Opinion
This сase presents the question of whether an insured, having suffered a $1.5 million loss as the result of over 650 thefts of the petroleum products which it markets, will be entitled to recover for such loss under its “all risk” property insurance policy when the value of the property taken in any single theft did not exceed the $100,000 deductible provided for in the policy. The issue which we are required to resolve is whether, under the facts of this case, there was but one “occurrence” or over 650 of them.
The insured appellant, EOTT Energy Corp. (EOTT), claims that the multiplе thefts were in reality an integral part of a long-standing, organized conspiracy which resulted in a systematic theft of its oil products and thus amounted to only one occurrence to which a single deductible should be applied. Because we conclude that (1) a planned and orchestrated theft of EOTT’s products (if that is in fact what happened) would amount to one loss to which a single deductible should apply and (2) EOTT raised triable issues of fact as to whether such a conspiracy existed, we reverse the summary judgment granted in favоr of the respondent insurer, Storebrand International Insurance Co. A/S (Storebrand).
Factual and Procedural Background 1
Pursuant to a processing agreement entered into in February 1991, Paramount Petroleum Corporation (Paramount) processed crude oil and manufactured petroleum products, including diesel fuel, for EOTT at Paramount’s
EOTT was an additional insured under the two relevant “all risk” policies issued to Paramount by Storebrand for the successive annual periods of July 1, 1990, to July 1, 1991, and July 1, 1991, to July 1, 1992. These policies insured EOTT against “all risks of direct physical loss or damage occurring during the [policy period] from any external cause [except as specifically excluded].” While this coverage extended to losses due to theft, it was not intended to be a blanket fidelity bond; thus, there was an exclusion which provided that: “This policy does not insure: . . . misappropriation, secretion, infidelity or dishonesty of the Insured or any of his employees; nor loss or damage resulting from the Insured voluntarily parting with title or possession of any property if induced to do so by any fraudulent scheme, trick, device or false pretense; nor any unexplained loss, mysterious disappearance or loss or shortage disclosed on taking inventory.” 2
Finally, the policy provided for a $100,000 deductible for each “occurrence.” Specifically, the policy stated, “As respects Real and Personal Property, all claims for loss, damage or expense arising out of any one oсcurrence . . . shall be adjusted as one claim, and from the amount of each such adjusted claim there shall be deducted the sum of USD 100,000 for Property Physical Damage . . . .” Unfortunately, the property loss portion of the policy did not define “occurrence.” 3
During the 11-month period from February 1991 through January 1992, EOTT suffered the loss of approximately 2,500,000 gallons of its diesel fuel. EOTT had issued access cards to several tanker trucking companies which enabled their drivers to gain access to the Paramount loading rack and automatic pumрing facilities. An authorized driver was permitted to pull his truck up to the pumping facility and, by use of the access card, start pumping fuel. The amount of fuel pumped was measured by attached meters which recorded that amount for later billing. The drivers had 24-hour access to the pumping facility and were not supervised by EOTT personnel. The thefts of
EOTT did not discover these criminal practices until January 1992. It is conceded that, by that date, the total value of the diesel fuel loss to EOTT was $1.5 million. EOTT submitted a timely claim for such loss to Store-brand. However, on February 9, 1993, Storebrand denied coverage on two grounds: (1) the “theft by trickеry” exclusion applied in that EOTT voluntarily parted with possession of and title to the fuel when the various drivers filled their tanker trucks and the acts of the drivers, in disengaging and then reactivating the fuel meters after the theft was completed, constituted a “fraudulent scheme, trick, device or false pretense” within the meaning of the exclusion; and (2) each of the 653 thefts were separate losses and since the value of the fuel taken in each theft did not exceed the $100,000 deductible specified in the policy, Storebrand had no liability.
