Wolff & Samson PC
Counsellors At Law

Fidelity & Surety
Limits of Liability
By Tracey Santor, Armen Shahinian, Andrew Kent



Tracey Santor is Vice President, Fidelity and Field Operations with St. Paul Travelers in Hartford, Connecticut. Armen Shahinian is a member, and Andrew S. Kent is an associate, with Wolff & Samson PC in West Orange, New Jersey.


I. Introduction


Fidelity policies do not always cover the full dollar amount of an insured's loss. At the most basic level, coverage under fidelity policies is often subject to a deductible. Coverage is also subject to a specified limit of liability. The insured cannot recover from its insurer the deductible amount or any covered loss that exceeds the applicable limit of liability. Other policy terms may further limit the type of loss covered and the total amount recoverable under the poiicy. Determining the limits of the insurer's potential liability is a threshold matter in handling and responding to a fidelity claim.

This chapter discusses common policy provisions that limit or affect the insurer's potential liability for fidelity claims, including provisions that: (i) apply a deductible and a limit of liability for a single loss or occurrence; (ii) prevent or restrict multiple recoveries for losses sustained during consecutive policy periods; (iii) limit coverage to loss incurred during specified time periods (i.e., "loss sustained" policies); and (iv) restrict or limit coverage for loss covered by other insurance. How such policy provisions will apply with respect to a given claim will vary depending upon such factors as the language of the policy, the specific facts underlying the claim, and any applicable law governing the claim. In analyzing such issues, the claims professional must first determine whether the claim constitutes a single loss under the policy, subject to a single deductible and limit of liability. If the claim involves loss occurring over an extended period, the claim professional will need to determine whether the claim implicates recoveries under more than one policy or policy period.

II. Common Policy Provisions Limiting Liability


A. The Purpose of Policy Provisions Limiting Liability

Policy provisions limiting the amount of coverage are not mere technicalities - they are central to the bargain struck between the insurer and the insured. In most crime and fidelity policies 1, the per occurrence limits of insurance and deductible amounts are prominently set forth in the declarations (i.e., on the first page of the policy). These are primary factors, together with the size of the insured and its loss history, in determining the premium to be charged for the policy. When considering how much coverage to purchase, an insured must balance how much premium it is prepared to pay with how much risk it is prepared to absorb. For example, an insured may consider various coverage options and purposely opt for a higher per-occurrence deductible, or a lower per-occurrence limit of insurance, in order to save on premium.2 In so doing, the insured should understand and specifically take into account the fact that fidelity policies treat multiple thefts by the same employee as one occurrence. That treatment allows the insured to aggregate multiple smaller-scale thefts by a single employee into a single claim, subject to a single deductible, thereby permitting the insured to enjoy the premium savings of opting for a policy with a higher deductible. The following are examples of common policy provisions of potential relevance to issues concerning limitations of liability.

B. Declarations

1. Policy Number

Insurers commonly include a policy number or bond number on each policy. For successive policy periods with the same insured, the policy number often remains the same. However, in some instances, a suffix may be added to designate either how many years such a policy was issued to that insured or to specify the year in which the policy period commenced, e.g., Policy Number CCP QO0432, followed the next year by Policy Number CCP QO0432-2 or CCP QO0432-06.

2. Policy Period

The declarations may set a specific policy period, usually from 12:01 a.m. on a specified date to 12:01 a.m. on the same day of the following year, or until cancelled.

3. Insuring Agreements, Limits of Insurance and Deductible

These are dollar amounts specified as the per-"occurrence," Of, in the case of the Financial Institution Bond, "Single Loss", limits and deductibles per insuring agreement. Financial Institution Bonds may also includes an aggregate limit of liability.

4. Cancellation of Prior Insurance

The declarations also sometimes include a provision stating that by acceptance of the policy, the insured gives the insurer notice canceling prior policies or bonds. That provision is generally followed by a blank space in which the prior policies are to be listed by policy number. Such provision may also require a countersignature by the insured acknowledging that cancellation.3 In the authors' experience, it is not uncommon to find that this provision was not completely filled out by the agent or broker that prepared the policy or to find that the insurer never received back from the insured a countersigned copy of the declarations.

C. Policy Provisions, Conditions and Definitions

1. Definition of Occurrence" or "Single Loss"

Such provisions typically define as a single "occurrence" or single loss all loss caused by the same person or employee or resulting from a common series of acts.

