E.J. Zeller, Inc. v. Auto Owners Ins. Co.

[Cite as E.J. Zeller, Inc. v. Auto Owners Ins. Co., 2014-Ohio-4994.]

IN THE COURT OF APPEALS OF OHIO
THIRD APPELLATE DISTRICT
DEFIANCE COUNTY

E.J. ZELLER, INC. ET AL.,

PLAINTIFFS-APPELLANTS, CASE NO. 4-14-04

v.

AUTO OWNERS INSURANCE
COMPANY, ET AL., OPINION

DEFENDANTS-APPELLEES.

Appeal from Defiance County Common Pleas Court
Trial Court No. 12-CV-42075

Judgment Affirmed in Part, Reversed in Part and Cause Remanded

Date of Decision: November 10, 2014

APPEARANCES:

Marc F. Warncke for Appellants

Gordon D. Arnold and Patrick J. Janis for Appellees
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ROGERS, J.

{¶1} Plaintiffs-Appellants, E.J. Zeller, Inc. (“Zeller”) and City Rentals, Inc.

(“CRI”), appeal the judgment of the Court of Common Pleas of Defiance County

granting summary judgment in favor of Defendants-Appellees Auto Owners

Insurance Company and Owners Insurance Company (collectively “Auto

Owners”). On appeal, CRI argues that the trial court erred by applying the

incorrect limit of insurance to its claims. Zeller and CRI also argue that the trial

court misinterpreted the underlying insurance contracts when granting summary

judgment for Auto Owners. For the reasons that follow, we affirm in part and

reverse in part the trial court’s judgment.

{¶2} On June 16, 2003, Zeller purchased a Tailored Protection Policy from

Owners Insurance Company which contained several different sections that

provided coverage for different losses, each with different premium amounts.

(Docket No. 4, Motion for Summary Judgment in Case 10 CV 40798 (“Summary

Judgment Motion”), Exhibit M, p. 1).1 Two different sections under the Tailored

Protection Policy covered acts of employee dishonesty. The Property Plus

Coverage included an endorsement entitled Employee Dishonesty (“Property

Endorsement”). The endorsement extended coverage to losses caused by

1
A declaratory judgment action commenced prior to the action in the case sub judice. While the prior case
was dismissed without prejudice, the attachments to the summary judgment motion filed by Auto Owners
were made a part of the record in this case. (See Docket No. 4, p. 1). While the summary judgment
motion, its attachments and its exhibits are all a part of the record, they do not have independent docket
numbers. Therefore, we refer to any of the materials attached to the summary judgment motion by the
journal entry in the docket that made them a part of the record in this case.

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employee dishonesty up to a limit of $10,000. Additionally, the Tailored

Protection Policy included Commercial Crime Coverage. An Employee

Dishonesty Coverage Form (“Crime Endorsement”)2 was part of the Commercial

Crime Coverage, and included additional coverage for loss caused by employee

dishonesty up to a limit of $50,000. The policy period began at 12:01 AM on

August 12, 2003, and ended at 12:01 AM on August 12, 2004. Zeller purchased

similar policies in each successive year covering all periods through August 12,

2009. Each policy was categorized as a renewal, each new policy period began on

August 12 at 12:01 AM in the year of the expiring prior policy period, and each

policy period ended on August 12, 12:01 AM the following year. The declarations

for the Commercial Crime Coverage stated that acceptance of the next year’s

coverage was notice that the prior year’s coverage had been cancelled.

{¶3} On April 22, 2005, CRI purchased a similar Tailored Protection Policy

from Auto Owners Insurance Company which also contained coverage under

several different sections with different premium amounts that were similar to the

Zeller policy. The Property Plus Coverage in the policy included the same

Property Endorsement contained in the policies purchased by Zeller, which

extended coverage to losses caused by employee dishonesty up to a limit of

$10,000. Commercial Crime Coverage, identical to the coverage in the Zeller

2
We note, for the sake of clarity, that the Employee Dishonesty Coverage Form does not state that it is an
endorsement to the policy. We refer to it as an endorsement because it adds coverage for employee
dishonesty to the commercial crime coverage.

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policies, contained the same Crime Endorsement that provided additional coverage

for losses caused by employee dishonesty up to a limit of $50,000. CRI’s policy

period began at 12:01 AM on June 10, 2005 and ended at 12:01 AM on June 10,

2006, and the Commercial Crime Coverage specifically stated that acceptance of

the current year’s coverage cancelled the prior year’s coverage.