The record reflects that EOTT prоduced evidence that, in its own investigation, Storebrand discovered evidence of an ongoing and systematic conspiracy against Paramount and EOTT. In a report, dated December 20, 1992, Storebrand’s investigator stated, “The theft of petroleum products in this manner[
5
] is said to be costing the United States $1 billion in lost tax revenues. It is well known that this organized crime is mainly managed by the Russian Mafia and émigrés from Eastern Europe. It is also accepted that many ‘contract’ murders have been committed by those involved in hijacking and stealing petroleum produсts. []□ Prima facie therefore, there are clear indications that Paramount [and EOTT] have
long been the victim of a conspiracy
between the principal trucking companies who are authorized to load fuel at its facility. Although these trucking companies (hauliers) claim to be independent, it is our strong suspicion that this is probably far removed from the truth. Intermarriage, networking and other business and social ties suggest that such independence is more apparent than real. [<J[| Such, however, is the scale of the overall problem that we have not attempted to рursue the present inquiry beyond the point where it was patently clear that [EOTT
Following Storebrand’s denial of EOTT’s claim, EOTT, on July 29, 1993, filed this action for breach of contract and breach of the implied covenant of good faith. 7 In August 1994, EOTT and Storebrand each filed a motion for summary judgment. These cross-motions raised two issues for the trial court to resolve: (1) was coverage for EOTT’s loss excluded by the “theft by trickery” exclusion; and (2) did the policy deductible of $100,000 apply to each of the 653 thefts or should this series of thefts be treated as a single occurrence?
On November 18, 1994, the trial court denied EOTT’s motion and granted the one filed by Storebrand. The court ruled in Storebrand’s favor on its second argument after rejecting its contention with respect to the applicability of the “theft by trickery” exclusion. Storebrand had argued that EOTT had voluntarily parted with the fuel because it voluntarily gave the tanker truck drivers access to thе fuel pumps. The court rejected this claim because such access had been granted on the condition that the fuel would be properly accounted for and billed.
However, with respect to Storebrand’s assertion that each of the 653 thefts should be regarded as separately subject to the policy’s $100,000 deductible, the trial court held that the argument was meritorious and, as a result, Storebrand had no liability because no single theft met the deductible. The court, in its order granting Storebrand’s motion, concluded, “The Court finds the term ‘ocсurrence’ to be unambiguous and thus applies the plain meaning of the term to the facts of this case. The thefts in this case were by different individuals at some 653 different times. Even assuming that the thefts were part of a ‘scheme’ or ‘plan,’ it would still constitute some 653 different occurrences. Thus, 653 deductibles would apply—one for each occurrence. Defendants are not liable under their policies because no single theft loss here exceeds the $100,000.00 policy deductible applicable to each ‘occurrence.’ ”
Issues Presented
Like the trial court, we are asked to resolve issues of law which go to the meaning to be given to the two relevant policy clauses. First, do the undisputed facts of this case demonstrate that the multiple thefts of diesel fuel fall within the exclusion for “theft by trickery”? Second, what meaning is to be given the undefined term “occurrence,” and could these thefts constitute only one occurrence so as to require application of a single deductiblе rather than one for each of the six hundred fifty-three thefts?
Discussion
1. Standard of review.
Summary judgment should be granted when the evidence in support of the motion establishes that there is no material issue of fact to be tried. (Code Civ. Proc., § 437c;
Molko
v.
Holy Spirit Assn.
(1988)
As already noted, there is no dispute as to the relevant facts, which we have summarized above. We exercise our independent judgment as to the legal effect of these undisputed facts.
(Coca-Cola Bottling Co.
v.
Lucky Stores, Inc., supra,
We concur with the trial court’s conclusion that the “theft by trickery” exclusion relied upon by Storebrand simply has no application to the facts of this case. The relevant portion of this exclusion would deny coverage for a loss which results from EOTT’s act of “voluntarily parting with title or possession of any property if induced to do so by any fraudulent scheme, trick, device or false pretense. . . .” (Italics added.)
Storebrand argues that EOTT voluntarily distributed the access cards to the trucking companies involved in the theft of the diesel fuel. Since such cards enabled the truck drivers to gain access to the fuel racks and pumping facilitiеs, and thus to commit the successive acts of theft, EOTT was effectively induced into parting with its fuel by the trucking companies’ false promises to pay. Like the trial court, we reject that characterization of what happened in this case.
