Multiple Thefts Under One Scheme Restricts Property Claim to One “Occurrence” Policy Limit, But Subjects Recovery to Single Deductible

In a partial trade-off, a U.S. District Court in California ruled that a series of storage facility thefts, all committed as part of one criminal scheme, qualified as a claim for a single “occurrence” property insurance policy limit, but that the scheme made the loss payment subject to reduction by only one policy deductible. The decision, filed June 9, 2016, is entitled Patterson v. American Economy Insurance Company, and is reported at 2016 U.S. Dist. LEXIS 75538.

Plaintiffs maintained a storage facility in Fresno with inventory from their former gift store, which they intended to operate again. Christopher Ramage was arrested and convicted of the theft. He admitted that he broke into the storage facility and stole plaintiffs’ property on at least three different occasions between July 6-19, 2012, without interruption from the proprietor or changes in the building or property. As a result of the theft, Ramage owed plaintiffs $351,330 for their loss, the amount of their insurance claim.

American Economy Insurance Company issued plaintiffs an insurance policy stating, “the most we will pay for the loss or damage in any one occurrence is the applicable Limit of Insurance of Selection 1.” The insurer paid plaintiffs $103,000, the policy limit for one occurrence, but refused to pay the $248,330 balance of their loss. Plaintiffs sued the insurer for the rest of their loss. Each side of the litigation moved for summary judgment based on whether or not the claim triggered the policy limit for a single occurrence or for three occurrence limits based on at least three separate thefts. The court found that the scheme to steal property was one continuing cause of loss, which was one “occurrence” under the policy. Accordingly, the court granted the motion of the insurance company and denied that of the policyholders.

Plaintiffs’ contention that there were multiple occurrences was supported by Ramage’s sentencing hearing admission that the heist required at least two, 16 feet moving vans to haul the stolen property away from the building. So, according to the plaintiffs, the loss had to involve multiple thefts, taking place on different occasions, using different tools and perhaps perpetrated by multiple thieves.

Defendant insurer, on the other hand, argued that the single cause of plaintiffs’ loss was Ramage’s scheme to break into the plaintiffs’ building to steal their merchandise. Defendants argued that this conduct constituted but one continuing criminal plan to steal plaintiffs’ property, constituting a single occurrence under the policy. Defendant contended that it made no difference whether Ramage entered the building three times or more over the course of thirteen days, as the loss of property resulted from a single cause, the scheme to commit theft. Furthermore, the insurer contended, it made no difference whether Ramage acted alone or as part of a group of thieves, so long as they worked together as part of a common plan to carry out the thefts. Accordingly, defendant argued, as a matter of law all of the theft events were no more than a single occurrence under the policy. Under the policy language quoted above, defendant insisted, only $103,000 was payable to plaintiffs for their loss – less a single occurrence deductible of $2,500.

For guidance, the court examined three leading cases that had presented courts in California with related issues. The first and most important case was EEOT Energy Corp. v. Storebrand Int’l, Ins. Co. (1996) 45 Cal.App. 4th 563. In that case the Court of Appeal considered whether a $1.5 million loss suffered as a result of over 650 thefts of gasoline constituted one or 650 “occurrences” under the deductible clause of the policy. The value of the property taken in any single theft did not exceed the policy’s $100,000 deductible. There was evidence of a systematic and organized scheme to steal the fuel, so that the term “occurrence” as used in the deductible clause of the policy could encompass multiple claims all due to the same or related causes.

The court in EEOT Energy Corp, in turn, reviewed a number of cases considering the issue and adopted the following rule: “[W]hen a scheme to steal property is the proximate and continuing cause of a series or combinations of thefts, the losses for liability insurance purposes constitute part of a single occurrence.” (The court in EEOT Energy Corp clarified that the same principle applies to first party property policies, too.) Thus, the court in EEOT Energy Corp stated that, provided EEOT, the plaintiff, could establish that it was the victim of a single, systematic and organized scheme to steal its fuel products, and that that scheme was the proximate cause of EEOT’s $1.5 million loss, there would be only one occurrence under the policy, subject to a single deductible of $100,000.