{¶4} On June 10, 2006, CRI renewed the policy with similar terms. On

June 10, 2007, CRI again renewed the policy, but discontinued the Commercial

Crime Coverage, which resulted in a discontinuation of the additional $50,000

coverage for employee dishonesty. The policy continued to include the Property

Endorsement for employee dishonesty up to a limit of $10,000. On June 10, 2008,

CRI renewed the policy, increasing the limit of insurance in the Property

Endorsement for employee dishonesty from $10,000 to $15,000. Each policy was

categorized as a renewal.

{¶5} Robin Bauer was a bookkeeper for Zeller. She began working in the

same capacity for CRI in 2005. Over the course of her employment with both

companies, she embezzled substantial amounts, which was discovered on August

8, 2008. She was subsequently fired by both companies, and Auto Owners was

informed of the loss on August 11, 2008. After investigating the claims of both

companies, Auto Owners ultimately paid $60,000 in benefits under the policy

issued to Zeller and $15,000 under the policy issued to CRI, representing the

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maximum allowed under the limits of insurance contained in the current policies

for each company.

{¶6} Zeller and CRI filed for declaratory judgment in the Court of Common

Pleas of Defiance County on September 13, 2012, claiming that Auto Owners was

required to pay up to the limit of insurance under each policy in effect over the

course of Bauer’s embezzlement. Auto Owners filed a motion for summary

judgment on January 14, 2013, claiming that Zeller and CRI were only entitled to

payment up to the limit of insurance under the current policy. Cross motions for

summary judgment were filed by both Zeller and CRI, claiming that the policies

were unclear and ambiguous, requiring that the contract be interpreted to allow

them to make claims against each policy in effect during the time when Bauer was

embezzling money. On December 30, 2013, the trial court granted summary

judgment in favor of Auto Owners, finding that the policies clearly and

unambiguously limited Zeller and CRI to a single recovery under the current

policy, and dismissed the claims.

{¶7} It is from this judgment Zeller and CRI filed this timely appeal,

presenting the following assignments of error for our review.

Assignment of Error No. I

THE TRIAL COURT ERRED IN FAILING TO HOLD THAT
CRI IS ENTITLED TO A MINIMUM OF $45,000 OF
ADDITIONAL COVERAGE, BECAUSE THE “PRIOR LOSS’
[SIC] PROVISION OF THE POLICY MAKES THE
COVERAGE LIMIT APPLICABLE TO THIS

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“OCCURRENCE” $60,000, RATHER THAN $15,000 AS THE
DEFENDANTS CLAIM.

Assignment of Error No. II

THE COURT ERRED WHEN IT LIMITED BOTH
PLAINTIFFS TO A SINGLE YEAR’S POLICY LIMIT,
BECAUSE A FAIR READING OF THE DEFINITION OF
“OCCURRENCE,” THE “PRIOR LOSS,” “NON-
CUMULATION” AND “DISCOVERY OF LOSS”
PROVISIONS OF THE POLICIES SHOWS THEM TO BE
UNCLEAR, AMBIGUOUS, AND SUSCEPTIBLE TO MORE
THAN ONE INTERPRETATION, WHEN APPLIED IN THE
CONTEXT OF A LARGE LOSS COMMITTED BY THE
SAME EMPLOYEE OVER SEVERAL YEARS.

{¶8} Due to the nature of the assignments of error, we elect to address them

out of order.

Assignment of Error No. II

{¶9} In their second assignment of error, Zeller and CRI argue that the trial

court erred when it limited their recovery to the current policy. We agree.

A. Standard of Review

{¶10} An appellate court reviews a summary judgment order de novo.

Hillyer v. State Farm Mut. Auto. Ins. Co., 131 Ohio App.3d 172, 175 (8th

Dist.1999). Accordingly, a reviewing court will not reverse an otherwise correct

judgment merely because the lower court utilized different or erroneous reasons as

the basis for its determination. Diamond Wine & Spirits, Inc. v. Dayton

Heidelberg Distrib. Co., 148 Ohio App.3d 596, 2002-Ohio-3932, ¶ 25 (3d Dist.),

citing State ex rel. Cassels v. Dayton City School Dist. Bd. of Edn., 69 Ohio St.3d

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217, 222 (1994). Summary judgment is appropriate when, looking at the evidence

as a whole: (1) there is no genuine issue as to any material fact, and (2) the moving

party is entitled to judgment as a matter of law. Civ.R. 56(C). In conducting this

analysis the court must determine “that reasonable minds can come to but one

conclusion and that conclusion is adverse to the party against whom the motion for

summary judgment is made, [the nonmoving] party being entitled to have the

evidence or stipulation construed most strongly in the [nonmoving] party’s favor.”