While it may be true that the access cards enabled the dishonest truck drivers to bring their trucks to the fuel racks and to pump the fuel, such circumstances in no way enabled them to steal the fuel. That could only be accomplished by the physical act of disengaging the fuel meters. This act, which was obviоusly never anticipated or agreed to by EOTT, was what enabled the thefts to be accomplished. We can see no basis whatever for Storebrand’s conclusion that these circumstances demonstrate a “voluntary” parting with property (i.e., the diesel fuel) as the result of a fraudulent scheme, trick or device. We believe the trial court put it very well when it stated in its order: “The court believes it would probably be theft by trickery if the perpetrators took fuel (per the agreement) but never paid for it or paid for it with a worthless chеck as in
Grady Motors Corp.
v.
Travelers Fire Ins. Co.
(D.D.C. 1957)
3. An Organized and Systematic Theft of Diesel Fuel Would Constitute a Single Occurrence.
It is indeed unfortunate that the term “occurrence” is not defined in the property loss portion of the policy. While it is true that the lack of a policy definition does nоt
by itself
render the undefined term ambiguous
(Bay Cities Paving & Grading, Inc.
v.
Lawyers’ Mutual Ins. Co.
(1993)
The principles which govern the interpretation of insurance contracts are both familiar and well settled. “ ‘Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. (Civ. Code, § 1636.) Such intent is to be inferred, if possible, solely from the written provisions of the contract.
(Id.,
§ 1639.) The “clear and explicit” meaning of these provisions, interpreted in their “ordinary and popular sense,” unless “used by the parties in a technical sense or a special meaning is given to them by usage”
(id.,
§ 1644) controls judicial interpretation.
(Id.,
§ 1638.)’ [Citations.] This reliance on common understanding of language is bedrock. [1] Equally important are the requirements of reasonableness and context. First, ‘An insurance policy provision is ambiguous when it is capable of two or more constructions both of which are
reasonable.''
[Citation.] ‘Courts will not adopt a strained or absurd interpretation in order to create an ambiguity where none exists.’ [Citation.] Second,
‘[Language in a contract
must be construed in the cоntext of that instrument as a whole, and in the circumstances of that case, and
cannot be found to be ambiguous in the abstract.’
[Citations.] ‘There cannot be an ambiguity per se, i.e. an ambiguity unrelated to an application.’ [Citation.]”
(Bay Cities Paving & Grading, Inc.
v.
Lawyers’ Mutual Ins. Co., supra,
Storebrand argues that the undefined term “occurrence” has a clear and explicit meaning which governs the outcome of this case. Webster’s dictionary defines “occurrence” as “something that takes place; [especially] something that happens unexpectedly and without design.” (Webster’s New Internal. Diet. (3d ed. 1981) p. 1561.) Similarly, Black’s Law Dictionаry defines “occurrence” as “[a]ny incident or event, especially one that happens without being designed or expected.” (Black’s Law Diet. (5th ed. 1979) p. 974). Likewise, courts interpreting
property
insurance policies have held that
Based on such definitions, Storebrand argues that the plain meaning to be given to thе term of “occurrence” is that of an “incident” or “event.” Obviously, Storebrand contends, such a definition could not embrace 653 separate thefts of diesel fuel over an 11-month period by several different tanker truck drivers. However, the deductible clause relied upon by Store-brand provides that “all claims for loss, damage or expense arising out of any one occurrence . . . shall be adjusted as one claim, . . .” Given such usage, when read in the context of the policy’s promise to insure against all risks of loss occurring during the policy period, the term occurrencе could also reasonably embrace more than one claim. Further, the term is often given a special meaning by usage; in liability policies, for example, it is defined to include a continuous or repeated exposure to conditions. 9
We therefore conclude that EOTT’s claim of ambiguity of the term “occurrence” cannot be resolved by reliance on the ordinary or popular meaning of everyday use. Thus, we must ask whether the definition advanced by Storebrand is consistent with EOTT’s objectively reasonable expectations.
(Bank of the West
v.
Superior Court
(1992)
A number of cases which have considered the question of whether a series of acts constituted a single occurrence or multiple occurrences have looked
In
PECO Energy Co.
v.
