Opinion
21-16193
11-10-2022
THE ARC IN HAWAII, a nonprofit corporation, Plaintiff-Appellee, v. DB INSURANCE CO., LTD., AKA Dongbu Insurance Co., Ltd., a foreign profit corporation, Defendant-Appellant.
NOT FOR PUBLICATION
Submitted October 14, 2022 Honolulu, Hawaii
This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3.
Appeal from the United States District Court for the District of Hawaii Alan C. Kay, District Judge, Presiding D.C. No. 1:20-cv-00112-ACK-WRP
Before: SCHROEDER, RAWLINSON, and BRESS, Circuit Judges.
MEMORANDUM
This is a dispute over the interpretation of an insurance policy issued by Appellant DB Insurance Co., Ltd. to The Arc in Hawaii ("The Arc"), a non-profit organization serving persons with disabilities in Hawaii. It arises from thefts by The Arc's bookkeeper writing unauthorized checks, which resulted in the loss of over $6,000,000. The Arc submitted a claim to DB Insurance Co., Ltd. for the total losses it sustained during the course of the five insurance policies.
1. Each insurance policy contained an exclusion for "loss or damage caused by or resulting from . . . [d]ishonest or criminal act[s] by . . . employees," but 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 agree that the checks written by the bookkeeper were forgeries within the meaning of the policy, and that the checks represent "dishonest or criminal acts by employees." The district court ruled in favor of the insured (The Arc), reasoning that under Hawaiian 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 forgery extension did not provide coverage for forgeries by employees.
As the district court recognized, if there is any conflict or ambiguity in the insurance policy, it must be interpreted against the insurer and in favor of the insured. See Dairy Rd. Partners v. Island Ins. Co., 992 P.2d 93, 106-7 (Haw. 2000). We agree with the district court's observation that it is difficult to read the forgery extension's reference to an "agent" as excluding an employee. See Del Monte Fresh Produce (Haw.), Inc. v. Fireman's Fund Ins. Co., 183 P.3d 734, 740 (Haw. 2007) (determining that the rule in Hawaii is for insurance policies "to be construed in accord with the reasonable expectations of a layperson") (citation omitted). There is at most an ambiguity that must be interpreted in favor of The Arc. See Dairy Rd. Partners, 992 P.2d at 107. Similar considerations apply to DB Insurance's contention that the policy's exclusion for an employee's dishonest or criminal acts precludes coverage under the forgery extension.
2. The policy's coverage for "employee dishonesty" limited payment for "any one occurrence for loss or damage" to $250,000. The provision also stated that DB Insurance "will pay only for loss or damage [the Arc] sustain[s] through acts committed or events occurring during the Policy Period." The Arc had five different one-year insurance policies with DB Insurance from 2012 to 2017, and each policy contained the same employee dishonesty extension with a $250,000 liability limit. The parties agree this provision applies, but disagree over whether The Arc is entitled to receive one single $250,000 payment for loss due to the employee's dishonesty or is entitled to the $250,000 limit under each of the five different policy periods.
The district court held that The Arc could recover the $250,000 limit for each of the five policy periods. DB Insurance contends that all loss caused by The Arc's employee represented one occurrence that was subject to one payment of $250,000 regardless of the number of policy periods.
In awarding the $250,000 policy limit for each of the five policy periods, the district court correctly relied on relevant case law from this court interpreting California insurance law, where there was no authority analyzing Hawaii insurance law on this issue. See Allstate Ins. Co. v. Kim, 121 F.Supp.2d 1301, 1307 n.3 (D. Haw. 2000). The employee dishonesty extension is similar to the employee dishonesty provision at issue in Karen Kane Inc. v. Reliance Ins. Co., 202 F.3d 1180 (9th Cir. 2000). This court there held that under California law the term "occurrence" in the provision was ambiguous and must be construed in favor of the insured to provide for liability up to the limit for each of the three one-year policies for loss due to employee embezzlement. Id. at 1182-88.
DB Insurance relies on Tennessee Clutch and Supply, Inc. v. Auto-Owners (Mutual) Ins. Co., where the Tennessee Court of Appeals held that the insured was only able to recover once for loss due to an employee's embezzlement over multiple years. 556 S.W.3d 203 (Tenn. Ct. App. 2017). There, however, the later policy expressly stated that it was a renewal of the prior policy, and the policies were nearly identical. Id. at 207-11. The insurance policies in this case were not identical and each policy indicated that for payment of that policy's premium, the insurer was agreeing to "provide the insurance as stated in this policy." It was reasonable for the insured to expect each policy to be separate and to recover the $250,000 liability limit under each of the five policies.
AFFIRMED.
BRESS, Circuit Judge, dissenting in part:
I agree with the majority that the district court correctly awarded the insured $250,000 under the Employee Dishonesty Extension for each of the five policy periods. But I part ways with the majority on whether the Forgery Extension applied to forgery committed by one of the insured's employees.
The Forgery Extension specifies which forged checks or other promissory notes are covered by the provision, but I do not read it as specifying whose acts of forgery are covered. Although the provision might be ambiguous standing alone, I do not find it ambiguous when considered in the context of the insurance policy as a whole. The Criminal Acts Exclusion explicitly disclaims coverage for "any . . . [d]ishonest or criminal act by . . . any of your . . . employees." The Employee Dishonesty Extension then creates a carve-out to this, but it expressly provides limited coverage for the exact same acts that the insured argues are also covered by the Forgery Extension.
Under the majority's reading, these provisions have the unusual effect of capping coverage for employee dishonesty at $250,000 unless the dishonesty involved forgery, in which case coverage would be capped at $1,000,000. There is no reason to believe that the parties reached such an unlikely agreement. That is especially so considering that the insured's reading of the Forgery Extension would improbably cover forgery committed by the insured itself and its senior leaders. Under Hawaii law, the "objectively reasonable expectations" of the parties govern the interpretation of insurance contracts. Del Monte Fresh Produce (Haw.), Inc. v. Fireman's Fund Ins. Co., 183 P.3d 734, 745 (Haw. 2007). Here, I cannot conclude the parties entered such an objectively unlikely arrangement. Cf. Guajardo v. AIG Hawai'i Ins. Co., 187 P.3d 580, 590 (Haw. 2008) ("An insurance policy should not be interpreted in an unreasonable or a strained manner so as to enlarge or to restrict its provisions beyond what is reasonably contemplated by its terms or so as to achieve an absurd conclusion.") (quoting La. Ins. Guar. Ass'n v. Interstate Fire &Cas. Co., 630 So.2d 759, 763 (La. 1994)) (emphasis omitted).
I realize that, under Hawaii law, courts resolve ambiguities in insurance contracts against the insurer. Dairy Rd. Partners v. Island Ins. Co., 992 P.2d 93, 106-07 (Haw. 2000). But "mere complexity does not create ambiguity." State Farm Mut. Auto. Ins. Co. v. Bailey, 568 P.2d 1185, 1188 (Haw. 1977). Reading the insurance policy as a whole, I would conclude that the Forgery Extension did not apply.
The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2).