Court Opinion

ID: 2976600
Source: CourtListenerOpinion
Date Created: 2015-09-22 17:54:39.389699+00
Date Added: 2024-06-11T12:46:22.658799
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                           File Name: 08a0302n.06
                             Filed: May 28, 2008

                                           No. 07-5895

                          UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT

STEWART’S WHOLESALE ELECTRIC                       )
SUPPLY, INC.,                                      )
                                                   )
       Plaintiff-Appellant                         )   ON APPEAL FROM THE UNITED
                                                   )   STATES DISTRICT COURT FOR THE
v.                                                 )   WESTERN DISTRICT OF TENNESSEE
                                                   )
FCCI INSURANCE GROUP;                              )   OPINION
HARLEYSVILLE INSURANCE                             )
COMPANIES,                                         )
                                                   )
       Defendants-Appellees.

BEFORE:        MOORE and MCKEAGUE, Circuit Judges; SCHWARZER,* District Judge.

       WILLIAM W SCHWARZER, District Judge. Stewart’s Wholesale Electric Supply, Inc.

appeals the summary judgments in favor of FCCI Insurance Group and Harleysville Insurance

Companies. FCCI and Harleysville each issued commercial insurance policies to Stewart’s covering

losses from employee dishonesty. Each of the policies stated in substance that “we will pay only for

covered loss discovered no later than one year from the end of the policy period.”       The FCCI

policies provided coverage for the period June 1, 2001 to June 1, 2003. The Harleysville policies

provided coverage for the period June 1, 1995 to June 1, 2001. In October 2005, Stewart’s

       *
       The Honorable William W Schwarzer, Senior United States District Judge for the
Northern District of California, sitting by designation.
discovered that its general manager had embezzled approximately $500,000 from the business

between 1996 and 2003. Stewart’s gave notice of the theft to both FCCI and Harleysville shortly

thereafter, but both insurers denied coverage because the loss was discovered more than one year

from the end of the policy period.

       Stewart’s filed suit in Tennessee state court against FCCI and Harleysville, which removed

the case to the district court pursuant to 28 U.S.C. § 1332(a)(1). Each defendant moved for summary

judgment and the district court granted the motions, holding that the loss was not covered because

it was discovered more than one year after termination of the insurance policies. The district court

rejected Stewart’s argument that Tennessee law allows an insured to overcome its failure to provide

timely notification when the evidence shows that the insurer is not prejudiced by such delay.

Stewart’s timely appealed.

                                            ANALYSIS

       We review a grant of summary judgment de novo. Bennett v. City of Eastpointe, 410 F.3d
810, 817 (6th Cir. 2005). Summary judgment is appropriate where “the pleadings, the discovery and

disclosure materials on file, and any affidavits show that there is no genuine issue as to any material

fact and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. Proc. 56(c).

Tennessee law applies in this diversity action. Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938).

       In interpreting insurance contracts, Tennessee courts “determine the intention of the parties

and give effect to that intention.” Naifeh v. Valley Forge Life Ins. Co., 204 S.W.3d 758, 768 (Tenn.

2006). “An insurance policy must be interpreted fairly and reasonably, giving the language its usual

and ordinary meaning.” Id. An unambiguous policy may not be rewritten by the court. Id.

       It is undisputed that Stewart’s did not discover its general manager’s theft until more than

                                                  2
one year after termination of both the FCCI and Harleysville policies. The plain language of the

policies therefore does not cover Stewart’s loss. But Stewart’s argues that the principle of Alcazar

v. Hayes, 982 S.W.2d 845 (Tenn. 1998), should be extended to excuse its untimely discovery. In

Alcazar, an insured attempted to recover under an uninsured motorist provision that required notice

of an accident “as soon as possible” after the accident occurred. Id. at 847. The insured did not give

notice until approximately one year after the accident. The Tennessee Supreme Court held that

untimely notice could be excused where the insurer was not prejudiced. Id. at 850.

       Stewart’s reliance on Alcazar is misplaced. Alcazar, which involved an uninsured motorist

policy, held that an insurer, to properly deny coverage based on the policy’s notice provision, must

demonstrate prejudice as a result of the insured’s failure to comply with that provision. The holding

in Alcazar is inapplicable here because FCCI and Harleysville did not base their denial of coverage

on the policies’ notice provision. The issue here is whether the discovery clause of a commercial

crime policy bars coverage for an employee theft loss. The policies issued to Stewart’s provided

coverage only for losses incurred as a result of employee theft that were discovered within one year

of the policy period; the policy period under the FCCI policy ended June 1, 2003, and the policy

period under the Harleysville policy ended June 1, 2001. Stewart’s did not discover the loss until

October 22, 2005, more than one year after the end of the final policy’s discovery period. Because

the plain and unambiguous language of the policies provided that they will only cover dishonesty

discovered during the policy period or no later than one year after its end, Stewart’s is not entitled

to coverage.

      Tennessee courts have not heretofore addressed the question whether Alcazar should apply

to the discovery provision in commercial crime policies, although at least one court has observed

                                                  3
that “[a]s far as we can tell, our Supreme Court has never applied the rationale of Alcazar to a

claims-made policy.” Pope v. Leuty & Heath, PLLC, 87 S.W.3d 89, 94 (Tenn. Ct. App. 2002); see

also Union Planters Bank, N.A. v. Continental Cas. Co., 478 F.3d 759, 766 (6th Cir. 2007)

(observing that “Tennessee courts have limited the application [of Alcazar] to occurrence-based

policies”). However, the precise issue came before the Missouri Court of Appeals in Southeast

Bakery Feeds, Inc., v. Ranger Insurance Company, 974 S.W.2d 635 (Mo. Ct. App. 1998). The court

affirmed summary judgment for the insurer, strictly enforcing the discovery clause in an employee

dishonesty policy, reasoning that “[b]ecause of the nature of the discovery clause as a valid limit of

liability, the prejudice rule applicable to untimely notice in ‘occurrence’ liability policies of

insurance does not extend to the discovery clause in indemnity agreements.” Id. at 641. We think

the Tennessee Supreme Court would reach the same result.1

                                          CONCLUSION

       For the reasons stated, we AFFIRM the judgment of the district court.

       1
          Stewart’s also argues that the district court erred by entering summary judgment without
allowing adequate time for discovery. Stewart’s forfeited this argument by failing to submit an
affidavit in the district court pursuant to FRCP 56(f) setting forth the reasons why it needed
additional discovery to support its opposition to the motion for summary judgment. See Plott v.
General Motors Corp., 71 F.3d 1190, 1196 (6th Cir. 1995) (“[I]f the appellant has not filed either
a rule 56(f) affidavit or a motion that gives the district court a chance to rule on the need for
additional discovery, this court will not normally address whether there was adequate time for
discovery.”).

                                                  4