Id. If any doubts exist, the issue must be resolved in favor of the nonmoving

party. Murphy v. Reynoldsburg, 65 Ohio St.3d 356, 359 (1992).

{¶11} The party moving for summary judgment has the initial burden of

producing some evidence which demonstrates the lack of a genuine issue of

material fact. Dresher v. Burt, 75 Ohio St.3d 280, 292 (1996). In doing so, the

moving party is not required to produce any affirmative evidence, but must

identify those portions of the record which “affirmatively demonstrates that the

nonmoving party has no evidence to support the nonmoving party’s claims.” Id. at

293. The nonmoving party must then rebut with specific facts showing the

existence of a genuine triable issue; the nonmoving party may not rest on the mere

allegations or denials contained in the pleadings. Id.; Civ.R. 56(E).

B. Interpretation of Insurance Policies

{¶12} Initially, we note that how employee dishonesty coverage operates

when losses caused by embezzlement span multiple policy periods is a question of

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first impression in Ohio. The parties brought this to the attention of this court, and

we have been unable to find any relevant Ohio case law. Numerous cases in other

jurisdictions have come to opposite conclusions as to how similar policies operate

to cover losses that span multiple policy years. Compare Adolf Jewelers, Inc. v.

Jewelers Mut. Ins. Co., 614 F.Supp.2d 648, 654-655 (E.D. Vir.2008) (finding

insured could make claims against multiple policies) with Wausau Business Ins.

Co. v. U.S. Motels Management, Inc., 341 F.Supp.2d 1180, 1183-1184

(D.Col.2004) (finding insured was limited to recovering under most recent policy).

However, as these cases are merely persuasive, we must determine how the policy

operates under Ohio law.

{¶13} “An insurance policy is a contract, and its interpretation is a matter of

law for the court.” Allstate Ins. Co. v. Eyster, 189 Ohio App.3d 640, 2010-Ohio-

3673, ¶ 17 (3d Dist.), citing Sharonville v. Am. Emp. Ins. Co., 109 Ohio St.3d 186,

2006-Ohio-2180, ¶ 6. “The starting point for determining the scope of coverage is

the language of the insurance policies.” Goodyear Tire & Rubber Co. v. Aetna

Cas. & Sur. Co., 95 Ohio St.3d 512, 2002-Ohio-2842, ¶ 7. “The coverage under

an insurance policy is determined by construing the contract ‘in conformity with

the intention of the parties as gathered from the ordinary and commonly

understood meaning of the language employed.’ ” Eyster at ¶ 17, quoting King v.

Nationwide Ins. Co., 35 Ohio St.3d 208, 211 (1988). An insurance policy must be

examined “as a whole and [with the presumption] that the intent of the parties is

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reflected in the language used in the policy.” Westfield v. Galatis, 100 Ohio St.3d

216, 2003-Ohio-5849, ¶ 11.

{¶14} As the Ohio Supreme Court has noted, “[i]f it is reasonable to do so,

we must give effect to each provision of [an insurance contract].” Cincinnati Ins.

Co. v. CPS Holdings, Inc., 115 Ohio St.3d 306, 2007-Ohio-4917, ¶ 17. Provisions

should not “ ‘be wholly disregarded as inconsistent with other provisions unless no

other reasonable construction is possible.’ ” Karabin v. State Auto. Mut. Ins. Co.,

10 Ohio St.3d 163, 167 (1984), quoting German Fire Ins. Co. v. Roost, 55 Ohio

St. 581 (1897), paragraph one of the syllabus. Insurance policies should be

“enforced in accordance with their terms as are other written contracts.” Rhoades

v. Equitable Life Assur. Soc. of the U.S., 54 Ohio St.2d 45, 47 (1978).

{¶15} While terms in an insurance contract are to be given their plain and

ordinary meaning, any ambiguity is construed against the insurer. Lager v. Miller-

Gonzalez, 120 Ohio St.3d 47, 2008-Ohio-4838, ¶ 15. However, “[a]mbiguity

exists only when a provision at issue is susceptible of more than one reasonable

interpretation.” Id. at ¶ 16. “Where the provisions of the policy are clear and

unambiguous, courts cannot enlarge the contract by implication so as to embrace

an object distinct from that originally contemplated by the parties.” Rhoades at

47. Further, courts cannot construe ambiguity in favor of the insured where it

results in “an unreasonable interpretation of the words of the policy.” CPS

Holdings, Inc., at ¶ 8.