2. Discovery or Loss Sustained Coverage

Prior to 1997, the basic scope of coverage under the Commercial Crime Policy was for loss sustained from acts committed during the policy period and discovered during that period or within a specified period thereafter. While crime policies remain available on such "loss sustained" forms 4, the Commercial Crime Policy, the Crime Protection Policy, and the Financial Institution Bonds 5 are all "discovery" policies. Discovery policies provide coverage for loss sustained at any time, provided that the loss is discovered during the policy period or during a short period thereafter.6

3. Prior Insurance Provisions

The Loss Sustained Form, and other fidelity policies providing coverage on a "loss sustained" basis, also provide coverage for loss sustained during the periods of prior policies under which coverage is no longer available, subject to and as limited by certain express conditions. Prior insurance clauses set forth those conditions. Prior insurance provisions generally do not appear in discovery policies, as discovery policies in any event cover loss sustained prior to the policy period.7

4. Non-Cumulation of Limit of Insurance

These clauses specify that limits of insurance are not cumulative from year to year or from policy period to policy period.

5. Other Insurance

Other insurance provisions restrict coverage under the policy for loss that is recoverable under other insurance policies.

6. Loss Covered Under More Than One Insuring Agreement

These provisions address the insurer's limitation of liability for claims covered by more than one of the basic coverages of the same policy. In such cases, the Financial Institution Bond limits liability to the highest applicable "single loss" limitation. The Commercial Crime Policy and the Crime Protection Policy limit coverage to the lesser of the actual amount of the loss or the sum of the limits of insurance applicable to the claim. However, a fidelity claim will rarely, if ever, be covered by more than one coverage in the same policy. This is because most policies exclude coverage for loss caused by employees, except as otherwise covered under the coverage specific to employee dishonesty or employee theft.

7. Deductible Amount

These provisions specify that as respects a single occurrence or a single loss, the insurer's liability is only for loss in excess of the deductible amount, subject to any applicable limit of liability.

III. Types of Limits


A. Definition of Occurrence or Single Loss

Fidelity policies generally provide that limits of liability, as well as deductibles, shall apply on a per "occurrence" or "single loss" basis. The applicable dollar amounts of these limits and deductibles are prominently set forth on the declarations page of the policy. The terms "Occurrence" or "Single Loss" are generally defined to include all loss caused by or involving the same person or employees, whether the result of a single act or a series of acts. The express purpose of these provisions is to treat a single dishonest employee, or group of employees colluding together, or a single scheme regardless of the duration thereof, as a single cause of loss. Such loss is subject to a single deductible and a single limit of liability.

1. Occurrence

With respect to fidelity claims, the Commercial Crime Policy defines occurrence as follows: "all loss caused by, or involving, one or more 'employees', whether the result of a single act or a series of acts."8 The Crime Protection Policy adds three words (italicized) to this definition: "all loss or losses caused by, or involving, one or more employees, whether the result of a single act or a series of related acts”9 Other fidelity policies have defined occurrence for the same basic purpose, using different language.10

As may be expected, insureds sustaining large, long-term losses have sought to recover in excess of the applicable limitations of liability, arguing that such losses were caused by multiple occurrences or by alleging that ambiguities exist in the policy. The majority of courts considering such issue have found such single occurrence limits to be unambiguous, and have interpreted them in a manner so as to find a single occurrence in cases involving long-term and repeated acts of dishonesty by employees.11 What is unambiguous to most courts, however, may be ambiguous to some. A minority of courts have strained to find multiple occurrences, and to permit multiple recoveries, where the plain terms of the policy appear to compel a different result. 12 Thus, whether a claim implicates one occurrence, or multiple occurrences, may depend not only upon the particular facts of the claim, but also upon the law of the jurisdiction a court would apply in deciding the case.

a. Loss Caused By a Single Employee or Group of Employees.

