Thornburgh Insulation v. J.W. Terrill

• Decision Date: 18 September 2007
• Docket Number: No. ED 89056.,No. ED 89043.,ED 89043.,ED 89056.
• Citation: 236 S.W.3d 651
• Parties: THORNBURGH INSULATION, INC., J.T.J.R., Inc., Thornburgh Abatement, Inc., Insulation Installments, Inc., and Firestop Technologies, Inc., Plaintiffs-Respondents, v. J.W. TERRILL, INC., and Travelers Indemnity Company, Defendant-Appellant.
• Court: Missouri Court of Appeals

236 S.W.3d 651

THORNBURGH INSULATION, INC., J.T.J.R., Inc., Thornburgh Abatement, Inc., Insulation Installments, Inc., and Firestop Technologies, Inc., Plaintiffs-Respondents, v. J.W. TERRILL, INC., and Travelers Indemnity Company, Defendant-Appellant.

No. ED 89043.

No. ED 89056.

Missouri Court of Appeals, Eastern District, Division One.

September 18, 2007.

Motion for Rehearing and/or Transfer to Supreme Court Denied October 18, 2007.

Application for Transfer Denied November 20, 2007.

Michael Leslie Young, Gerard Thomas Noce, St. Louis, MO, Scott L. Schmookler, Randall Marmor, Chicago, IL, for Defendant-Appellant.

Stefen J. Glynias, St. Louis, MO, for Plaintiffs-Respondents.

KENNETH M. ROMINES, Judge.

Introduction

Travelers Indemnity Company ("Travelers") appeals the judgment of the Circuit Court of St. Louis County, the Honorable Melvyn W. Wiesman presiding, in which the court granted summary judgment in favor of Respondents J.T.J.R., Inc. ("JTJR") and Thornburgh Insulation, Inc. ("Thornburgh") (collectively referred to as "the Companies"), on the Companies' breach of contract claim. The Companies cross-appeal the trial court's entry of summary judgment against them on their vexatious refusal to pay claim under RSMo. section 375.420 (2000).¹ This case turns on the definition of the term "occurrence" within the insurance policy provisions for employee dishonesty coverage at issue. This precise issue has not yet been addressed in Missouri. For the reasons set forth below, we reverse in part and affirm in part.

Factual and Procedural Background

The Companies are two Missouri corporations, both owned by Mr. and Mrs. John and Christine Thornburgh. The Companies are both in the insulation and construction industry, and each handles a different type of insulation. Travelers is a foreign insurance company authorized to do business in Missouri. In 2001, the Companies each separately purchased commercial crime policies from Travelers through their independent insurance broker. The policies are substantively similar, and they contain identical coverage for employee dishonesty. The policies' limit of liability for each "occurrence" of employee dishonesty is $50,000. The policies define "occurrence" as:

[A]ll loss caused by or involving, one or more `employees,' whether the result of a single act or series of acts.

This case arises from the application of the above policy language to the following events. JTJR employed Ms. Linda Simmons as its office manager and bookkeeper. JTJR paid her salary directly. Ms. Simmons also periodically did work for Thornburgh, as the companies often shared employees when needed. Thornburgh never directly compensated Ms. Simmons, but Thornburgh reimbursed JTJR for the wages Simmons earned while performing work for Thornburgh.

From 2000 through 2002, Ms. Simmons embezzled money from both JTJR and Thornburgh. She did so by making out a series of company checks to either of two fictitious corporations, applying the signature stamp of one of the owners, John or Christine Thornburgh, and depositing them into a bank account that she personally controlled. Ms. Simmons issued 37 fraudulent checks drawn on Thornburgh's account, resulting in an aggregate loss of $745,800; and 26 fraudulent checks drawn on JTJR's account, resulting in an aggregate loss of $508,350.

John Thornburgh discovered this embezzlement scheme on 19 November 2002. He notified Travelers on 25 November 2002 of the Companies' intention to seek recovery for the entire amount of loss to each company under the employee dishonesty provisions of the policies. In the following months, Travelers and Mr. Thornburgh exchanged correspondence and information regarding the claims for the purpose of Travelers' investigation of the claims. In July 2003, Travelers retained Studler, Doyle & Company, LLC ("SDC"), a forensic accounting firm, to conduct an independent investigation of the Companies' claims. SDC thereafter requested information regarding the claims from John Thornburgh, who replied that he had sent all of the information to Travelers already and he would not be sending anything more to SDC. On 29 July 2003, SDC sent reports to Travelers which confirmed the amounts of loss sustained by each company and the policies' limit of liability of $50,000 per occurrence of employee dishonesty. SDC did not reach a conclusion about whether Ms. Simmons was an "employee" of Thornburgh under the language of the policy, but SDC did note that her salary was paid by JTJR. Based on this report, Travelers issued a check for $50,000 to JTJR on 19 September 2003. Travelers later issued a check for $50,000 to Thornburgh on 16 October 2003.