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{¶16} The trial court found that “the policy terms, ‘occurrence’, ‘discovery

of loss’, ‘prior loss’, and ‘non cumulation’ taken individually and together * * *

[are] clear, unambiguous and not reasonably subject to misunderstanding.”

(Docket No. 21, p. 4). In applying these terms, the trial court found that Auto

Owners was only required to pay up to the limits of insurance in the most recent

policy year. In essence, these terms resulted in the current policy excluding

coverage under any prior policy. However, the trial court did not explain its

analysis as to how these different provisions operated to exclude coverage.3 Zeller

and CRI argue that the terms relied on by the trial court are ambiguous as to

whether they operate, either individually or combined, to result in the current

policy excluding coverage under all prior policies, and as such must be read in

their favor. As the insurance policy operates as a whole, we will discuss each of

the provisions utilized by the trial court in its determination in the context of how

the endorsements provide coverage.

3
The trial court relied upon its own prior decision of Stykemain-Pontiac-Buick GMC Ltd. V. Motorists
Mutual Ins. Co., Defiance C.P. No. 08-CV-39170 (Mar. 23, 2012), which became a part of the record as an
attachment to Auto Owners’ summary judgment motion. (Docket No. 8, Exhibit S). At oral argument,
Auto Owners stated that any lack of analysis in the current case can be remedied by looking to the
judgment entry in the prior case. However, the prior judgment also failed to definitively analyze the
policies. While the Stykemain decision discusses the arguments of the insured and insurer, it does not
analyze the language of the actual provisions of the policy. Indeed, the actual language of the policy
provisions does not even appear in the judgment entry, only the same shorthand descriptors utilized in the
case sub judice. Further, the trial court in Stykemain, while noting that Auto Owners provided arguments
as amici curia, did not specify which authorities it relied on or why it was adopting their reasoning.
Instead, the Stykemain court stated that it would “not reiterate here the various citations and analysis but
acknowledges the persuasiveness of the various authorities.” (Id. at p. 6). It goes on to state that none of
the provisions are ambiguous without explaining how they operate. There is otherwise no independent
analysis of the policies or any reference to any authority in either judgment entry.

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C. Exclusions

{¶17} While the provisions utilized by the trial court were not specifically

titled exclusions in the policy, it nevertheless found that they limited recovery to

the current policy. In essence, the trial court found that the terms in the most

current policy operated to exclude coverage under any prior policy. As the Ohio

Supreme Court has noted, “an exclusion in an insurance policy will be interpreted

as applying only to that which is clearly intended to be excluded.” (Emphasis sic.)

Hybud Equip. Corp. v. Sphere Drake Ins. Co., Ltd., 64 Ohio St.3d 657, 665

(1992). An insurer “must demonstrate that the [exclusion] in the policy is capable

of the construction [the insurer] seeks to give it, and such construction is the only

one that can be fairly placed upon the language.” Bosserman Aviation Equip., Inc.

v. U.S. Liab. Ins. Co., 183 Ohio App.3d 29, 2009-Ohio-2526, ¶ 11 (3d Dist).

Therefore, for Zeller and CRI to be limited to recovering under their most current

policies, we must find that the policies clearly exclude recovery under any other

prior policy.

{¶18} Before discussing how the exclusions operate, our analysis requires a

determination as to whether there were separate policies for each year that Bauer

embezzled or whether there existed a single, continuous contract over the entire

period of her embezzlement. Zeller and CRI argue that they should be allowed to

make claims against each insurance policy in effect over the course of Bauer’s

misconduct, which would require a finding of separate contracts. Auto Owners

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argues that the provisions operate to limit recovery to the most recent policy

“[w]hether there is one insurance contract over several years, or separate

successive yearly contracts * * *.” Appellee’s Br., p. 3. However, Auto Owners’

interpretation belies the fact that many of the provisions only operate when prior

policies are involved. Were we to find one continuous contract, there would be no

prior policies, as the policy period of the first contract would not have ended but

been extended. Therefore, because it affects the rest of our analysis, we must first

determine whether the insurance policies are separate contracts or one long

continuous contract.