As stated, many fidelity policies define "occurrence" with reference to the acts of a single employee or a group of employees acting in collusion. Courts examining these clauses have reached different conclusions about the application thereof. A brief review of some of the applicable court decisions follows below. A majority of courts appear to accept as a general rule of law that a single dishonest employee should be viewed as a single "cause" of loss and that all injuries caused by that employee constitute a single occurrence. A minority of courts, however, have rejected that approach.13

A leading and often-cited case is the decision of the United States Court of Appeals for the Tenth Circuit in Business Interiors, Inc. v. The Aetna Casualty and Surety Co. 14 The subject policy included a provision stating: "As respects anyone employee, dishonest or fraudulent acts of such employee during the policy period shall be deemed one occurrence for the purpose of applying the deductible." 15 It is unclear from the decision whether the policy included a similar definition of "occurrence" with respect to the policy's limit of insurance, although the decision references the insured's contention that the policy limit applied separately for "each separate loss.”16 The insured further contended that "each of its "employee's forty acts of forgery or material alteration constitutes a separate loss and should be deemed a separate occurrence.”17 The court rejected that contention and held that "the employee's fraudulent acts constituted a single loss[.]”18 In so holding, the Business Interiors court applied the "general" rule that an "occurrence is determined by the cause or causes of the resulting injury”. 19 Under that rule, the court observed that the "cause" of the insured's loss was "the continued dishonesty of one employee.”20 The court further noted its agreement with the district court's observation that "the probable intent of the employee with respect to the last thirty-nine checks was essentially the intent to continue the dishonesty, not to commit an entirely new and different act of dishonesty.”21

The case of Wausau Business Ins. Co. v. U.S. Motels Management, Inc.22 involved an employee who, over the course of approximately four years, cheated her employer out of hundreds of thousands of dollars, utilizing "a fairly broad repertoire of tactics.”23 The subject policy defined "occurrence" as "all loss caused by, or involving, one or more 'employees,' whether the result of a single act or series of acts.”24 The court observed that it "finds nothing ambiguous in this definition.”25 Rejecting the insured's argument that "its dishonest employee's various embezzlement ploys were separate and distinct occurrences," the court cited to the "cause" analysis from the Business Interiors and Appalachian cases, and explained as follows:

[T]he question is not whether the employee's various methods of embezzling were related, as defendant suggests, but whether the cause of loss was related. The cause of defendant's loss was the dishonesty of one employee. Although the employee appears to have been particularly creative in finding ways to bilk the defendant, her intent throughout undoubtedly was the same: to steal the defendant's money. 26
The court in American Commerce Insurance Brokers v. Minnesota Mutual Fire and Casualty Co.27 declined to adopt the "cause" analysis applied in the Business Interiors case, finding such analysis to be "unduly restrictive," at least to the extent that a strict application thereof would always find the acts of a single dishonest employee as one cause of loss or one occurrence.28 Instead, the American Commerce court focused its analysis on what constituted a "series of related acts," finding two occurrences where the same employee continuously stole funds using two different methods.29

The case of Auto Lenders Acceptance Corp. v. Gentilini Ford, Inc.,30 involved a commercial property policy, which extended limited coverage for employee dishonesty and which contained the following variant on the definition of occurrence:

All loss or damage: (1)Caused by one or more persons; or
(2)Involving a single act or series of related acts is considered one occurrence.31
Citing to subparagraph (1) of the above-quoted provision, the insurer argued that this provision "limits occurrences to one per employee/wrongdoer.”32 The Gentilini court did not directly address the insurer's proffered interpretation of this provision of the policy. Instead, the court stated that it would not read the subject provision "literally/, concluding that to do so would always limit all losses to a single recovery, "because losses of that type must, by their very nature, be 'caused by one or more persons.”33 The court therefore decided to restrict the meaning of the subject provision, "so as to enable fair fulfillment of the stated policy objective. “34 Applying that reasoning, the Gentilini court concluded that "a fair reading" of the subject provision "simply means that for each loss of property covered by the policy there can only be one recovery, regardless of the number of employees that may have caused the loss. “35 Under that logic, the court was able to find twenty-seven occurrences caused by the same employee. In adopting its "fair" interpretation, however, the Gentilini court ignored the fact that the subject loss limitation expressly applied to "all loss or damage/' rather than to "each loss." The Gentilini court also ignored a basic maxim of contract construction by rendering the "caused by one or more persons" clause entirely superfluous, as a single "loss" caused by more than one employee would invariably involve a series of related acts.

