Summit Real Estate Mgmt., LLC v. Mid-Century Ins. Co.

• Decision Date: 19 June 2019
• Docket Number: A163203
• Citation: 445 P.3d 905,298 Or.App. 164
• Parties: SUMMIT REAL ESTATE MANAGEMENT, LLC, an Oregon limited liability company, Plaintiff-Appellant, v. MID-CENTURY INSURANCE COMPANY, a California corporation, Defendant-Respondent, and Nielsen Insurance, Inc., an Oregon corporation, Defendant.
• Court: Oregon Court of Appeals

298 Or.App. 164

445 P.3d 905

SUMMIT REAL ESTATE MANAGEMENT, LLC, an Oregon limited liability company, Plaintiff-Appellant,

v. MID-CENTURY INSURANCE COMPANY, a California corporation, Defendant-Respondent,andNielsen Insurance, Inc., an Oregon corporation, Defendant.

A163203

Court of Appeals of Oregon.

Argued and submitted October 23, 2018.

June 19, 2019

Stephen M. Feldman, Portland, argued the cause for appellant. Also on the briefs was Perkins Coie LLP.

R. Daniel Lindahl, Portland, argued the cause for respondent. Also on the brief were Ronald J. Clark and Bullivant Houser Bailey PC.

Before Lagesen, Presiding Judge, and DeVore, Judge, and James, Judge.

DeVORE, J.

This appeal arises out of an insurance claim by Summit Real Estate Management, LLC, (Summit) for losses resulting from eight years of embezzlement by its longtime bookkeeper. Summit was insured during that period under annual policies issued by Mid-Century Insurance Company (Mid-Century) that covered "direct loss" from employee dishonesty, so long as the loss was discovered within one year from the end of the policy period. Notwithstanding that one-year discovery period, the "employee dishonesty" coverage also included what is known as a "prior insurance" provision, whereby Mid-Century agreed to pay for losses that occurred "during the period of any prior insurance" and that would have been covered "except that the time within which to discover loss or damage had expired."

The primary questions on appeal concern two different aspects of that employee dishonesty coverage. First, the parties disagree over the operation of the prior insurance provision. Summit argues that it provides continuous coverage for undiscovered losses dating back through multiple policy periods, while Mid-Century argues that "prior insurance" means immediately prior—in effect, a one-year lookback to the preceding annual policy period. Second, Summit argues that it was entitled to recover the costs of using its own employees and an outside audit to document its insurance claim, while Mid-Century contends that those costs were not "direct losses" within the meaning of the policies. The trial court agreed with Mid-Century on both issues, granted summary judgment in its favor, and denied Summit’s cross-motion for summary judgment. We, too, agree with Mid-Century’s construction of the policies, and we affirm the judgment.

We view the evidence and all reasonable inferences that may be drawn from the evidence in the light most favorable to the party against whom summary judgment was granted—in this case, Summit. See OHSU v. Oregonian Publishing Co., LLC , 362 Or. 68, 78-79, 403 P.3d 732 (2017) (applying that standard when reviewing the grant of summary judgment in the context of cross-motions). Because this appeal turns primarily on the meaning of provisions in insurance policies, which is a question of law, a relatively brief summary of the pertinent facts suffices to frame the issues.

Summit is a real estate management and investment company. For nearly 20 years prior to the events giving rise to this action, Summit had worked with Mid-Century’s authorized agent, Nielsen Insurance, Inc. (Nielsen), to procure insurance for Summit’s business. Among other types of insurance, Summit and Nielsen discussed coverage for acts of employee dishonesty.

In 2004, Nielsen procured that type of coverage for Summit under a multi-peril policy numbered 03494-37-34, which described explicitly a "policy period" that ran from August 1, 2004, to August 1, 2005. Given that, the declarations then stated,

"This policy will continue for successive policy periods as follows: If we elect to continue this insurance, we will renew this policy if you pay the required renewal premium for each successive policy period subject to our premiums, rules and forms then in effect."

(Boldface in original.) For the next three years, Summit paid the renewal premium and obtained employee dishonesty coverage under that same policy form (the "2004-08 Policy Form").

Beginning on August 1, 2008, Nielsen procured insurance for Summit under Mid-Century Policy Number 60466-70-72, which utilized a different multi-peril policy form. Like the previous form, the declarations in each successive year described a 12-month "policy period," then stated that the policy would continue for successive policy periods if renewed. Summit paid the renewal premiums and, for annual periods through August 1, 2013, obtained "employee dishonesty" coverage as an additional "optional coverage" under that multi-peril policy form (the "2008-13 Policy Form").

