I’m sure many of us have had this situation. An insurer makes a coverage determination in a claim. We’ll call it claim one and determination A. Then, in claim two, involving indistinguishable facts as claim one, the insurer reaches determination B. But surely this can’t be allowed, someone will say, adding that they can’t reach inconsistent decisions. The insurer is estopped from reaching determination B, someone else will chime in.
But is this really so? I have never done an exhaustive study of this issue. I suspect that the answer varies from case to case and there is no black letter rule that applies nationally across the board. But I could be wrong. If anyone has insight into this issue I’d love to hear from you.
[I am, however, an expert on whether I can change my mind, without consequence, when dealing with my wife.]
But putting all that aside, the Eleventh Circuit Court of Appeals, in W.L. Petrey Wholesale Co. v. Great American Insurance Co., No. 15-10629 (11th Cir. Aug. 6, 2015), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance], recently had no trouble concluding that an insurer that reached coverage determination A in claim one was entitled to say B in claim two. Here’s the dish on Petrey.
Petrey was in business of selling wholesale goods and supplies to convenience stores. After terminating one of its drivers Petrey discovered an inventory shortage of 82,510 bottles of 5–Hour Energy products, worth $111,415.35. [Now we know what the retail mark-up is on that stuff.] Petrey filed a claim with Great American under a Crime Protection Policy. Great American denied the claim based on an “inventory shortages exclusion”: “We will not pay for ... [l]oss, or that part of any loss, the proof of which as to its existence or amount is dependent upon: (a) An inventory computation; or (b) A profit and loss computation.”
Petrey filed an action for breach of contract and bad faith. Great American filed for summary judgment based on the inventory shortages exclusion. The District Court granted GA’s motion. Petrey appealed.
To tell the full story, the inventory shortages exclusion precludes “employee theft claims that are dependent upon proof of loss by an inventory calculation or profit and loss calculation. Such exclusions are intended to protect insurers from errors that may be inherent in a business’s self-created inventory records (for example, as a result of negligence or improper bookkeeping).” To overcome the exclusion the insured must provide independent evidence of theft. Petrey could not do so.
Petrey argued that Great America could not apply the “inventory shortages exclusion” because Petrey had filed a prior claim, involving an essentially identical theft, the same Crime Prevention Policy, and with the same inventory shortage exclusion. Yet, in that situation, Petrey notes, Great American paid the claim in full without contest.
But the court was not persuaded that Great American’s decision to pay claim A, without regard to the applicability of the inventory shortage exclusion, now precluded it from applying such exclusion to claim B. The court explained: “Alabama law forbids courts from using extrinsic evidence (such as the parties’ course of dealing) to interpret an unambiguous contractual provision. Petrey does not argue that the inventory shortage exclusion is ambiguous, and we think the provision is clear on its face. We therefore may not consider the extrinsic evidence relating to the [prior] claim when interpreting the exclusion.”
Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit www.coverageopinions.info.
The views expressed herein are solely those of the author and not necessarily those of his firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. Coverage Opinions is gluten free but may contain peanut products.
Randy Maniloff is Counsel at White and Williams, LLP in Philadelphia. He previously served as a firm Partner for seven years and transitioned to a Counsel position to pursue certain writing projects including Coverage Opinions . Nonetheless he still maintains a full-time practice at the firm. Randy concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies, including commercial general liability and various professional liability policies, such as public official’s, law enforcement, educator’s, media, computer technology, architects and engineers, lawyers, real estate agents, community associations, environmental contractors, Indian tribes and several others. Randy has significant experience in coverage for environmental damage and toxic torts, liquor liability and construction defect, including additional insured and contractual indemnity issues. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.
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