pay only for covered loss discovered no later than one year from the end of the policy period.

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....

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

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


6. Legal Action Against Us: You may not bring any legal action against us involving loss:

a. Unless you have complied with all the terms of this insurance; and


c. Unless brought within 2 years from the date you discover the loss.


13. Policy Period


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

Between June 12, 1990 and September 20, 1991, while the Commercial Crime Coverage was in effect, John Pankey, plaintiffs' controller, obtained approximately $163,325.00 from plaintiffs by preparing and cashing multiple forged checks. On April 29, 1994 plaintiffs filed a Property Loss Notice with Ranger notifying it of the loss. Ranger subsequently refused to pay plaintiffs' claim on the ground that plaintiffs failed to comply with the discovery and notice provisions contained in their last Ranger policy with Employee Dishonesty Coverage.

Plaintiffs filed a breach of contract action against Ranger to recover the amount they lost as a result of an employee's dishonesty. 1 The parties filed cross-motions for summary judgment on the contract claim. The trial court granted summary judgment in plaintiffs' favor in the amount of $163,325.11. In its Memorandum, Order and Judgment, the court determined that the policies were "occurrence" policies under which the insurer must show prejudice from a delay in reporting the loss in order to deny coverage. It further found that Ranger had not shown prejudice. Ranger appeals from this judgment.

For its sole point on appeal, Ranger asserts that the trial court misinterpreted the discovery clause in the policies. It argues that the discovery clause as set out in the Crime General Provisions Form only provided coverage for losses discovered within one year from the end of the policy period irrespective of whether or not it was prejudiced by plaintiffs' late discovery.

We review this appeal from summary judgment de novo. ITT Commercial Fin. Corp. v. Mid-Am. Marine Supply Corp., 854 S.W.2d 371, 376 (Mo. banc 1993). Where the underlying facts are not in question, disputes arising from the interpretation and application of insurance contracts are matters of law for the court. Pakmark Corp. v. Liberty Mut. Ins. Co., 943 S.W.2d 256, 258 (Mo.App.1997).

Under Missouri law the insured has the burden of showing by substantial evidence that its claim falls within the coverage provided by the insurance contract. Grossman Iron & Steel Co. v. Bituminous Cas. Corp., 558 S.W.2d 255, 259 (Mo.App.1977). Unless an ambiguity exists, we must enforce the policy as written, giving the language of the policy its ordinary meaning. Krombach v. Mayflower Ins. Co., Ltd., 827 S.W.2d 208, 210 (Mo. banc 1992). An ambiguity exists where the language in a policy is reasonably and fairly open to different constructions. Id. However, "[a] construction or interpretation of an insurance policy which entirely neutralizes one provision should not be adopted if the contract is susceptible of another construction which gives effect to all its provisions and is consistent with the general intent." Dent Phelps School Dist. v. Hartford Ins., 870 S.W.2d 915, 920 (Mo.App.1994).

Ranger argues that the discovery clause is unambiguous and requires plaintiffs to discover any covered losses no later than one year from the end of the policy period, that is, no later than September 20, 1992, in order for the loss to be covered. Courts have given this meaning to this clause as it appears in commercial crime policies. See A.B.S. Clothing Collection, Inc. v. The Home Ins. Co., 34 Cal.App.4th 1470, 1484, 41 Cal.Rptr.2d 166, 174 (1995); Reliance Ins. Co. v. Treasure Coast Travel Agency, 660 So.2d 1136, 1137 (Fla.App. 4 Dist.1995); Boomershine Pontiac v. Globe Indem. Co., 219 Ga.App. 842, 466 S.E.2d 915, 918 (1996). See also Block v. Granite State Ins. Co., 963 F.2d 1127, 1128 (8th Cir.1992) (applying Missouri law) (holding summary judgment in favor of the insurer appropriate on coverage issue where the insured failed to show discovery within coverage deadline).

Plaintiffs first respond that they discovered the loss within the policies' time limits because the parties stipulated that Pankey, the dishonest employee, discovered the loss when he issued the forged checks. Plaintiffs contend that the discovery clause is ambiguous because, unlike other clauses in the contract which are specifically addressed to the insured, the discovery clause fails to state "who" must discover the loss. Accordingly, they argue, the clause should be read to allow a dishonest employee's knowledge of his or her own unauthorized acts to be imputed to the company. We disagree.

In construing an insurance policy, we look at the contract as a whole and consider the language in the context of the policy. Sanders v. Wallace, 884 S.W.2d 300, 303 (Mo.App.1994). In General Condition 3, the discovery clause, "discovered" is used as an adjective to describe the covered loss. When "discover" is used as a verb in the same crime coverage form, in relation to loss, the subject is "you." See General Condition 4, "Duties in the Event of Loss" (listing the insured's duties "After you discover a loss or situation ..."). See also General Condition 6, "Legal Action Against Us" (requiring the insured to bring any legal action against Ranger within two years "from the date you discover the loss[ ]"). In this context losses "discovered," as used in General Condition 3, are the losses which "you" discovered. The policy states that the word "you" refers to the named insured as shown in the Declarations. The named insureds are the plaintiff corporations. An employee's undisclosed knowledge of his or her own unauthorized acts is not imputed to the employer corporation. Southwest Bank of Polk County v. Hughes, 883 S.W.2d 518, 524 (Mo.App.1994). Thus, the discovery clause does not cover losses discovered by the dishonest employee during the discovery period, but only covers those losses timely discovered by the named insured.

Plaintiffs next respond that the trial court correctly held that the policy is an "occurrence," as opposed to a "claims made," policy and the loss was therefore covered unless Ranger demonstrated prejudice from the late discovery. Again we disagree.

The distinction between "occurrence" and "claims made" policies is significant in the following context. In Missouri, as in other states, courts have rejected a strict contractual analysis of the notice provisions in certain liability insurance contracts. Weaver v. State Farm Mut. Auto. Ins. Co., 936 S.W.2d 818, 821 (Mo. banc 1997). Thus, late notice of a claim under an "occurrence" policy does not defeat coverage unless the insurer proves it was prejudiced by the late notice. Id. at 819-20. An "occurrence" policy covers negligent acts or omissions occurring within the policy period, regardless of when the negligent acts or omissions are discovered or the claim is made. Continental Cas. Co. v. Maxwell, 799 S.W.2d 882, 886 (Mo.App.1990); Insurance Placements, Inc. v. Utica Mut....

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