Another decision applying a similar standard was Budway Enterprises, Inc. v. Federal Ins. Co., 2009 U.S. Dist. LEXIS 31584. The court in Budway dismissed an insured’s breach of contract claim against its insurer for failure to allege at least two separate causes of theft from a freight yard of two tractors and trailers filled with aluminum shipments. The insurance policy indemnified the policyholder up to $100,000 per occurrence for loss or damage to freight being transported by the insured, a common carrier. The policyholder submitted a loss and damage claim totaling $150,000. It was unknown whether the thefts occurred at the same or different times. In limiting the claim recovery to $100,000 for a single occurrence, the court adopted the “cause standard” which holds that “occurrence” means the cause of the injury, not the injury or claim itself.

Applying the “cause standard” to multiple thefts can lead to contradictory results, however. Thus, the court in B.H.D, Inc. v. Nippon Ins. Co. of Europe, LTD. (1996) 46 Cal.App. 4th 1137, 1141-1143 attempted unconvincingly to explain its multiple occurrence holding in a jewelry theft case. The B.H.D. court applied the cause standard, but the court found that theft of $117,280 in merchandise from a jewelry store over a three month period by one person constituted multiple occurrences. In that case the thief visited the store two or three times a week. Each time she stole items by dropping them into her purse when the salesperson was distracted. The Court of Appeal in B.H.D. affirmed summary judgment for the insurer, holding that each time the thief stole jewelry, it counted as a separate occurrence under the deductible clause. The court tried explaining:

“While the thefts were similar [to each other], each was a completed crime that would have supported a separate count in a criminal proceeding and separate punishment. This is not a case in which the thief had a general overall plan to steal a particular item or amount, or where he or she took advantage of a position of trust to embezzle an aggregate amount over an extended period. [The thief] clearly intended to steal jewelry from [the policyholder], but each time she entered its store, purloined items displayed to her while the salespersons'[sic] attention was distracted, and left the premises with stolen merchandise, she completed a separate crime.” (46 Cal.App.4th at p. 1142.)

Of course, in the Patterson case each time Ramage entered the storage facility and removed property, he completed a separate crime.

The court in B.H.D., the jewelry case, distinguished EEOT, the petroleum case, on two separate grounds. First, unlike B.H.D., there was evidence in EEOT of a systematic, organized scheme. Secondly, but begging the question of the number of “occurrences” that took place, the policy in EEOT contained a provision suggesting aggregation of multiple claims into one occurrence. The EEOT policy stated, “all claims. . . arising out of any one occurrence shall be adjusted as one claim.” In B.H.D. no such clause was contained in the policy.

The court in Patterson started with dictionary definitions of the term “occurrence” but found that led to no definitive result. The court next looked to the reasonable expectation of the parties, which it found provided greater insight when evaluated in the context of the deductible. In discussing deductible, the court found that it would be more reasonable for an insured to expect to pay a single deductible for the Pattersons’ aggregate loss than to pay multiple deductibles. To hold that the insured must suffer the loss of additional deductibles, based on the number of trips made by the thief, and perhaps those of his confederates, would not fall within the reasonable expectations of the parties. If each deductible were equated with removal of a different item of property, or with a different type of burglary tools, the insured’s recovery could be eroded to the vanishing point.

In discussing the B.H.D. decision, the court in Patterson observed that the parties had not submitted evidence of whether Ramage, the thief in Patterson, was charged with one crime or multiple crimes. The court then noted a number of factual differences between the cases. First, the thief in B.H.D. stole a few items each time she visited the store over a three month period. The thief in Patterson — with or without assistance — stole a large amount of property over a brief time period ranging between 11 and 13 days. Secondly, in B.H.D., the thief improvised her actions rather than following a set plan: She interacted with jewelry sales personnel and took advantage of their distraction to steal merchandise. The thief in Patterson stole goods without any personal interaction with the victim while the storage facility was unoccupied. Finally, in B.H.D. the thief’s method was to steal whatever jewelry she could when a sales person looked away, and then to repeat that method when the circumstances permitted, until she was caught. The thief in Patterson, by contrast, attempted to take as much property as possible over a short period of time before his plan was detected. These differences led the court to conclude that the B.H.D. thief committed multiple burglaries, while the Patterson burglary amounted to only “one long occurrence.”

At the end of its decision, the court ruled that the insureds’ cause of action against their insurer for breach of the implied covenant of good faith and fair dealing was without merit. There could be no “bad faith” liability to the extent that plaintiffs’ loss exceeded the occurrence policy limit, since such liability arises from an insurer withholding without proper cause policy proceeds that are in fact due to be paid under the terms of the policy. Here there was proper cause to withhold amounts exceeding the $103,000 single limit of liability.