Ran-Nan Inc. v. General Accident Insurance Co. of America

REVISED - June 14, 2001
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________________
No. 00-11034
_______________________
RAN-NAN INC., doing business as Vinces Imports, doing
business as Guy’s Drive In #3,
Plaintiff-Appellee,
versus
GENERAL ACCIDENT INSURANCE COMPANY OF AMERICA,
also known as CGU Insurance Company,
Defendant-Appellant.
_________________________________________________________________
Appeal from the United States District Court
for the Northern District of Texas
_________________________________________________________________
May 24, 2001
Before JONES, DeMOSS and BENAVIDES, Circuit Judges.
Per Curiam:
This contractual dispute arises from an “Employee
Dishonesty Coverage” insurance policy issued by Appellant General
Accident Insurance Company (“General Accident”) to Appellee Ran-
Nan, Inc. (“Ran-Nan”). The district court concluded that Ran-Nan
was the victim of two separate “occurrences” of employee dishonesty
and that General Accident had breached the insurance contract by
refusing to compensate Ran-Nan for both incidents. Because the
district court properly interpreted the term “occurrence” under
Texas law, we affirm.
Ran-Nan operates a convenience store in Plano, Texas,
which includes a Western Union and check cashing business. Ran-
Nan purchased Employee Dishonesty Coverage blanket insurance
policies issued by General Accident. Each policy had a limit of
$25,000 with a $500 deductible. The events in question occurred
over the course of policies running from April 10, 1996 to April
10, 1997 (the fourth renewal policy) and from April 10, 1997 to
April 10, 1998 (the fifth renewal policy).
Toward the end of 1997, Ran-Nan’s owners became aware
that the store was the victim of employee dishonesty and submitted
a claim to General Accident. Two Ran-Nan employees, Robert Griffis
and Angela Patillo, caused losses through entirely independent
thefts. Robert Griffis stole a total of $32,250.00, and Angela
Patillo stole a total of $31,600.00. The thefts occurred during
both the fourth and fifth renewal periods in approximately
proportionate amounts.
In response to Ran-Nan’s claim, General Accident paid the
policy limit less the deductible on the fifth renewal, but it
refused to pay anything on the fourth renewal despite the fact that
much of the theft had occurred during the earlier policy period.
General Accident reasoned that there had only been one “occurrence”
of employee dishonesty within the meaning of the policy.
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Ran-Nan sued General Accident for breach of contract1 and
General Accident removed the case to federal district court on
diversity grounds. The district court held that there were two
separate “occurrences” of employee dishonesty and that Ran-Tan was
entitled to recover for both. It therefore awarded Ran-Nan the
amount due under the fourth renewal policy. General Accident now
appeals.
DISCUSSION
The interpretation of the word “occurrence” as used in
the insurance contract is a question of law. See Rutgers State
Univ. v. Martin Woodlands Gas Co., 974 F.2d 659, 661 (5th Cir.
1992). This court reviews questions of law de novo. See Empire
Fire and Marine Ins. Co. v. Brantley Trucking Co., 220 F.3d 679
(5th Cir. 2000). In this diversity case governed by Texas law, an
insurance contract is analyzed by the same rules as other
contracts. Upshaw v. Trinity Cos., 842 S.W.2d 631, 633 (Tex.
1992). While “occurrence” has often been construed in general
liability policies, there appear to be few cases interpreting the
term in employee dishonesty policies.
The General Accident policy, like many similar policies,
states that an “occurrence” is “all loss caused by, or involving,
1
Ran-Nan also asserted a bad faith denial of coverage, but it
has not cross-appealed the district court’s adverse summary
judgment on that claim.
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one or more ‘employees,’ whether the result of a single act or
series of acts.”
In arguing that there was but one “occurrence” of
employee dishonesty. General Accident urges that there was only
one loss, specifically Ran-Nan’s loss of a single sum of cash. The
company also argues that the “involving one or more employees”
clause of the “occurrence” definition means that regardless how
many employees steal from the insured, there was only one loss of
cash and therefore only one “occurrence.” The more natural reading
of the policy, however, is that the “involving” clause signifies
that a group of employees conspiring together to steal.
General Accident invokes Bethany Christian Church v.
Preferred Risk Mutual Insurance Company, 942 F. Supp. 330, 335 (S.D.
Tex. 1996) (applying Texas law), in which a federal magistrate
judge found that a church employee’s series of thefts of cash over
the course of three different renewal periods of an employee
dishonesty insurance policy was a single “occurrence.” The
policies in Bethany and in this case contained identical
definitions of “occurrence.” We find this case distinguishable.
First, Bethany is critically different from this case
because it involved a series of thefts by a single employee,
whereas the present dispute involves independent pilfering schemes
by two different employees working separately. To accept General
Accident’s proffered definition of “occurrence” this court would
have to find that the independent nature of these two series of
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thefts is irrelevant and that one loss with two unrelated causes is
one “occurrence.” The more natural reading of the policy, however,
is that the “involving” clause signifies a group of employees
conspiring together to steal is a single “occurrence.”
Second, Texas law does not support the definition of
“occurrence” proffered by General Accident because “the proper
focus in interpreting ‘occurrence’ is on the events that cause the
injuries and give rise to the insured’s liability, rather than on
the number of injurious effects.” H.E. Butt Grocery Co. v.
National Union Fire Insurance Co., 150 F.3d 526, 530 (5th Cir.
1998) (applying Texas law). The few Texas cases that have
addressed this issue apply a “cause” analysis in determining
whether a set of facts involves one or several occurrences. See
Goose Creek Consol. ISD v. Continental Cas. Co., 658 S.W.2d 338,
339 (Tex. App. 1983--Houston [1st Dist.], no writ) (holding that
“where there are two fires at two different places with two
separate causal factors, there are two loss occurrences.”). This
“cause” approach to analyzing the number of “occurrences” is
utilized by the great majority of courts and jurisdictions
nationwide. See Transport Insurance Co. v. Lee Way Motor Freight,
Inc., 487 F. Supp. 1325, 1330 (N.D. Tex. 1980) (cataloging law of
other jurisdictions). This court has also utilized the “cause”
method when determining the number of “occurrences” under a general
liability insurance policy and Texas law. Maurice Pincoffs Co. v.
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St. Paul Fire and Marine Insurance Co., 447 F.2d 204, 206 (5th Cir.
1971).
General Accident contends that decisions utilizing
“cause” analysis such as H.E. Butt and Maurice Pincoffs are
distinguishable as construing of general liability insurance
policies instead of employee dishonesty insurance policies. Not
only does the company neglect to cite any authority supporting this
contention, but it also fails to explain why, in determining the
number of “occurrences”, employee dishonesty policies are different
than general liability policies. It is true that no Texas case
specifically applies “cause” analysis to employee dishonesty
policies, but this widely accepted method for calculating the
number of “occurrences” is consistent with the general principles
of Texas law.
On the facts before us, two independent causes exist for
Ran-Nan’s total loss. Because there are two causes, there have
been two “occurrences” of employee dishonesty. Ran-Nan is entitled
to recover for both occurrences. The district court correctly
concluded that Ran-Nan should be awarded $24,500 for the
“occurrence” during the fourth renewal period of the policy in
addition to the $24,500 already paid to Ran-Nan for the
“occurrence” during the policy’s fifth renewal period. The
district court’s judgment is therefore AFFIRMED.
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