Ninth Circuit Upholds Hawaii District Court Decision Finding Coverage for Employee Theft

    The Ninth Circuit agreed with the Federal District Court, District of Hawaii, in finding multiple limits for occurrences over the years of coverage were applicable. The Arc In Hawaii v. DB Ins. Co., Ltd., 2022 U.S. App. LEXIS 31231 (9th Cir. Nov. 10, 2022). 

    The Arc served persons with disabilities in Hawaii. The Arc filed a claim with DB Insurance when a bookkeeper writing unauthorized checks resulted in a loss of $6,000,000 during five consecutive policy periods. 

    Each policy excluded “loss or damage caused by or resulting from . . . dishonest or cirminal acts by . . . employees.” An enhancement extended coverage for forgery of checks “made or drawn by . . . one acting as the insured’s agent or claiming to have been so made or drawn.” The parties agreed that the checks represented “dishonest or criminal acts by employees.” The district court ruled in favor of the Arc because under Hawaii law, the insured had a reasonable expectation that the forgery extension covered forgery by its employees. The court rejected DB Insurance’s contention that, in light of the exclusion for employees’ criminal or dishonest acts, the foregery extension did not provide coverage for forgeries by employees.

    The Ninth Circuit agreed with the district court. It was difficult to read the forgery extension’s reference to an “agent” as excluding an employee. There was at most a ambiguity that had to be interpreted in favor of the Arc. 

    Next, the court considered what policy limits were applicable. The policy’s coverage for “employee dishonesty” limited payment for one occurrence for loss or damage to $250,000. The policy further stated that DB Insurance would only “pay for loss or damage [the Arc] sustaines through acts committed or events occurring during the Policy Period.” The Arc had five different one-year policys with DB Insurance. Each policy had the same employee dishonesty extension with a $250,000 liability limit. 

    The district court held that the Arc could recover the $250,000 limit for each of the five policy periods. DB Insurance contended that all loss caused by the employee represented one occurrence that was subject to one payment of $250,000 regardless of the number of policy periods.

    The Ninth Circuit found that the district court had properly relied upon relevant case law from California because there was no Hawaii authority on the issue. In a similar case from California, the court held that the term “occurrence” in the provision was ambiguous and was therefore construed in favor of the policyholder. Here, it was reasonable for the insured to expect each policy to be separte and to reocver the $250,000 limit under each of the five policies.