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American Auto Guardian, Inc. v. Acuity Mutual Insurance Co.

April 30, 2008


The opinion of the court was delivered by: Milton I. Shadur Senior United States District Judge


American Auto Guardian, Inc. ("American") seeks to recover, from its former insurer Acuity Mutual Insurance Company ("Acuity"), $313,282.01 that it sustained in employee dishonesty losses. Acuity counterclaims for a judgment declaring that it is free from any liability on American's claims. Each party seeks summary judgment on the coverage dispute under Fed. R. Civ. P. ("Rule") 56.

American's Complaint also contends that Acuity violated Illinois law by vexatious and unreasonable action or delay in handling its insurance claim. Citing issues of material fact on that score, American does not move for summary judgment on that allegation. Acuity, on the other hand, does believe that charge is ripe for disposition, and it accordingly moves for summary judgment.

For the reasons stated in this memorandum opinion and order, each side's motion for summary judgment on the coverage dispute is granted in part and denied in part. As for the portion of Acuity's motion seeking summary judgment on American's vexatious handling claim, that aspect is denied because of Acuity's failure to present a fully developed argument.

Summary Judgment Standard Every Rule 56 movant bears the burden of establishing the absence of any genuine issue of material fact (Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)). For that purpose courts consider the evidentiary record in the light most favorable to the non-movant and draw all reasonable inferences in its favor (Lesch v. Crown Cork & Seal Co., 282 F.3d 467, 471 (7th Cir. 2002)). But to avoid summary judgment a non-movant "must produce more than a scintilla of evidence to support his position" that a genuine issue of material fact exists (Pugh v. City of Attica, 259 F.3d 619, 625 (7th Cir. 2001)) and "must set forth specific facts that demonstrate a genuine issue of triable fact" (id.).

Cross-motions for summary judgment bring with them the added task of appropriately crediting the non-movant's version of any disputed fact as to each motion. Ultimately summary judgment is warranted only if a reasonable jury could not return a verdict for the non-movant (Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). This Court, exercising subject matter jurisdiction predicated on diversity of citizenship, will apply Illinois substantive law to the current dispute (Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938)).


From July 1, 2000 through July 12, 2005 American was insured against losses caused by employee dishonesty by six policies from two providers. General Casualty Insurance Company ("General Casualty") and Acuity issued three policies apiece (Am. St. ¶¶5-6; Acuity St. ¶¶3-5)*fn1

Policy Term General Casualty Policy 1: 7/01/2000 - 11/01/2000 General Casualty Policy 2: 11/01/2000 - 11/01/2001 General Casualty Policy 3: 11/01/2001 - 7/12/2002 Acuity Policy 1: 7/12/2002 - 7/12/2003 Acuity Policy 2: 7/12/2003 - 7/12/2004 Acuity Policy 3: 7/12/2004 - 7/12/2005 In early August 2005 American discovered that its Vice President of Accounting Sherri Kramer had been embezzling money by writing American checks payable to Bosley Design and Imaging (a defunct supplier) and depositing them into her husband's bank account (the "Bosley Design Scheme") (Am. St. ¶12; Acuity St. ¶2). On August 26, 2005 American sent Acuity notification of the losses incurred from the nine fraudulent checks it had then discovered (Am. St. ¶14; Acuity St. ¶11).

On October 19, 2005 American notified Acuity that it had completed its investigation into the Bosley Design Scheme and uncovered 64 fraudulent checks totaling $285,264.22 issued from October 19, 2001 through June 24, 2005 (Am. St. ¶¶15-16; Acuity St. ¶13). Those checks were written during the policy periods covered by General Casualty Policies 2 and 3 and all three Acuity Policies (Am. St. ¶17). American discovered that Sherri Kramer had engaged in other dishonest acts from July 2001 through April 2005 that cost the company an additional $149,647.34 (Am. St. ¶¶24, 27). American's total claimed loss from Sherri Kramer's dishonest acts is $434,911.56.

In a February 20, 2006 letter Acuity sent American a payment of $49,783.46 covering losses from the five Bosley Design Scheme checks that had been issued in 2005 (Am. St. ¶18; Acuity St. ¶19). Acuity sent American an additional $71,846.09 on August 2, 2006 (Am. St. ¶29; Acuity St. ¶36). Those two payments covered all losses claimed during the Acuity Policy 3 period (Am. St. ¶29; Acuity St. ¶36). Acuity denied any further coverage for American's losses (Am. St. ¶29; Acuity St. ¶37), leaving American with the unpaid claim of $313,282.01 of loss now at issue.

Each of the Acuity policies contains a "discovery period provision" that limits coverage to losses that have occurred within the policy period and are discovered within one year of the end of the policy period (Acuity St. ¶3). While the General Casualty policies also contain that same discovery provision, they further state that no coverage will be provided for losses discovered after a switch in insurance providers (regardless of whether such discovery occurs within one year of the policy period) (Am. St. ¶¶ 8-9).

Each Acuity policy also contains a "prior loss provision" that provides coverage for any loss suffered during a policy period before the current policy period, so long as the current policy became effective at the termination of the previous insurance policy and recovery of the loss is barred by the previous policy's discovery period provision (Acuity St. ¶3). General Casualty's policies contain a similar provision (Am. St. ¶9).

After a fresh reading of the policy, Acuity now admits liability for American's losses incurred because of Sherri Kramer's dishonest acts during Acuity Policy 2's coverage period (Acuity Mem. 12). For its part, American contends that the prior loss provisions put Acuity on the hook for all of the losses, including those incurred during the Acuity Policy 1 and General Casualty policy periods.

Policy Coverage

Acuity does not dispute that Sherri Kramer's acts are the sort of employee dishonesty covered by the policies. This dispute, involving conflicting interpretations of insurance policy provisions, is a poster child for summary judgment. Acuity reads the policies to mean one thing, while American takes a different view of the same language. Although uncertainties in insurance policies should be read in favor of the insured (Cent. Ill. Pub. Serv. Co. v. Allianz Underwriters Ins. Co., 240 Ill. App. 3d 598, 602, 608 N.E.2d 155, 157-58 (1st Dist. 1992)), unambiguous provisions are to be given their plain ...

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