The Companies sued under a breach of contract theory to recover the remainder of their losses, asserting each check was a separate occurrence of employee dishonesty and therefore they should recover the amount of loss up to $50,000 for each check. The Companies also sued under RSMo. section 375.420, claiming that Travelers' refusal to indemnify the Companies for each of Ms. Simmons' fraudulent checks, along with its delay and behavior in investigating the Companies' claims, warranted penalty under this statute.

On 19 July 2006, the Companies moved for summary judgment on their claims. Travelers responded by arguing that Ms. Simmons was not an employee of Thornburgh, and even if she was, Travelers had already fulfilled its obligations to both JTJR and Thornburgh through its payments of $50,000 to each. Travelers also moved for summary judgment as to all counts. On 5 October 2006, following a hearing, the trial court granted the Companies' motion for summary judgment and ordered Travelers to pay the full amount of loss to each company. As to the statutory vexatious refusal to pay claim, the trial court granted Travelers' motion for summary judgment. Travelers later moved the trial court to amend the judgment and reduce the award to the Companies, arguing that the Companies had recovered a portion of their losses through a settlement with their former accountants and former bank.² The trial court denied this motion.

Travelers raises three points on appeal: 1) that Ms. Simmons' entire embezzlement scheme constituted one "occurrence" under the policy, and therefore the limit of liability to Travelers is $50,000; 2) that Ms. Simmons was not an "employee" of Thornburgh as defined by the policy, and therefore Travelers owes no indemnity to Thornburgh; and 3) in the alternative, the judgment should be reduced by the amount the Companies recovered through their settlement. The Companies cross-appeal the trial court's grant of summary judgment on their statutory claim.

Standard of Review

We review the grant of a motion for summary judgment de novo. Am. Standard Ins. Co. v. Hargrave, 34 S.W.3d 88, 89 (Mo. banc 2000) (citing ITT Commercial Fin. Corp. v. Mid-Am. Marine Supply Corp., 854 S.W.2d 371, 376 (Mo. banc 1993)). We view the record in the light most favorable to the party against whom judgment was entered, giving the nonmovant the benefit of all reasonable references from the record. Id. Summary judgment is appropriate if there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. Id.

Discussion

Definition of "Occurrence"

Travelers' first point on appeal requires us to construe the term "occurrence" in the commercial crime policy at issue. "If a term within an insurance policy is clearly defined, the contract definition controls," State Farm Mut. Auto. Ins. Co. v. Ballmer, 899 S.W.2d 523, 525 (Mo.1995); and the general rules of construction do not apply. Am. Family Mut. Ins. Co. v. Ward, 789 S.W.2d 791, 795 (Mo. banc 1990). "An ambiguity exists when there is duplicity, indistinctness, or uncertainty in the meaning of the language in the policy. Language is ambiguous if it is reasonably open to different constructions." Krombach v. Mayflower Ins. Co., 827 S.W.2d 208, 210 (Mo. banc 1992). However, the fact that the parties disagree as to the meaning of the policy does not give rise to an ambiguity. Sanders v. Wallace, 884 S.W.2d 300, 302 (Mo.Ct.App.E.D.1994).

As noted above, the insurance policies define "occurrence" as "all loss caused by or involving, one or more `employees,' whether the result of a single act or series of acts." The Companies posit that because each fraudulent check required a series of actions including writing out the check, stealing the signature stamp, applying the signature stamp, and depositing the check, then this "series of acts" is one "occurrence."

We disagree. The definition makes clear that an "occurrence" consists of "all loss" caused by an employee (emphasis added). The Companies would have us determine that this plainly means each loss caused by Ms. Simmons, despite the facts that the issuance of each check was part of an overall scheme of embezzlement and each was carried out in a similar fashion.³ Other courts that have dealt with this issue have found identical policies to be unambiguous. Wausau Bus. Ins. Co. v. U.S. Motels Management, Inc., 341 F.Supp.2d 1180, 1184 (D.Colo.2004); Bethany Christian Church v. Preferred Risk Mut. Ins. Co., 942 F.Supp. 330, 334 (S.D.Tex.1996). See also Diamond Transp. Sys., Inc. v. Travelers Indem. Co., 817 F.Supp. 710 (N.D.Ill.1993). These courts also focus on the cause of the loss, finding that losses incurred through a common cause constitute one occurrence under the plain language of the definition. Wausau, 341 F.Supp.2d at 1183-84 (citing Bus. Interiors, Inc. v. Aetna Cas. & Sur. Co., 751 F.2d 361 (10th Cir.1984)) ("Under this standard, the question is not whether the employee's various methods of embezzling were related, ... but whether the cause of the loss was related"). See also Appalachian Ins. Co. v. Liberty Mut. Ins. Co., 676 F.2d 56, 61 (3d Cir.1982) ("The general rule is that an occurrence is determined by the cause or causes of the resulting injury.").

We similarly find no...