INSURANCE-RELATED COURT CASES
Digested from case reports published online
COURT DECISIONS
Cannabis heist
Apex Solutions, Inc., ran a cannabis business in Oakland, California. On June 1, 2020, Apex sustained property and business income losses when unknown burglars broke into its facility and emptied the contents of two vaults that contained cannabis inventory.
It presented claims for losses of over $2.5 million to its commercial package insurer, Falls Lake National Insurance Company, and on August 4, Falls Lake paid Apex $600,000 under a single per-occurrence limit under its policy.
Eventually Falls Lake paid another $673,477 of Apex’s claims under its lost business income coverage. Apex took the position that it was owed an additional $64,138 under the lost business income coverage based on projected future customer sales, as well as reimbursement for an additional $89,700 in extra expenses incurred to prevent future losses.
When the parties could not agree on the amount of loss owed under Falls Lake’s policy, Apex filed a complaint against the insurer in Alameda County Superior Court. Apex alleged causes of action for breach of contract and for breach of the implied covenant of good faith and fair dealing.
The parties brought cross-motions directed to both causes of action, with Falls Lake seeking summary judgment or in the alternative summary adjudication and Apex seeking only summary adjudication. On December 2, 2022, the court issued an order that granted Falls Lake’s motion and denied Apex’s motion. The court later entered judgment for Falls Lake pursuant to the order disposing of these motions. Apex appealed.
On appeal, the principal issue was whether Apex’s property claim for stolen inventory was subject to a single per-occurrence limit of $600,000, as Falls Lake contended, or two per-occurrence limits totaling $1.2 million, as Apex contended. The court said it also must address whether Falls Lake owed some $154,000 in additional payments and reimbursements on Apex’s business interruption claim.
On the first issue, the appellate court concluded that the trial court correctly ruled that a single per-occurrence limit applied. On the second, the court concluded that, in granting summary judgment for Falls Lake, the court overlooked a disputed issue of material fact concerning proper calculation of Apex’s claim of lost business income.
Apex contended that there were two separate “occurrences” because the surveillance video and time stamps show breaches of the Distro Vault and Kate’s Vault by different people at different points in time, separated by nearly an hour. Because each breach could have been charged and punished as a separate crime, Apex contended, it was entitled to payment capped by the combination of two separate $600,000 per-occurrence limits.
According to the court, the term “occurrence” addressed the amount of coverage, not whether there was coverage at all. The court was not persuaded that the absence of a special definition of “occurrence” created ambiguity and noted that without an ambiguity it was unnecessary to resort to tie-breaking rules calling for a broad reading of insurance contract language to favor the reasonable expectations of the insured.
The court referred to case law that held that the term “occurrence” meant the underlying cause of the injury rather than the injury or claim itself.
According to the court, the record did not support a determination that there were separate occurrences at Apex’s business premises on June 1, 2020. Falls Lake placed great emphasis on the state of emergency at the time of the loss. Falls Lake claimed that the loss Apex suffered was attributable to a breakdown in civil order during an unprecedented period of public unrest, making it a single occurrence.
Given the fortified nature of the vaults involved and their secured locations, the court stated that the idea that there were two separate opportunistic, spur-of-the-moment vault breaches was implausible.
Whether the individuals involved were the same or different made no difference; what was important was whether they were working together or separately.
The court reversed the judgment in part, remanded on one narrow aspect of the claim for lost business income, and otherwise affirmed.
Apex Solutions, Inc. v. Falls Lake Insurance Management Company, Inc.—Court of Appeal of the State of California, first appellate district, division four—No. A167491—April 16, 2024.
