SUPERSTITION CRUSHING, LLC, an Arizona limited liability company v. Travelers Casualty and Surety Company of America, a Delaware corporation

This disposition is not appropriate for publication and is not precedent*
except as provided by 9th Cir. R. 36-3.
NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
SUPERSTITION CRUSHING, LLC, an
Arizona limited liability company,
Plaintiff - Appellant,
v.
TRAVELERS CASUALTY AND
SURETY COMPANY OF AMERICA, a
Delaware corporation,
Defendant - Appellee.
No. 08-16454
D.C. No. 2:07-cv-00694-HRH
MEMORANDUM *
Appeal from the United States District Court
for the District of Arizona
H. Russel Holland, District Judge, Presiding
Argued and Submitted December 3, 2009
San Francisco, California
Before: B. FLETCHER, THOMAS, and N.R. SMITH, Circuit Judges.
Superstition Crushing, LLC (“Superstition”) sought reimbursement, under
the Employee Dishonesty Coverage Form of each of its five Travelers Commercial
FILED
DEC 29 2009
MOLLY C. DWYER, CLERK
U .S. C OU R T OF APPE ALS

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We note that Karen Kane, Inc. v. Reliance Ins. Co., 202 F.3d 1180 (9th Cir.1
2000) is not controlling here. We must apply Arizona law. Karen Kane applied
California law.
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Crime Policies, for funds embezzled from it. Both parties moved for summary
judgment. Thereafter, the district court granted summary judgment for Travelers.
We have jurisdiction under 28 U.S.C. § 1291 and we affirm. Because the parties
are familiar with the facts and procedural history of this case, we do not recite them
here.
We review de novo the district court’s grant of summary judgment and may
affirm on any ground supported by the record. Dietrich v. John Ascuaga's Nugget,
548 F.3d 892, 896 (9th Cir. 2008). “We must determine, viewing the evidence in
the light most favorable to the nonmoving party, whether there are any genuine
issues of material fact and whether the district court correctly applied the relevant
substantive law.” Id. (internal quotation marks and citation omitted). Here, there
are no material facts in dispute. Because this case arises under diversity
jurisdiction, we apply Arizona law. See Kabatoff v. Safeco Ins. Co. of Am., 627
F.2d 207, 209 (9th Cir. 1980).1
Applying Arizona law, we find that there were five separate policies, not one
continual policy. See generally State Farm Mut. Auto. Ins. Co. v. Ash, 888 P.2d
1354, 1359 (Ariz. Ct. App. 1994) (“Existing [automobile] policyholders whose

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policies expire and who elect to continue their coverage by paying the premium
billed on the insurer’s renewal notice are purchasers of such insurance to the same
extent as persons who purchase new policies.” (citation omitted)). While State
Farm only addresses automobile policies, we find no reason that this precedent
would not be applied to fidelity policies.
Applying Arizona law to insurance contract interpretation, we interpret
insurance contracts “according to their plain and ordinary meaning.” Am. Family
Mut. Ins. Co. v. White, 65 P.3d 449, 452 (Ariz. Ct. App. 2003) (internal quotation
marks omitted). “When policy language is unambiguous, the court does not create
ambiguity to find coverage.” Id. If a policy clause is ambiguous, however, we
must “interpret it by looking to legislative goals, social policy, and the transaction
as a whole.” First Am. Title Ins. Co. v. Action Acquisitions, LLC, 187 P.3d 1107,
1110 (Ariz. 2008) (citing Employers Mut. Cas. Co. v. DGG & CAR, Inc., 183 P.3d
513, 515 (Ariz. 2008)). “If an ambiguity remains after considering these factors,
we [then] construe it against the insurer.” Id. We do not, however, resort to
construing ambiguities against the insurer “unless other interpretive guides fail to
elucidate a clause’s meaning.” Id.
Here, the policy language of the contracts is clear and unambiguous.
General Conditions 4, 10, 11, 12, 15(b), and the policy definition of “occurrence,”

