Court Opinion

ID: 3043373
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:11:19.920697+00
Date Added: 2024-06-11T09:18:11.116513
License: Public Domain

Case: 15-10629   Date Filed: 08/06/2015   Page: 1 of 8

                                                         [DO NOT PUBLISH]

             IN THE UNITED STATES COURT OF APPEALS

                     FOR THE ELEVENTH CIRCUIT
                       ________________________

                             No. 15-10629
                         Non-Argument Calendar
                       ________________________

                   D.C. Docket No. 2:14-cv-00868-CSC

W.L. PETREY WHOLESALE CO., INC.,

                                                           Plaintiff - Appellant,

                                   versus

GREAT AMERICAN INSURANCE COMPANY,

                                                         Defendant - Appellee.

                       ________________________

                Appeal from the United States District Court
                    for the Middle District of Alabama
                      ________________________

                             (August 6, 2015)

Before TJOFLAT, JULIE CARNES and JILL PRYOR, Circuit Judges.

PER CURIAM:
              Case: 15-10629     Date Filed: 08/06/2015   Page: 2 of 8

      In this case, W.L. Petrey Wholesale Company (“Petrey”) appeals the district

court’s summary judgment in favor of defendants Great American Insurance

Company (“Great American”). After careful consideration of the parties’ briefs

and the record, we affirm.

                                         I.

      Petrey sells wholesale goods and supplies to convenience stores through a

network of sales people. Justin Bree was a route salesperson for Petrey in central

and southern Indiana from 2007 until 2013, when he was fired because his primary

customer requested that he not service its stores any longer. Route salespersons

are required to drive a Petrey company truck and to rent a storage facility in which

to store Petrey inventory. When Bree was fired, Petrey took possession of his

delivery truck and its contents, his computer equipment, and the storage unit where

Bree kept Petrey’s inventory.

      A month after Bree’s termination, Petrey discovered that the inventory in the

storage unit was short by 82,510 bottles of 5-Hour Energy products, worth

$111,415.35. Petrey audited Bree’s route inventory records and took a physical

count of the route inventory in the storage unit; a comparison of the physical

inventory count with the computer generated perpetual inventory count revealed a

shortage of physical inventory. An additional comparison of the physical

inventory count with the records of all route transactions involving 5-Hour Energy

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products confirmed the exact shortage amount of 82,510 bottles. Petrey also

compared Bree’s orders for those products with his sales, which revealed a pattern

of Bree’s ordering more 5-Hour Energy products than his sales would have

required.

      Petrey filed a claim with its insurance company, Great American, under a

Crime Protection Policy, which insured against “loss of, and loss from damage to,

money, securities and other property resulting directly from dishonest acts

committed by an employee.” Crime Protection Policy, Doc. 17-2 at 6. 1 Great

American denied the claim based on the inventory shortages exclusion in the

policy, which read: “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.” Id. at 11.

      Petrey filed this action for breach of the insurance contract and subsequently

added a claim for bad faith. Great American filed a motion to dismiss or, in the

alternative, for summary judgment based solely on the inventory shortage

exclusion. The district court granted the motion for summary judgment,

concluding that the inventory shortage exclusion applied and barred Petrey’s claim.

Petrey timely appealed.

      1
          Citations to “Doc.” herein refer to docket entries in the district court record in this case.
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                                             II.

         We review a district court’s grant of summary judgment de novo. Liese v.

Indian River Cty. Hosp. Dist., 701 F.3d 334, 341 (11th Cir. 2012). “At this stage

in the proceedings we are required to view all of the evidence in a light most

favorable to the nonmoving party and draw all reasonable inferences in that party’s

favor.” Id. at 342 (internal quotation marks omitted). Summary judgment is

appropriate “if the movant shows that there is no genuine dispute as to any material

fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.

56(a).

                                            III.

         Under Alabama law, 2 to prevail on either its breach of contract or bad faith

claim, Petrey must show that the loss is covered by the insurance policy. See State

Farm Fire & Cas. Co. v. Brechbill, 144 So. 3d 248, 258 (Ala. 2013). Here, it is

undisputed that the policy covers loss of property caused by employee theft. But

the insurance policy expressly excludes 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

         2
        Because this is a diversity case concerning an Alabama insurance contract, we apply
Alabama substantive law. St. Paul Fire & Marine Ins. Co. v. Era Oxford Realty Co. Greystone,
LLC, 572 F.3d 893, 894 n.1 (11th Cir. 2009). Petrey does not contend otherwise.
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business’s self-created inventory records (for example, as a result of negligence or

improper bookkeeping). See American Fire & Casualty Co. v. Burchfield, 232 So.

2d 606, 609 (Ala. 1970). Petrey does not argue that the exclusion is ambiguous.

We therefore must consider whether Petrey’s claims for missing inventory are

based upon either type of prohibited calculation.

