The opinion of the court was delivered by: JOHN F. GRADY
This case comes before the court on defendant's motion to dismiss. For the reasons given below, defendant's motion is granted.
On May 17, 1987, defendant Travelers Indemnity Company ("Travelers") issued a Commercial Crime Bond to plaintiff Diamond Transportation System, Inc., ("Diamond"). The bond, which insured Diamond against loss resulting from employee dishonesty, had a one-year term and a policy limit of $ 250,000. When the bond expired in May of 1988, the parties renewed their contract and a new one-year, $ 250,000 bond was issued. Each year thereafter, Travelers and Diamond renewed their agreement. Thus, from 1987 through 1992, the parties entered into successive one-year bonds, each having identical terms and coverage limits.
In April 1991, Diamond discovered one of its employees engaging in a fraudulent check-cashing scheme. Upon investigation, Diamond determined that the employee had stolen $ 750,000 in corporate funds over the preceding several years. Diamond submitted a $ 750,000 claim to Travelers, alleging that $ 250,000 of the losses occurred under the 1989-90 bond, $ 250,000 occurred under the 1990-91 bond, and $ 250,000 occurred under the 1991-92 bond.
In response to the claim, Travelers paid Diamond a total of $ 250,000 -- the limit of its liability under the 1990-91 bond. Travelers denied coverage on the remaining portions of Diamond's claim.
Diamond has filed this suit against Travelers, alleging that the insurer's denial of coverage constitutes a breach of contract under both the 1989-90 policy and the 1991-92 policy. Travelers contends that the $ 250,000 it paid under the 1990-91 bond represents the limit of its liability, and accordingly moves that plaintiff's complaint be dismissed for failure to state a claim upon which relief can be granted.
In considering a motion to dismiss, a court must accept all facts alleged in the plaintiff's complaint as true and must draw all reasonable inferences from the pleadings in plaintiff's favor. Gillman v. Burlington N. R.R. Co., 878 F.2d 1020, 1022 (7th Cir. 1989). Dismissal is appropriate "'only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.'" Kunik v. Racine County, Wis., 946 F.2d 1574, 1579 (7th Cir. 1991) (quoting Hishon v. King & Spalding, 467 U.S. 69, 73, 81 L. Ed. 2d 59, 104 S. Ct. 2229 (1984)).
There is no question that the bond coverage which the parties maintained over the years occurred through a series of individual one-year contracts, rather than a single, continuous bond. Each annual bond which Travelers issued to Diamond was prefaced by a declaration page containing the following language:
3. CANCELLATION OF PRIOR INSURANCE: By acceptance of this Coverage Part, you give us notice cancelling prior policy/bond numbers, the cancellation to be effective at the time this Coverage Part becomes effective.
It is also apparent that, despite having occurred through a series of acts over a period of years, Diamond's entire $ 750,000 loss constitutes a single "occurrence." In the definitional section of the bond, "occurrence" is defined as "all loss caused by, or involving, one or more 'employees', whether the result of a single act or series of acts." Plaintiff's Complaint, Exhibit B at 7. The ...