{¶19} “Generally, the renewal of an insurance policy represents a separate

and distinct contract.” Francis v. McClandish, 4th Dist. Athens No. 98CA21,

1999 WL 266680, *7 (April 19, 1999), citing Russ & Segalla, Couch on

Insurance, Section 29.33 (3d Ed.1997). The language of the instrument itself

determines whether a renewal is a new contract or the continuation of an old

contract. Dixon v. Professional Staff Mgt., 10th Dist. Franklin No. 01AP-1332,

2002-Ohio-4493, ¶ 25. Other courts have found that where the policy period has a

definite beginning and end and the coverage only applies to acts within the policy

period, a renewal creates a separate contract. See Dixon at ¶ 27; McClandish at

*8. However, even where a policy period has definitive beginning and ending

dates, if the terms specify that the policy period is part of a larger guaranteed

period of coverage, then each renewal forms a part of a single, continuous

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contract. Townsend v. State Farm Mut. Auto Ins. Co., 6th Dist. Sandusky No. S-

97-059, 1998 WL 484537, *4 (Aug. 14, 1998). As the Ohio Supreme Court has

noted:

[A] contract containing a renewal option constitutes a present grant
only for the original term, and a new contract must be executed at
the end of such term if the option to renew is to be exercised. On the
other hand, a contract which may be characterized as one containing
an option to extend an agreement constitutes a present grant which,
upon exercise of the option, operates to extend the term of the
original agreement and the contract then becomes one for both the
original and extended term.

State ex rel Preston v. Ferguson, 170 Ohio St. 450, 457-458 (1960).

{¶20} Here, there are several factors that weigh in favor of finding that the

renewals created new contracts for insurance. The policy period of each contract

lasted for one year and had definitive beginning and ending dates and times. (E.g.,

Summary Judgment Motion, Exhibit I, Tailored Protection Policy Declarations, p.

1).4 The declarations for the Commercial Crime Coverage specifically state that

“[b]y Acceptance [sic] of this fidelity bond you give us notice cancelling prior

fidelity bond the cancellation to be effective at the time this policy becomes

effective.” (Id. at p. 19).

{¶21} Further, the Crime General Provisions, which affect the Crime

Endorsement, state that the policy would “pay only for loss that you sustain

4
We note that, while appearing on different pages in the specific policies, the language of the employee
dishonesty provisions was the same in all of the contracts between both companies. We therefore elect to
use the page numbers provided for the specific provisions, instead of noting the page numbers for each
specific policy.

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through acts committed or events occurring during the Policy Period.” (E.g.,

Summary Judgment Motion, Exhibit I, Crime General Provisions (“Crime General

Provisions”), p. 3). The Property Endorsement contained an identical provision.

(E.g., Summary Judgment Motion, Exhibit I, Employee Dishonesty Endorsement

(“Property Endorsement”), p. 4). Nothing states that the policy period is part of a

larger grant of coverage, nor does anything in the contract specify that a renewal

extends the terms of the original contract. As a result, we find that each renewal

of the policy created a separate and distinct contract of insurance.

{¶22} We next turn to the provisions of the contracts to determine whether

they operate to exclude coverage under prior policies.

1. Occurrence

{¶23} The term “occurrence” is found in the definition section for each

endorsement, which states:

“Occurrence” means all loss caused by, or involving one or more
“employees”, whether the result of a single act or series of acts.

(Boldface sic.) (Property Endorsement, p. 6; Summary Judgment Motion, Exhibit

I, Employee Dishonesty Coverage Form (“Crime Endorsement”), p. 2). As a

defined term, “occurrence” is not an exclusion from coverage. Therefore, standing

alone, the term does nothing to exclude coverage under prior policies.

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{¶24} However, what losses are attributable to an “occurrence” has an

impact on how other exclusions operate. The grant of coverage in the Property

Endorsement states:

A. COVERAGE

We will pay for loss involving Covered Instruments5 resulting
directly from the Covered Cause of Loss.

1. Covered Property: “Money”, “securities”, and “property other
than money and securities”.

2. Covered Cause of Loss: “Employee Dishonesty”.

(Boldface sic.) (Property Endorsement, p. 1). The Crime Endorsement states:

A. COVERAGE

We will pay for loss of, and loss from damage to, Covered Property
resulting directly from the Covered Cause of Loss.

1. Covered Property: “Money”, “securities”, and “property other than
money and securities”.

2. Covered Cause of Loss: “Employee Dishonesty”.

(Boldface sic.) (Crime Endorsement, p. 1). For each endorsement, each act of

employee dishonesty creates an individual loss. The term “occurrence” is used to

aggregate these individual losses together.

{¶25} When determining which individual losses are aggregated together,

other courts have determined that an “occurrence” that covers “all loss” includes

losses caused by employee dishonesty that were covered under prior policies,
5
While the endorsement states that it will pay for loss to covered instruments, it then defines covered
“property.” This appears to be a clerical error and does not affect our analysis.

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independent of whether that loss is otherwise excluded under the current policy.