The Gentilini court, like the court in Business Interiors, also cited to the Appalachian case for the proposition that the number of occurrences "is determined by reference to cause of loss.”36 The holding in Gentilini, however, is irreconcilable with the "cause" approach applied in Business Interiors, Appalachian and other cases. The Gentilini court appears to have counted occurrences based not on the cause of injury (i.e., a single dishonest employee), but rather, on the number of injuries allegedly sustained by that cause (Le., twenty-seven transactions tainted by fraud).

The case of Ran-Nan, Inc. v. General Accident Insurance Co. of America37involved a policy deeming "occurrence" as "all loss caused by, or involving, one or more 'employees/ whether the result of a single act or series of acts.”38 There, the insurer took the position that there was only one occurrence with respect to losses that, as described by the court, arose from "independent pilfering schemes by two different employees working separately.”39 The court rejected the insurer's interpretation, observing that "[t]he more natural reading of the policy... is that the 'involving' clause signifies a group of employees conspiring together to steal.”40 Although the result would have been the same by simply applying the policy's express definition of "occurrence' the Ran-Nan court also based its holding upon the "general principle" of law that the number of "occurrences" is determined by counting the "causes" of the insured's total loss, rather than the number of injurious effects. 41Because there were "two independent causes" of the insured's loss, the Ran-Nan court concluded that there had been "two 'occurrences' of employee dishonesty.,”42

The court in Omne Services Group, Inc. v. Hartford Insurance Co.43held that, under either New Jersey44 or Pennsylvania law, a several month payroll fraud/kickback scheme involving a single employee constituted a single "occurrence/' where the subject crime policy defined "occurrence" as "all loss caused by, or involving, one or more 'employees.”45 The court's emphasis on the words "all loss, "one" and "employees,” appeared to indicate the court's satisfaction that the issue before it could be resolved based upon the plain language of the policy. Nevertheless, the court then turned its analysis to the Appalachian and Business Interiors cases for the proposition that the number of occurrences is determined by the number of causes of the resulting injuries.46Under that standard, the Omne court viewed the acts of a single dishonest employee as a single cause of loss.

b. Loss Caused By a "Series of (Related) Acts"

The Commercial Crime Policy defines as one "occurrence" all loss, "whether the result of a single act or a series of acts." Other policies, including the Crime Protection Policy, employ the phrase "series of related acts." A majority of courts construing and applying such provisions have found a single "occurrence" in situations involving multiple thefts or embezzlements by a single employee or group of colluding employees, even where the schemes extended over the course of months or years.47

The case of Scirex Corp. v. Federal Insurance Co.48concerned a group of dishonest nurses, who falsified data and thereby rendered worthless "four clinical studies for three different sponsors”49conducted by their employer. The subject policy stated that "[a]ll losses resulting from an actual or attempted fraudulent or dishonest act or series of related acts at the premises. . . whether committed by one or more persons will be deemed to be one occurrence or event." However, nowhere did the policy expressly state that its single loss limitation, or "Limit of Insurance," applied to one "occurrence." The court nevertheless observed that "the accepted purpose of defining 'an occurrence or event' is to limit liability" and that "in the insurance industry 'occurrence' is commonly understood to mean all loss caused by a single or related events.”50Noting that the "the nurses themselves did not seem to distinguish among the four studies in terms of their responsibilities," the Scirex court affirmed as not clearly erroneous the lower court's finding that the insured's losses resulted from a "series of related acts.”51

In Valley Furniture & Interiors, Inc. v. Transportation Ins. Co.52the court looked at the dictionary definitions of "series" and "related" and found the phrase "series of related acts" unambiguous.53 Note that, because the definition of the word "series”54 itself utilized the term "relationship," courts have at times struggled with whether inserting the term "related" adds anything of substance to the phrase "series of acts." In any event, the court in Valley Furniture construed the phrase to implicate "a succession of logically or casually connected acts, linked in time, place, opportunity, pattern, and method”55 Applying that standard, the court found a six-year payroll fraud scheme involving three employees to be a "series of related acts."