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make it clear that Superstition is limited to one Limit of Insurance per occurrence
(here the entire embezzlement, as discussed further below). Specifically, General
Condition 4 limits coverage to losses discovered no later than one year from the
end of the policy period. Thus, because Superstition discovered its loss in July
2006, General Condition 4 limited coverage to the 2004/2005 policy (which was
cancelled in November 2005) and the 2005/2006 policy (which expired in
November 2006). General Condition 11, however, further limits coverage to one
single policy’s amount recoverable if the loss took place over more than one policy
period. Thus, under these two provisions, Superstition is limited to coverage for
the discovered loss up to a limit of insurance of $250,000.
Coupled with General Condition 12, which prohibits cumulation of policy
limits regardless of the amount of years the contract is in force, these conditions
clearly demonstrate that coverage is limited to one limit of insurance which is
payable under the current policy year’s contract.
In addition, nothing in the language of either General Condition 10 or
General Condition 15(b) suggests that Superstition could claim coverage under its
prior policies. These provisions only allow Superstition to “tack on” its losses that
were incurred prior to discovery deadline.

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The policies define an “occurrence” as “all loss caused by, or involving, one
or more ‘employees’, whether the result of a single act or series of acts.”
Examining the structure of the policies, we conclude that a new policy year does
not trigger the beginning of a new “occurrence,” as Superstition claims. Rather,
the term “occurrence” unambiguously can span more than one policy period.
General Condition 10 covers certain losses that happen before the beginning
of each policy period, and is “part of, not in addition to,” the $250,000 limit of
insurance. That limit is a per-occurrence coverage limit. The proviso that
coverage under General Condition 10 is “part of, not in addition to,” the $250,000
per-occurrence coverage limit only makes sense if an “occurrence” can begin
before the beginning of one policy period and continue into another one. That
proviso would be necessary only if one and the same occurrence could begin
during a period of prior insurance and continue into the current period.
The fact that one employee was guilty of multiple embezzlements does not
mean that there were multiple occurrences, because all of her embezzlements were
part of a single “series of acts.” Here, there was only one occurrence, a series of
embezzlements by one employee. Thus, this interpretation is supported by the
policy language as a whole, as well as by Arizona case law. In Employers, the
Arizona Supreme Court addressed the term “occurrence” in the context of a series

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of thefts by a single employee. The court noted that “[a]lthough there may be more
than one ‘occurrence’ per year under the policy, it does not follow that losses
resulting from a single employee’s embezzlement scheme are themselves separate
occurrences.” 183 P.3d at 517.
In Employers, the Arizona Supreme Court also addressed public policy
concerns at issue here. The court noted that the insured’s interpretation, that an
“occurrence” happens each time there is an individual theft, actually hurts insureds
who suffer small losses during the policy period, because thefts smaller than the
deductible “would be treated separately, preventing the insured from recovering at
all in such cases.” Employers, 183 P.3d at 519. This premise is equally true, even
if an “occurrence” was a “series of acts” in a single policy period. Accordingly,
even if this policy language were ambiguous, public policy concerns would
necessitate interpreting the policy language as limiting an “occurrence” to one limit
of insurance during the current policy period.
Lastly, Superstition argues that, under the reasonable expectations doctrine,
it is entitled to recover under each of the policies. We disagree. Under the
reasonable expectations doctrine, Arizona courts will not enforce standardized
insurance policy language in the following situations:

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1. Where the contract terms, although not ambiguous to the court,
cannot be understood by the reasonably intelligent consumer who
might check on his or her rights, the court will interpret them in light
of the objective, reasonable expectations of the average insured; [or]
2. Where the insured did not receive full and adequate notice of the
term in question, and the provision is either unusual or unexpected, or
one that emasculates apparent coverage; [or]
3. Where some activity which can be reasonably attributed to the
insurer would create an objective impression of coverage in the mind
of a reasonable insured; [or]
4. Where some activity reasonably attributable to the insurer has
induced a particular insured reasonably to believe that he has
coverage, although such coverage is expressly and unambiguously
denied by the policy.
Gordinier v. Aetna Cas. & Sur. Co., 742 P.2d 277, 283-84 (Ariz. 1987) (internal
citations omitted). None of these situations exist here. Rather (as noted by the
district court), Superstition’s expectation is simply the “fervent hope usually
engendered by loss.” Am. Family, 65 P.3d at 455 (internal quotation marks
omitted). Based upon the plain and unambiguous language of the contracts,
Travelers only provided coverage for one policy limit for all losses discovered
(during a particular policy period) that were caused by the act/acts of an employee
(or employees working together). Thus, the reasonable expectation doctrine does
not apply.
AFFIRMED.

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