See Employers Mut. Cas. Co. v. DGG & CAR, Inc., 218 Ariz. 262, 264-265 (2008)

(analyzing “occurrence” independently and finding recovery was limited to the

limits of a single policy); Glaser v. Hartford Cas. Ins. Co., 364 F.Supp.2d 529,

538 (D.Md.2005) (performing a similar analysis and reaching a similar

conclusion, but determining that recovery was not limited to a single policy).6

However, whether the term “occurrence” has any effect on prohibiting recovery

under multiple policies is dependent upon how the term is used. Indeed, were the

term not used at all in the rest of the policy, any analysis of the term would be

irrelevant to determining coverage. How much loss is included in an “occurrence”

will depend upon how it is used in a specific provision. Therefore, we will

analyze what losses are encompassed by the term by discussing its presence, or

absence, in the other provisions.

2. Policy Period

{¶26} While not addressed by the trial court, each endorsement contains an

identical provision entitled Policy Period. They state:

Policy Period

a. The Policy Period is shown in the [Declarations.]

6
At least one court has made a determination on whether recovery was limited to a single policy
independent of analyzing the loss included in an “occurrence.” Emcor Group, Inc. v. Great Amer. Ins. Co.,
D.Md. No. ELH-12-142, 2013 WL 1315029, *20-21 (Mar. 27, 2013).

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b. Subject to the Loss Sustained During Prior Insurance condition,
we will pay only for loss that you sustain through acts
committed or events occurring during the Policy Period.

(Boldface sic.) (Property Endorsement, p. 4; Crime General Provisions, p. 3).

This provision excludes any loss caused by acts of employee dishonesty outside

the policy period from coverage. Thus, losses attributable to acts that occurred

during prior policy periods would not be covered under the current policy.

However, this provision does not clearly state that coverage under prior policies

for those losses is excluded by the current policy. It is merely a limit of coverage

under the current policy.

3. Discovery of Loss

{¶27} For a loss to be covered under either the Property Endorsement or the

Crime Endorsement, it must be discovered within a certain time. Both are affected

by an identical provision, which states:

Discovery Period for Loss: We will pay only for covered loss
discovered no later than one year from the end of the policy period.

(Boldface sic.) (Crime General Provisions, p. 2; Property Endorsement, p. 2). This

creates a temporal limit as to when a loss must be discovered. The Discovery

Period for Loss limits recovery under any one policy to those losses discovered

within one year after the policy period ends. Thus, this provision excludes

recovery for any loss that would otherwise be covered if it is discovered outside

the time period.

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{¶28} However, this provision does not cause the current policy to exclude

coverage under prior policies. Instead, it is merely a time limit for when losses

caused by acts in the current policy period must be discovered to trigger coverage.

The provision acts as an expiration date for the insurer’s liability under each

policy. Losses caused by acts inside the policy period which are discovered while

the policy is still in effect, or in the year immediately after the policy period

ended, are still covered. However, once a year has passed, the policy coverage

expires and can no longer provide any coverage for any losses. Thus, while this

provision in the current policy does nothing to limit recovery under prior policies,

coverage can be defeated under a prior policy, so long as it contains this provision

and losses were not discovered within one year after the end of the respective

policy periods.

4. Prior Loss

{¶29} Each endorsement contains the following provision:

Loss Covered Under This Insurance and Prior Insurance Issued
by Us or Any Affiliate: If any loss is covered:

a. Partly by this insurance; and

b. Partly by any prior canceled or terminated insurance that we or
any affiliate had issued to you or any predecessor in interest;

the most we will pay is the larger amount of the amount recoverable
under this insurance or the prior insurance.

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(Boldface sic.) (Crime General Provisions, p. 3; Property Plus Coverage, p. 3-4).

This provision specifically limits coverage for an individual loss that is covered

under two policy periods. However, as discussed, each policy only covers losses

caused by acts that occur inside of the policy period. Any loss attributable to acts

that occur solely outside the policy period are automatically excluded under each

policy. Thus, this provision cannot apply to an individual loss attributable only to

acts inside the policy period of a single policy, as that loss will only be covered by

one policy. Instead, this provision applies when acts occurring in two separate

policy periods contribute to an individual loss. Under those circumstances, this

exclusion would allow the insured to have the benefit of whichever policy

provided greater coverage for that individual loss, but not be allowed to claim that

loss under two different policies periods.

{¶30} Notably, this provision does not utilize the term “occurrence.” It

applies to individual losses, not to an aggregation of losses. Indeed, were this

provision to apply when an “occurrence” was partly covered by two policies, then

an occurrence would necessarily include losses covered under prior policies.

