Stewart’s Wholesale Electric Supply, Inc. v. Fcci Insurance Group; Harleysville Insurance Companies

The Honorable William W Schwarzer, Senior United States District Judge for the*
Northern District of California, sitting by designation.
NOT RECOMMENDED FOR FULL-TEXT PUBLICATION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
v.
FCCI INSURANCE GROUP;
HARLEYSVILLE INSURANCE
COMPANIES,
Defendants-Appellees.
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ON APPEAL FROM THE UNITED
STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF TENNESSEE
OPINION
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

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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

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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

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Stewart’s also argues that the district court erred by entering summary judgment without1
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.”).
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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.

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