No Coverage Available Under Crime Policy for Losses Not Discovered “During the Policy Period”

The United States District Court for the Eastern District of Pennsylvania has held that where an occurrence-based crime policy covers only losses discovered “during the Policy Period,” no coverage is available for losses discovered after the policy period concluded, despite the fact that a prior policy issued to the insured contained a discovery period extending beyond the termination of the policy.  Wescott Electric Co. v. Cincinnati Ins. Co., 2018 WL 1210543 (E.D. Pa. Mar. 8, 2018).  Furthermore, where the policy defines one “occurrence” as a “series of acts whether or not related,” multiple employee thefts over ten years constitute a single occurrence.

A former employee of the insured stole several million dollars from the company between 2003 and 2013.  During the ten-year period of the theft, the company maintained four consecutive crime and fidelity insurance policies.  The 2004 and 2007 policies provided coverage for any loss up to a year after the policy period, but the 2010 and 2013 policies required the loss to be discovered during the respective policy period.  The company discovered the theft during the 2013 policy period, and the insurer paid the 2013 policy limit for a single “occurrence” of employee theft.  The company sued the insurer, arguing that (1) coverage for the thefts was also available under the 2010 policy; and (2) the employee’s theft constituted more than one “occurrence” under the policies.

On summary judgment, the court held in favor of the insurer.  First, the court concluded that no coverage was available under the 2010 policy because the plain language of the policy stated that it covered only losses discovered “during the Policy Period,” and the company had discovered the losses several months after the policy period ended.  In so holding, the court rejected the insured’s argument that the policy should be reformed to include the discovery period contained in the 2004 and 2007 policies because the insured “reasonably expected” that policy would contain the same provision.  The court reasoned that the relevant language was “conspicuously displayed” in the policy and “could not be clearer,” the insurer had provided notice of the change in terms before the policy went into effect, and the insured did not establish that it ever requested the 2010 policy contain a discovery period.

Second, the court concluded that the employee thefts constituted a single “occurrence” because the definition of “occurrence” contained in both the 2010 and 2013 policies, defining “occurrence” as “a series of acts whether or not related . . . committed by an employee” was clear and unambiguous.