However, as this provision is written, it only applies when a loss spans multiple

policy periods. Thus, while this provision limits recovery for an individual loss

that spans multiple policy periods, it does not otherwise exclude coverage under

prior policies that are attributable to acts that occurred solely during that policy

period.

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5. Non-Cumulation

Both endorsements contain identical provisions, which state:

Non-Cumulation of Limit of Insurance: Regardless of the number
of years this insurance remains in force or the number of premiums
paid, no Limit of Insurance cumulates from year to year or period to
period.

(Boldface sic.) (Property Endorsement, p. 4, Crime General Provisions, p. 3).

Unlike the other provisions discussed, this provision specifically applies to

multiple policies. However, it does not operate to exclude coverage under prior

policies. This provision is specifically limited to “this insurance.” While “this

insurance” is not defined in the policy, when it is used elsewhere it is only in

reference to the current policy, not to all policies issued by the insurers. Indeed,

the Prior Loss exclusion operates when a loss was covered under “this insurance”

and any prior insurance issued by the insurers. Thus, the definition of the term

“this insurance” cannot include any prior insurance. As a result, the Non-

Cumulation provision only operates in the event that “this insurance,” i.e. the

current policy, is extended or otherwise covers multiple years. When each policy

period is covered by a different contract for insurance, this exclusion does nothing

to limit recovery to a single policy.

{¶31} While this appears to result in a complete disregard for this provision

when single year policies are involved, the exclusion has meaning in the context of

the entire insurance contract. This provision is inside an endorsement. The

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endorsement is subject to the provisions and declarations of the underlying

insurance contract. The endorsement does not contain many of the essential terms

of the contract, such as the actual amount of the limit of insurance, the duration of

the policy period, or the amount or number of premiums paid. This provision

makes clear that no matter how those provisions are defined elsewhere in the

policy, the limits of insurance in the endorsement in the current policy do not

stack from year to year. Further, if the current policy is extended instead of

renewed, the limit of insurance would remain the same. This provision cannot

operate to limit recovery under prior policies because the language clearly does

not apply to prior policies.

{¶32} However, even if we were to find that this provision affects prior

insurance policies, the result would not change. This provision does not allow the

limits of insurance to cumulate from year to year or period to period to enlarge the

recovery under the current policy. Cumulate is defined as:

1: to gather or pile up into a heap: heap together: accumulate

2a: to combine (as votes, law actions, or penalties) into one, specif.:
to combine (the entries of preceding issues) in successive issues (as
of an index or catalogue

b: to enlarge by addition of new material.

Webster’s Third New International Dictionary 553 (2002). Thus the Non-

Cumulation provision prohibits the adding together of the limit of insurance in a

different policy to the limit of insurance in the current policy to increase recovery

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under the current policy. Where separate recoveries are sought from separate

policies, the limits of insurance are not added together. Instead, there are multiple

recoveries up to the limits of insurance under each policy. This is a cumulation of

recoveries, not the cumulation of the limit of insurance. As a result, this exclusion

does not limit recovery to a single policy.

6. Limit of Insurance

{¶33} Each endorsement contains a Limit of Insurance. The Crime

Endorsement states:

LIMIT OF INSURANCE

The most we will pay for loss in any one “occurrence” is the
applicable Limit of Insurance shown in the Declarations.

(Boldface sic.) (Crime Endorsement, p. 1). The Property Endorsement states:

LIMIT OF INSURANCE

The most we will pay for loss in any one “occurrence” is the Limit
of Insurance shown in the Declarations for EMPLOYEE
DISHONESTY.

(Boldface sic.) (Property Endorsement, p. 2). This provision utilizes the term

“occurrence.” While an occurrence covers “all loss,” it only includes losses to

which the provision otherwise applies. The limit of insurance is the only way to

limit liability for losses that are otherwise covered. Only when the final amount

of covered loss has been determined will the limits of insurance apply to

determine the extent of the insurance company’s liability under the policy. Thus,

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only those losses that are otherwise covered are grouped into an “occurrence” for

the purposes of this exclusion. Losses that have been excluded from coverage by

other provisions are not a part of the “occurrence” because they create no liability

that needs to be limited.

