(May 2024) - In Apex Solutions, Inc. v. Falls Lake Ins. Man. Co., Inc., 100 Cal.App.5th 1249 (March 28, 2024), the California First District Court of Appeal affirmed the trial court's entry of summary judgment in connection with the number of occurrences arising out of the theft of inventory taken from two vaults at a cannabis facility located in Oakland, California. The thefts occurred approximately an hour apart. The facility was owned by Apex Solutions, Inc. ("Apex") and was insured under a property policy issued by Falls Lake National Insurance Company ("Falls Lake"). The Falls Lake policy afforded property coverage with limits of $600,000 per occurrence. Falls Lake paid Apex $673,477, taking the position that the thefts were caused by a single occurrence entitling Apex to a single limit of $600,000 plus $73,477 for lost business income.
Apex contended that the thefts involved two occurrences entitling it to $1.2 million plus additional lost business income. Based on Falls Lake's position, Apex filed a breach of contract and bad faith lawsuit against Falls Lake. In response, Falls Lake filed a motion for summary judgment arguing that the thefts were caused by a single occurrence. The trial court agreed and entered judgment in favor of Falls Lake.
In affirming that portion of the trial court's decision regarding the number of occurrences, the Court of Appeal reasoned as follows:
Turning to the first issue presented, we begin with the text of the Policy. The first party Property Coverage, Section A, states that "We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations"—a metal building at 8435 Baldwin Street, Oakland—"caused by or resulting from any covered cause of loss." It is undisputed that "direct physical loss" encompasses physical displacement or loss of physical possession," including loss by theft. (See EOTT Energy Corp. v. Storebrand Internat. Ins. Co. (1996) 45 Cal.App.4th 565, 569 [52 Cal. Rptr. 2d 894] (EOTT) [coverage against "'all risks of direct physical loss or damage- includes theft losses].)
"Covered Property" includes "Business Personal Property," which in turn includes "Stock," a term defined to mean "merchandise held in storage or for sale." At issue in this case is the policy limit applicable to claims for loss of "Cannabis Inventory," a specific kind of Stock under one of the Special Forms that comprise the Property Coverage. "The most we will pay for loss or damage in any one occurrence," the Policy provides, "is the applicable Limit Of Insurance." The Declarations page, which lists the applicable "Limit of Insurance" for each "Covered Cause of Loss" under the Special Forms, shows a per occurrence limit of $600,000 for "Cannabis Inventory Coverage."
"A policy limit'(or 'limit of liability') is the maximum amount the insurer is obligated to pay in contract benefits on a covered loss." (Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2023) ¶ 3.64 (Croskey et al., Insurance Litigation); see George v. Automobile Club of Southern California (2011) 201 Cal.App.4th 1112, 1128-1129 [135 Cal. Rptr. 3d 4801.) The question we address here focuses on the meaning of the term "occurrence" for purposes of the policy limit in the Property Coverage. As briefed by the parties, a central issue in this appeal is that the Property Coverage section of the Policy, which is set forth in one of the first-party Special Forms, does not define the term "occurrence."
. . .
The term "occurrence" in the Property Coverage addresses "the amount of coverage," not whether there is coverage at all. (See Safeco, supra, 148 Cal.App.4th at p. 632.) We are not persuaded that the absence of a special definition creates ambiguity. . . .
Contextually, the key to interpreting the per occurrence clauses at issue here is their "intended function in the policy." (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1265 [10 Cal. Rptr. 2d 538, 833 P.2d 5457.) When used to establish policy limits and policy deductibles, the term "occurrence" has long had a settled meaning. (See EOTT, supra, 45 Cal.App.4th 565; B.H.D., Inc. v. Nippon Ins. Co. (1996) 46 Cal.App.4th 1137 [54 Cal. Rptr. 2d 2721 (B.H.D.); Lexington Ins. Co. v. Travelers Indem. Co. of III. (9th Cir. 2001) 21 Fed. Appx. 585 (Lexington); Patterson v. American Economy Ins. Co. (9th Cir. 2018) 710 Fed. Appx. 762; see also Croskey et al., Insurance Litigation, supra, ¶ 7.369.) In this specific context, courts generally hold that the term "'occurrence ... mean[s] the underlying cause of the injury, rather than the injury or claim itself.- (Safeco, supra, 148 Cal.App.4th at p. 633 [third party insurance], italics omitted; see EOTT, supra, 45 Cal.App.4th at p. 576 [first party insurance].)
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We see no need to analyze what happened here at such a high level of generality. "A difficult question, rarely expressly addressed" in the extant case law "outside of the context of coverage for third party claims, is whether the 'cause' of a loss for the purpose of determining the number of occurrences is the general overarching cause or the more immediate cause." (Windt, Insurance Claims and Disputes, supra, § 11:24.) To avoid "what would otherwise potentially be a limitless bundling of injuries into a single occurrence" (Addison Ins. Co. v. Fay (2009) 232 III.2d 446, 461 [905 N.E.2d 7ZMI), we hold that, to be a single occurrence, the cause of loss must "[be] so closely linked in time and space as to be deemed by the average person as a single event." (Doria v. Insurance Co. of North America (Super.Ct.App.Div. 1986) 210 N.J.Super. 67, 69 [509 A.2d 220, 221].) This analysis must be undertaken on a case-by-case basis (Addison, supra, 905 N.E.2d at p 756; Doria, supra. 509 A.2d at p. 224), but we are satisfied that what happened in this case meets the test, given the close temporal and spatial proximity of the events in question.
The middle-of-the-night setting suggests only one plausible scenario: Based on the narrative in the police report on June 2—which describes a group of people being directed by a leader, responding to directions, and working together—this was a coordinated raid by a group of unknown persons, working on a single heist, which is what Apex initially reported to the police. Given the fortified nature of the vaults involved and their secured locations (see ante, fn. 6), the idea that there were two separate opportunistic, spur-of-the-moment vault breaches is implausible. What happened here was hardly a smash-and-grab operation. According to photo stills and an unrebutted declaration submitted by Falls Lake below, the surveillance video showed that the facility was continuously occupied—if not by exactly the same people, at least by people working in coordinated fashion. Whoever breached the second vault had to come prepared, with tools and a plan for breaking into a locked vault room as well as a vault with walls of at least 14-gauge steel. (See ante, fn. 6.) The suspects most likely to have that capability, it seems to us, would be people working in concert with the same group that had successfully breached the first vault less than an hour earlier.
The Court of Appeal went on to conclude as follows based on its analysis of the term "occurrence" in the Falls Lake policy:
This case is the polar opposite. We are not dealing with a series of offenses by a single perpetrator, as in B.H.D. and Lexington. Falls Lake presented evidence that, in close sequence, a large amount of cannabis inventory was stolen by an unknown group of perpetrators from two different heavily fortified vaults in different locations inside Apex's business premises, in the dead of night. It produced enough evidence to justify a prima facie inference that the perpetrators were working together. Apex, for its part, failed to come forward with anything more than speculation that the breaches of its vaults were somehow attributable to two independent groups of people. Had Apex presented even a modicum of evidence to suggest that different burglary crews broke into the vaults, operating separately, there might have been an issue to try, as in EOTT. But not even Apex takes the position there must be a trial. It simply tries to declare victory on the record as it stands—asking that we not only reverse but direct entry of judgment in its favor—based on little more than some hand-waving about the absence of a special definition of the term "occurrence" in the Property Coverage. We reject that position, just as the trial court did.
The Court of Appeal remanded the issue of lost income calculation for further consideration by the trial court.
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