The 2008-13 Policy Form, which we later discuss in greater detail, provides that Mid-Century will "pay for direct loss of or damage to Business Personal Property and ‘money’ and ‘securities’ resulting from dishonest acts committed by any of your employees acting alone or in collusion with other persons," but that Mid-Century will "pay only for covered loss or damage discovered no later than one year from the end of the Policy Period." Those provisions are then followed by a paragraph governing "prior insurance." That paragraph obligates Mid-Century to pay for loss sustained "during the period of any prior insurance that you could have recovered under that insurance except that the time within which to discover loss or damage had expired," if (1) the optional employee dishonesty coverage "became effective at the time of cancellation or termination of the prior insurance" and (2) the loss would have been covered if the optional coverage had "been in effect when the acts or events causing the loss or damage were committed or occurred."

In July 2013, Summit discovered that its bookkeeper, Rodney Chun, had been embezzling from the company. Summit immediately notified Nielsen, which in turn notified Mid-Century of Summit’s claim of loss resulting from employee dishonesty. Mid-Century informed Summit that it would need to provide documentation verifying the embezzlement loss, and Nielsen advised Summit that an audit by an accounting firm would be the best and most effective means of complying with the documentation requirement. Summit engaged Williamson & Associates, LLP, an accounting firm, to perform an audit to determine the scope of the embezzlement. The audit determined that, between February 2005 and July 2013, Chun had stolen at least $ 856,700.

Summit submitted a formal proof of loss to Mid-Century, including a copy of the audit report. Summit sought reimbursement for the $ 856,700 that had been embezzled, for $ 25,245 that it paid for the audit, and for $ 8,000 in employee time spent investigating the embezzlement and assisting Williamson & Associates with the audit.

In response, Mid-Century agreed to cover $ 327,600 of Summit’s claim, representing payment only for those funds that were embezzled after August 1, 2010. Mid-Century determined that, because the embezzlement was not discovered until July 2013, two policies had been implicated by "loss or damage discovered no later than one year from the end of the Policy Period": the policy in effect from August 1, 2011 to August 1, 2012, and the policy in effect from August 1, 2012 to August 1, 2013. Mid-Century agreed to pay for losses that occurred during those periods and further agreed that, under the prior insurance provision in the policy in effect from August 1, 2011 to August 1, 2012, Summit was also entitled to recover for losses that would have been covered under insurance in effect for the policy period from August 1, 2010 to August 1, 2011. Mid-Century denied coverage for any embezzlement that occurred in previous policy periods (i.e. , everything before August 1, 2010). Mid-Century also denied coverage for the amounts Summit sought for the audit and for its own employee time; as for those amounts, Mid-Century told Summit that "there is no coverage provided in the policy for your expenses in order to determine the amount of your loss. The [employee dishonesty coverage] only covers the direct loss" whereas "[y]our expenses are the indirect costs related in determining the amount of your claim."

Summit initiated this action to recover the unreimbursed parts of its claim.¹ The parties eventually filed cross-motions for summary judgment in which they advanced opposing views of the coverage under the various policies. Summit argued (1) that the policy provisions on which Mid-Century relied to restrict coverage were "invalid and unenforceable" because they violated ORS 742.246(2), which states that "[a]ny provision restricting or abridging the rights of the insured under the policy must be preceded by a sufficiently explanatory title printed or written in type not smaller than eight-point capital letters"; (2) even if valid and enforceable, the prior insurance provision was ambiguous and should therefore be interpreted to continuously extend the discovery period for employee dishonesty; (3) if not ambiguous in that regard, the policies should nonetheless be treated as providing continuous coverage based on representations by Nielsen, which were binding on Mid-Century; and (4) in any event, expenses incurred by Summit in verifying its losses were "very much a ‘direct loss’ resulting from Mr. Chun’s embezzlement" that Mid-Century was obligated to cover.

Mid-Century, on the other hand, argued that the requirement of an explanatory title under ORS 742.246(2) was inapplicable to the employee dishonesty coverage; that the policies unambiguously restricted coverage based on when the losses were discovered; that Nielsen made no representations to support an "insurance by estoppel" theory; and that Summit’s investigative costs were not the "direct loss of ‘money’ " within the meaning of the employee dishonesty coverage. The trial court agreed with Mid-Century in each of those respects, and it granted summary judgment in its favor and denied Summit’s cross-motion.

Summit appeals the resulting judgment, assigning error to the trial court’s rulings on the cross-motions...