{¶34} As discussed, any loss that is caused by acts outside the policy

period, and any loss caused by acts within the policy period but discovered more

than one year from the end of the policy period, are otherwise excluded from

coverage under each policy. Therefore, those losses cannot be part of the

“occurrence” under the Limit of Insurance for that policy. As the Limit of

Insurance only applies to an “occurrence,” it does nothing to limit coverage for

any losses that are not a part of an “occurrence” under that policy. The Limit of

Insurance operates only to define the extent of liability for losses that are

otherwise covered under the policy. There is no need to limit liability for losses

that are otherwise already excluded from coverage. Those losses may be covered

under a different policy up to that policy’s Limit of Insurance.

D. Summary of Coverage

{¶35} As none of these provisions on their own limit the recovery of Zeller

or CRI to a single policy year, they cannot accomplish the same collectively. The

policies are clear and unambiguous. Each policy issued by Auto Owners was a

new, separate policy of insurance. While there is no recovery under a policy that

ended more than one year before a loss was discovered, no exclusion otherwise

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limits recovery to a single policy.7 Insofar as the trial court found that the current

policy excluded recovery under any other policy, it was incorrect. However, the

Discovery Period of Loss operates to eliminate coverage under any policy that

ended more than one year before August 8, 2008, which is when Bauer’s

embezzlement was discovered. Thus, Zeller can seek coverage under the policy in

effect from August 12, 2006, until August 12, 2007, as the loss was discovered

within a year after the policy period ended. And, of course, Zeller can seek

coverage under the policy in effect from August 12, 2007, until August 12, 2008,

which is the policy in effect when the loss was discovered.8

{¶36} CRI can seek coverage under the policy in effect from June 10, 2007,

until June 10, 2008, as the loss was discovered within one year after the policy

period ended, as well as the policy in effect from June 10, 2008, until June 10,

2009, which is the policy in effect when the loss was discovered. For any other

policy, summary judgment was proper. It remains to be determined which losses

can be attributable to acts inside each policy period.

7
We stress again that under Ohio law, an exclusion must be clear and unambiguous to defeat coverage.
That Auto Owners had to point to multiple policy provisions in its attempt to prove the exclusion existed,
instead of pointing to a provision that clearly states that the current policy excludes coverage under any
prior policy, is further evidence that the exclusion is not a part of the policy.
8
Zeller provided information that there may be some loss attributable to acts inside the policy period from
August 12, 2008, until August 12, 2009. If true, that policy would also be triggered. However, it is the
August 8, 2008 discovery that sets the period to determine if any prior policies have been triggered. Thus,
any additional loss after this date does not alter our conclusion that the 2006-2007 policy and the 2007-
2008 policy are also triggered.

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{¶37} Accordingly, Zeller’s and CRI’s second assignment of error is

sustained as to the two most recent policies and overruled for all other prior

policies. (But see fn. 8)

Assignment of Error No. I

{¶38} The first assignment of error applies only to CRI, which argues that

the trial court erred in determining the correct Limit of Insurance for Bauer’s

misconduct. CRI argues that the prior loss provision allows them to reap the

benefit of a higher limit of insurance found in a prior policy.9 We disagree.

{¶39} The Prior Loss provision, discussed above, applies when a loss is

partly covered by two insurance policies issued by Auto Owners. From a factual

perspective, there is nothing in the record as to whether an individual loss is

attributable to acts that occurred both during the 2007-2008 policy, and the 2006-

2007 policy period which had an additional $50,000 in employee dishonesty

coverage. However, even assuming that a loss is partly covered under both

policies, the Prior Loss provision requires Auto Owners to pay “the larger of the

amount recoverable under this insurance or the prior insurance.” (Emphasis

added.) (Property Endorsement, p. 4). The Discovery of Loss provision precludes

recovery for a loss discovered after one year from the end of the policy period.

The 2006-2007 policy is outside of the Discovery of Loss period. Thus, the

9
We note that this argument is not moot by determination of the second assignment of error. As we have
been tasked with determining as a matter of law how the policy provisions interact with one another, and as
the trial court must now determine the loss attributable to acts inside of each policy year, we must
determine which limits of insurance apply.

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amount recoverable under the 2006-2007 policy is zero. As a result, the trial court

correctly found that CRI is not entitled to the higher amount of coverage found in

the 2006-2007 policy.

{¶40} Accordingly, CRI’s first assignment of error is overruled.

{¶41} Having found error no error prejudicial to CRI in the first assignment

of error, but having found error prejudicial to Zeller and CRI in the second

assignment of error, we affirm in part and reverse in part the trial court’s judgment

and remand the matter for further proceedings consistent with this opinion.

Judgment Affirmed in Part,
Reversed in Part, and
Cause Remanded

WILLAMOWSKI, P.J. and PRESTON, J., concur.

/jlr

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