      In Burchfield, the Alabama Supreme Court confronted a similar insurance

policy provision, which excluded from coverage a

      loss, or [] that part of any loss, as the case may be, the proof of which,
      either as to its factual existence or as to its amount, is dependent upon
      an inventory computation or a profit and loss computation; provided,
      however, that this paragraph shall not apply to loss of Money,
      Sec[u]rities or other property which the Insured can prove, through
      evidence wholly apart from such computations, is sustained by the
      Insured through any fraudulent or dishonest act or acts committed by
      any one or more of the Employees.
Id. at 607. The plaintiff, a wholesale grocer, filed a lawsuit against its insurer

claiming coverage for a loss due to employee theft. A jury entered an award for

the grocer based on an inventory computation. The insurance company sought a

new trial, arguing this evidence was excluded by the insurance policy. The

Alabama Supreme Court rejected the argument, holding that “the prohibition is

against recovery on proof of inventory loss alone.” Id. at 609. The prohibition did

not apply to the grocer because it had offered independent proof, in the form of

sworn affidavits by three of its employees that they stole company property, of the

loss it suffered as a result of employee dishonesty: “[W]e do not believe that the

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provisions of the policy preclude after that proof has been made, the use of

inventory records to show the amount of the loss.” Id.; see also Fidelity & Deposit

Co. v. Southern Utilities, Inc., 726 F.2d 692, 695 (11th Cir. 1984) (“More recent

decisions tend to allow an inference of employee dishonesty to be drawn from

relatively thin circumstantial evidence and then to permit the full extent of the

losses to be proven by inventory comparisons. Generally, these cases have required

some proof of dishonesty by employees as a condition precedent to the admission

of inventory comparisons to establish the full amount of loss.”).

       Petrey has provided no independent evidence of Bree’s theft; it relies solely

on inventory comparisons to prove the claimed loss.3 Petrey argues that its

physical inventory count provided independent evidence by showing that Bree

ordered the goods in question, received them from Petrey, did not deliver them to

his customers, and did not have them on hand in his storage locker. But this

argument is circular, as Petrey has supported these assertions only with order and

sales records — which boil down to inventory comparison computations. See Fid.

& Deposit Co. of Md. v. So. Utils., Inc., 726 F.2d 692, 695 (11th Cir. 1984) (“An

       3
          Petrey argues on appeal that the fact that Bree vanished after he was fired is evidence
that he stole the 5-Hour Energy bottles. Petrey did not make this argument to the district court,
see Access Now, Inc. v. Southwest Airlines Co., 385 F.3d 1324, 1329-30 (11th Cir. 2004)
(declining to consider argument raised for the first time on appeal); but, in any event, the record
contradicts Petrey’s assertion that Bree disappeared after he was confronted about the missing
inventory. Petrey only discovered the shortage a month after Bree’s termination for reasons
unrelated to theft, and only then did Petrey attempt to contact Bree with “no success.” Parks
Affidavit, Doc. 21-1 at 25-26.
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inventory computation is an inventory arrived at by taking a beginning inventory,

adding purchases and deducting the cost of merchandise sold.” (internal quotation

marks omitted)). Burchfield requires independent evidence of employee

dishonesty, which is absent here.

      Petrey also argues that it provided independent evidence of employee

dishonesty by showing that only Petrey employees had access to Bree’s inventory.

We agree with the Second Circuit that “circumstantial evidence that, if a loss in

fact was sustained, [the insured’s] employees were the perpetrators” is not

independent evidence of the existence of a loss. Dunlop Tire & Rubber Corp. v.

Fid. & Deposit Co. of Md., 479 F.2d 1243, 1247 (2d Cir. 1973). Petrey’s assertion

that only its employees could have stolen the 5-Hour Energy bottles “presupposes

the factual existence of a loss” and “merely tends to foreclose the possibility of

theft by persons other than employees,” rather than prove that employees stole

anything from the company. Id.

      Finally, Petrey argues that Great American’s own prior coverage

determinations show that the inventory shortage exclusion does not apply here. In

2011, Petrey filed a claim for theft of merchandise worth $102,897.05 by an

employee, Jason McKean. The same Crime Prevention Policy was in place then,

and the policy included the same inventory shortage exclusion that is at issue here.

Great American paid the claim to Petrey in full without contest. Petrey now argues

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that because the claim for Bree’s theft was essentially identical, it too should be

covered by the policy. But Alabama law forbids courts from using extrinsic

evidence (such as the parties’ course of dealing) to interpret an unambiguous

contractual provision. Drummond Co. v. Walter Indust., 962 So. 2d 753, 780 (Ala.

2006). 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 McKean claim when interpreting the exclusion.4

       Because Petrey cannot point to any evidence of loss by employee theft other

than its own inventory comparison computations, the loss was excluded from

coverage. The district court properly granted summary judgment to Great

American.

       AFFIRMED.

       4
         Similarly, Alabama law prevents Petrey from using the McKean claim to argue that
Great American has waived its right to exclude the Bree claim from coverage. See Home Indem.
Co. v. Reed Equip. Co., 381 So. 2d 45, 50-51 (Ala. 1980) (“[T]he doctrine [of waiver] is not
available to bring within the coverage of a policy risks not covered by its terms or risks expressly
excluded therefrom.”).
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