The Minnesota Supreme Court in the American Commerce case adopted a similar understanding of the phrase "series of related acts," i.e., acts that are "connected by time, place, opportunity, pattern, and, most importantly, method or modus operandi.”56 By that measure, focusing chiefly on the element of modus operandi, the court in American Commerce found two occurrences where the same employee repeatedly stole from his employer, but utilized two separate methods of embezzlement. 57

By the standards set forth in Valley Furniture and American Commerce, the multiple acts of dishonesty committed by the dishonest employee in Gentilini, which occurred in the same place, in the same manner, using the same modus operandi, repeated twenty-seven times in less than one year, would very clearly constitute a "series of related acts." The Gentilini court, however, found otherwise. Gentilini did not expressly reject cases finding a single "occurrence" in "embezzlement-type cases where an employee steals cash or checks from an employer as part of an ongoing scheme to defraud.”58 The Gentilini court instead drew a distinction between such cases and the facts of the case before it, which involved twenty- seven "distinct sales to separate purchasers, for separate automobiles." In support of its holding, the Gentilini court cited to North River Ins. Co. v. Huff,59 noting that the court in Huff had found "that several loan transactions involving the same manner of financing were separate occurrences because [the] transactions 'occurred at separate times, involved different borrowers, were for different purposes, and had separate collateral. "60 The holding in Gentilini appears to have been based upon the court's conclusion that "separate" transactions with "separate" parties cannot be viewed as "related”.61

The apparent distinction drawn by the Gentilini court between "separate" transactions and "related acts" transactions ignored the fact that the employee's dishonest acts were "related" in important respects, including time, place, modus operandi and, significantly, a continuing criminal intent. Indeed, the Minnesota Supreme Court in American Commerce rejected such a distinction. There, the insured's employee pocketed numerous insurance premiums paid to him in cash by various of his employer's customers. The insured argued that those "wrongful acts should not be deemed part of a 'series of related acts'," because they each "occurred on separate occasions, in separate transactions, and each results in a separate, measurable loss to the insured." The court, however, found that the employee's acts were clearly "related" as that term is "commonly used" and, therefore, constituted one occurrence, explaining as follows:
We cannot so restrict the plain and ordinary meaning of the word 'related' such that acts of embezzlement which follow each other in time, take place at the same business, and are committed by the same employee are not "related" as that word is commonly used.62
2. Single Loss

The Single Loss language in the Financial Institution Bond significantly differs from the definition of occurrence in crime policies. With respect to fidelity claims, the Financial Institution Bond defines Single Loss in relevant part as "all covered loss... resulting from... all acts or omissions... caused by any person (whether an employee or not) or in which such person is implicated.”63 In this context, '" loss' is a broad term that covers all losses from the acts of an employee,"64 or other person.65 Under this definition, all loss resulting from the acts of "such" person, or in which that person is implicated, are treated as a single claim, subject to a single application of the deductible and to a single limit of liability. The definition of Single Loss focuses on the wrongdoer66 and "unambiguously refers to any and all acts perpetrated by the same person.”67 The conduct in question need not constitute a series of related acts.68Thus, two thefts by the same employee, even if committed years apart, in different locations, and using entirely different methods, should be regarded as a Single Loss.

For multiple injuries, or multiple acts, to result in a Single Loss, the only fact that need be established is that a common employee or other person is implicated in those acts. Thus, for example, if two employees each steal or embezzle funds from the insured, but also assist each other in doing so, each employee is "implicated" in the other's thefts, and all of the thefts are viewed as a "Single Loss.”69

B. The Deductible

The deductible amount is not truly a limit of liability, but it may strongly impact the amount of the insurer's liability. An inexperienced insured may mistakenly believe that the deductible operates to reduce the insurer's maximum liability. This is not so. The insurer's maximum liability corresponds with the full dollar amount of its limit of insurance. Thus, a policy with $100,000 limit of liability and a $10,000 deductible, in the event of a covered loss in the amount of $110,000, will provide $100,000 in protection, not $90,000. Communicating that fact to an unknowing insured will be received as welcomed news. The insured, however, should also be made to understand that the deductible applies on a per occurrence basis, rather than merely once per policy period. Thus, an insured with multiple, separate and unrelated losses will only be able to recover on those of its individual covered losses that exceed the applicable deductible amount.

