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Tennessee Clutchand Supply, Inc. v. Auto-Owners (Mutual) Insurance Co.

Court of Appeals of Tennessee, Nashville

November 22, 2017

TENNESSEE CLUTCHAND SUPPLY, INC.
v.
AUTO-OWNERS (MUTUAL) INSURANCE COMPANY

          Session June 7, 2017

         Appeal from the Chancery Court for Davidson County No. 16-0049-I Claudia Bonnyman, Chancellor No. M2016-02195-COA-R3-CV

         This appeal arises from a dispute between an insured and its insurance carrier concerning the coverage limits under an "Employee Dishonesty" endorsement to a commercial general liability policy for an employee's dishonesty that spanned two policy years. After the insured discovered that one of its employees embezzled approximately $100, 000 in 2014 and 2015, it filed a claim for $30, 000, the aggregate of the policy limits of $15, 000 for each policy year. The insurer took the position that the limitation of coverage for such an occurrence was $15, 000, paid that amount, and denied the balance of the claim. The trial court held that the policy language was ambiguous and by construing the policies in favor of the insured, determined there were two policies, each of which provided $15, 000 of coverage and ruled that Plaintiff was entitled to recover $30, 000. The insurer appealed. Finding no ambiguity, we have determined that the 2015 policy was not a separate policy but a renewal of the 2014 policy, that the policy limit for employee dishonesty is $15, 000 per occurrence, and that there was one continuous occurrence, as that term is defined in the policy, which spanned two years. We have also determined that the policy prohibits "stacking" of coverage from one policy year to the next. For these reasons, we respectfully reverse the judgment of the trial court and hold that the policy limits for the claim asserted by the insured is $15, 000.

         Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Reversed and Remanded

          John J. Griffin, Jr. and Michael A. Johnson, Nashville, Tennessee, for the appellant, Auto-Owners (Mutual) Insurance Company.

          Fred C. Dance, Franklin, Tennessee, for the appellee, Tennessee Clutch and Supply, Inc.

          Frank G. Clement Jr., P.J., M.S., delivered the opinion of the Court, in which Andy D. Bennett and Richard H. Dinkins, JJ., joined.

          OPINION

          FRANK G. CLEMENT JR., P.J., M.S.

         Auto-Owners (Mutual) Insurance Co. ("Auto-Owners") provided commercial liability insurance for Tennessee Clutch and Supply, Inc. ("Plaintiff") in 2014 and 2015. The coverage was provided under two policies with effective dates from February 1, 2014, until February 1, 2015 ("the 2014 policy"), and from February 1, 2015, until February 1, 2016 ("the 2015 policy"). Each policy provided coverage for loss resulting from "employee dishonesty."

         In July of 2015, Plaintiff discovered that an employee had embezzled $48, 206.59 during the 2014 policy period and $50, 384.51 during the 2015 policy period. Plaintiff timely made a claim for $30, 000, which constituted policy limits per occurrence of $15, 000 for two separate occurrences, one under each policy period. Auto-Owners responded to the claim stating the policy limits for the loss claimed was $15, 000. Plaintiff then filed suit against Auto-Owners for breach of contract. During the pendency of this action, Auto-Owners interpleaded $15, 000, which represents the policy limits for one occurrence.

         After entering into a joint stipulation of the material facts, the parties filed cross-motions for summary judgment to address whether Auto-Owners was liable for an additional $15, 000. In its motion for summary judgment, Plaintiff contended that the 2014 policy and the 2015 policy were separate policies and that the language of the Employee Dishonesty endorsement was ambiguous as to whether the policies could be "stacked."[1] Auto-Owners argued that the two policies at issue were one continuous policy, that the 2015 policy was a renewal of the 2014 policy, and there was one continuous occurrence, as that term is defined in the policy, which spanned two years. Auto-Owners further argued that the language of the Employee Dishonesty endorsement expressly prohibited stacking.

         Following a hearing on the cross-motions for summary judgment, the trial court ruled in favor of Plaintiff on the breach of contract claim.[2] As grounds for its ruling, the trial court found the language of the endorsement to be ambiguous, because it could be read in at least two different ways.[3] One interpretation would lead the court to construe the policies as one continuous policy, while the other interpretation would lead the court to construe the policies as two separate contracts. Since ambiguities in insurance contracts should be construed against the insurer, the trial court concluded that it must interpret the provisions in the contract at issue here against Auto-Owners. Accordingly, the trial court found that

the 2014 and 2015 policies are two separate policies and that the Plaintiff's employee's actions constituted two "occurrences"-one "series of acts" that occurred during the 2014 policy period and one "series of acts" that occurred during the 2015 policy period.

         The trial court further found that the matter of stacking commercial liability policies was an issue of first impression in Tennessee and thus looked to similar cases from other jurisdictions for guidance. It found guidance in E.J. Zeller, Inc. v. Auto Owners Ins. Co., 2014 WL 5803028, No. 4-14-04 (Ohio Ct. App. Nov. 10, 2014). The court's order states:

The Court also finds persuasive the reasoning in E.J. Zeller, Inc. v. Auto Owners Ins. Co., 2014-Ohio-4994 (Ct. App.), which held in favor of the insured under similar facts and identical policy provisions. Specifically, the Ohio court held that paragraph E(2) of the endorsement (Discovery Period for Loss) "acts as an expiration date for the insurer's liability under each policy. Losses caused by acts inside the policy period which are discovered while the policy is still in effect, or in the year immediately after the policy period ended, are still covered."

         Auto-Owners then filed this appeal.

         Issues

         The determinative issues in this appeal are: (1) whether the 2015 insurance policy was a renewal of the 2014 policy or a separate policy; (2) whether the employee dishonesty that spanned two years constituted one or two occurrences; and (3) whether the limits of coverage afforded under each policy year is cumulative.[4]

         Standard of Review

         This court reviews a trial court's decision on a motion for summary judgment de novo without a presumption of correctness. Rye v. Women's Care Ctr. of Memphis, MPLLC, 477 S.W.3d 235, 250 (Tenn. 2015) (citing Bain v. Wells, 936 S.W.2d 618, 622 (Tenn. 1997)). Accordingly, this court must make a fresh determination of whether the requirements of Tenn. R. Civ. P. 56 have been satisfied. Id.; Hunter v. Brown, 955 S.W.2d 49, 50-51 (Tenn. 1997). In so doing, we consider the evidence in the light most favorable to the non-moving party and draw all reasonable inferences in that party's favor. Godfrey v. Ruiz, 90 S.W.3d 692, 695 (Tenn. 2002).

         Summary judgment should be granted when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Tenn. R. Civ. P. 56.04. In this case, there are no disputed facts, and this is purely an issue of contract interpretation. Issues regarding contract interpretation are matters of law. Allstate Ins. Co. v. Watson, 195 S.W.3d 609, 611 (Tenn. 2006). Our review of a trial ...


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