SAN DIEGO – The reinterpretation of a few words caused a state appeals court to overturn an insurance claim last month in the 2004 theft of $2 million from Mission FCU ATMs by an employees of the credit union’s cash supplier.
The claim would be used by Advanced Network Inc. to reimburse CUMIS Insurance Society, which paid the San Diego credit union $2 million under its fidelity bond. CUMIS then sued Advanced Network, which filed the $2 million claim under its commercial general liability policy with Peerless Insurance Co. But Peerless denied coverage, prompting Advanced Network to sue in state court.
The state court ruled that Peerless was liable under its policy with the cash carrier, which required reimbursement for “loss of use” of property. The commercial general liability policy was to have reimbursed the cash carrier for property damage, “including all resulting loss of that property” and “loss of use of tangible property that is not physically injured.”
In its reversal of the lower court, the state appeals court for the fourth appellate district of California’s division one ruled that the terms “loss of use” and “loss” are not interchangeable for insurance purposes. “If we were to hold otherwise, we would have to ignore the words “of use” in the term “loss of use,” it stated. Because the underlying action was for the “loss,” rather than “loss of use,” of the stolen cash, there was no potential for coverage under the company’s liability policy, the court ruled.
In the ATM thefts, authorities discovered that a single employee for the cash carrier would enter the nine Mission Fed branches he was servicing alone after hours with a key and an alarm code, access the safe and remove cash designated for the ATMs. The employee, Jacob Johnson, was stealing cash throughout, a total of almost $2.1 million, which he concealed by submitting false records. Johnson pleaded guilty to the thefts in 2005 and was sentenced to prison.
Advanced Network had several insurance policies under which it made claims for the Mission Fed theft. It also had a $250,000 crime policy with Chubb Group and a $3 million umbrella policy with Golden Eagle Insurance.
In its ruling, the appeals court said “Loss of use” coverage is intended to compensate for a temporary loss of property, while coverage for “loss” of property envisions a permanent loss for which the claimant seeks the replacement value of the property.
Because the loss of the cash in this case was permanent, and CUMIS sought the replacement value of the money, the CUMIS action was not one for “loss of use” of property within the meaning of Advanced’s policy, the court found.
Rather, the underlying action was for “loss” of the property itself – something that was not insured under the policy. Consequently, Peerless had no duty of defense or indemnification, the court concluded.