Boden
(3d Cir. 1995)
Storebrand argues that the
PECO
court’s reliance on “liability insurance” cases renders the decision suspect. We disagree. The
PECO
policy, like Storebrand’s policy, was a first party property loss policy, not a third party liability policy. The
PECO
court simply looked, as do we, to liability cases which hold that a series of
related
acts, attributable to a
single
cause, may be treated as having been caused by one occurrence. Storebrand’s citation to
Newmont Mines, Ltd.
v.
Hanover Ins. Co., supra,
784 F.2d at pp. 136-137, does not persuade us otherwise. That case involved the collapse of the roof of separate parts of the same large building on different dates due to the weight of snow and ice. The evidence did not clearly establish that the second collapse had not been caused by an additional separate snowfall.
Other courts, both in California and across the country, have reached a similar conclusion when faced with a fact situation involving a series of related acts which can be attributed to a single cause; and the same principle is applied whether the coverage involves property, liability or fidelity insurance. (Ha
erens
v.
Commercial Cas. Ins. Co.
(1955)
We are persuaded to adopt and follow the rule announced in
PECO Energy Co.
v.
Boden, supra,
Conclusion
The trial court erred in granting summary judgment. The “theft by trickery” exclusion does not apply to this case and EOTT has raised material issues of fact as to whether an organized and systematic scheme existed to steal its diesel fuel products. If EOTT can establish that its loss resulted from the operаtion of such a scheme, then Storebrand can only assert a single deductible and thus would not be absolved of liability.
Disposition
The judgment is reversed and remanded for further proceedings not inconsistent with the views expressed herein. EOTT shall recover its costs on appeal.
Klein, P. J., and Kitching, J., concurred.
Respondents’ petition for review by the Supreme Court was denied August 14, 1996.
Notes
The parties essentially agree on the facts on which this appeal turns. Our recitation of the facts is taken from the separate statements of undisputed facts filed by each of the parties in suppоrt of their competing cross-motions for summary judgment. We, of course, understand that Storebrand disputes EOTT’s claim that the theft of its diesel fuel was pursuant to an organized conspiracy. Our recitation of EOTT’s claims in that regard does not mean we have found or believe such claims to be true. We simply describe them as the factual context for our legal conclusion that such a conspiracy, if proven, would justify the conclusion that there was a single occurrence under the subject policy.
This exclusion is hereafter referred to as the “theft by triсkery” exclusion.
However, the word “occurrence” was used in the umbrella liability portion of the policy and in that part of the policy it was defined: “The term ‘Occurrence,’ whenever used herein, shall mean an accident or a happening or event or a continuous or repeated exposure to conditions which unexpectedly and unintentionally results in personal injury, property damage or advertising liability during the policy period. All such exposure to substantially the same general conditions existing at or emanating from one premises location shall be deemed one occurrence.” (Italics added.)
Apparently, the usual practice was to fill the main truck tanker with measured fuel, but to fill the trailer tanker with unmeasured or stolen fuel.
The report described in detail how a number of the tanker truck drivers would disable the fuel meters after receiving a measured half load; they would then receive an unmeasured half load. On occasion, these drivers would make several trips in one night.
Storebrand contends on appeal that this report, submitted by its own investigator, was simply a theorization by him for which there was no substantiation. While that may ultimately turn out to be true, the report reads like it is stating factual conclusions. More importantly, it provides a substantial basis for our conclusion that issues of material fact exist and remain to be resolved at trial.
Storebrand removed this action to the United States District Court where, after a hearing, the federal court remanded the case back to the California forum.
EOTT’s notice of appeal was filed on November 29, 1994; such appeal was from the order granting summary judgment rather thаn the judgment itself, which had not yet been entered. On January 12, 1995, the parties amended the notice of appeal by written stipulation so that the appeal is deemed to have been taken from the judgment as entered on January 10, 1995.
Indeed, as we have noted, that is the case with the umbrella liability portion of this very policy. (See fn. 3, ante.)
We have little doubt what Storebrand’s position would be in this matter if each of the 653 thefts had resulted in a loss in excess of the deductible but with the total loss, after accounting for the deductibles, in excess of the policy limits. In such a circumstance the shoe would be on the other foot and Storebrand would most certainly argue that only a single loss had occurred.