As stated above, some courts have resisted enforcing, as written, per Occurrence limits of liability by finding multiple "occurrences" in situations involving repeated acts of dishonesty by the same employee. In such jurisdictions, insurers may feel constrained to use the same logic by requiring multiple applications of the deductible amount. Presumably, the courts in such jurisdictions would not alter their analysis of the "occurrence" issue based on whether it applied to policy limits or deductibles. As explained the Supreme Court of California in a related context:
To construe a policy provision narrowly so as to find only one claim and thus limit the deductible, but to construe the same language expansively so as to find multiple claims and thereby increase covera e, would be a result-oriented approach that we decline to follow.70
Depending upon the facts and amounts involved in a claim, multiple applications of the deductible may reduce or even eliminate coverage. One court, explaining why it disfavored an insured's argument for finding multiple occurrences, offered the following poignant example of what could result from such an approach:
Assume an employee embezzles $100 from a company on 155 separate occasions for a total embezzlement of $15,500. Further assume that, as in this case, the deductible for the insurance policy is $250 and the coverage limit $10,000 for each occurrence. If all 155 acts constitute one occurrence because they are part of a "series of related acts," the insurance company would pay $10,000. However, if we were to adopt American Commerce's position and determine that 155 occurrences arose, the insurance company would pay nothing because the monetary value of each act of embezzlement would be lower than the deductible.71
Of course, in any jurisdiction, an insurer may encounter a claimant seeking to aggregate truly separate and unrelated losses, involving separate employees, into a single claim in order to avoid the deductible. In such cases, the claims professional should develop appropriate facts, and explain to the insured the insurer's basis for concluding that the subject losses are indeed separate occurrences, subject to separate deductibles.

C. Aggregate Limits

Some fidelity policies, including the Financial Institution Bond, include an aggregate limit of liability.72 Individual fidelity bonds, such as administrators' bonds or public official bonds, classically contain only an aggregate limit of liability, also called a penal sum, and do not include per occurrence limits.73 Under the aggregate limit provision of the Financial Institution Bond, once the insurer has made payments74equal to the stated aggregate limit in connection with loss discovered during the policy periods, 75tthe insurer's liability is exhausted. Care must be taken to monitor all payments76under such a policy. When it appears possible that the aggregate limit will be exhausted, it is good practice to alert the insured sufficiently in advance of that event so that it may plan its affairs accordingly.

It is important to note that recoveries by the insured generally do not affect the application of the aggregate limit of liability provision.77By way of example, if an insured suffers $1,000,000 in aggregate losses, and the insurer pays its $500,000 aggregate limit of liability, the subsequent recovery by the insurer of $250,000 will not give rise to any obligation for the insurer to make any additional payment under its policy.

D. Practice Pointers for Claims Professionals

In light of the foregoing issues regarding applicable limits of the insurer's liability, actions to be considered by the claims handler include the following:
1.Review all applicable provisions of the subject policy, including endorsements and riders.
2.The insurer's initial letter acknowledging receipt of the claim should identify the applicable limit of potential insurance coverage and the deductible amount, and aggregate limit if any. It should also advise the insured that, in any event, the insurer will not be responsible for any loss in excess of the policy limits.
3.If the claim or claims involves a common employee or wrongdoer, all loss involving that person may be treated as one occurrence. Inform the insured that only one deductible will be applied to all injuries involving that person, and that a single limit of insurance will apply. Request that all other injuries caused by or involving that person be reported to the insurer, referring to the same claim number.
4.Alternatively, if the claim involves entirely separate actions by separate persons, multiple deductibles will apply. Depending on the facts as they are uncovered, however, actions that initially appear unrelated may in fact be connected. Inform the insured in writing that the amount of available coverage may be subject to change based upon the results of an investigation.
5.Review the insured's claims history for (a) payments against the aggregate limit and (b) claims involving the same person or series of acts and payments made under the applicable single policy limit. If other claims have been reported but no payments have been made, the insured should be advised that all outstanding matters are subject to an aggregate limit if applicable.
6.If, at any time, it appears possible that a limit of liability will be exhausted, promptly advise the insured, and suggest that it put any excess carriers on notice of the claim.
7.If the insured appears to be multiplying or dividing the number of alleged occurrences so as to increase coverage above that contemplated by the policy, consult legal counsel for the law of the applicable jurisdiction so as to prepare a response tailored to the legal standards which will apply.


IV. Prior Insurance


A. Generally

"Discovery" policies cover loss sustained through acts occurring at any time, even years before the policy period, provided that the loss is discovered during the policy period. Under discovery policies, whether the insured carried fidelity insurance in the past is therefore of limited significance to the basic scope of coverage, unless the prior policy is still in force and provides coverage for the claim.78 The following discussion, therefore, concerns only "loss sustained" policies. Because the current trend in fidelity coverage appears to be in favor of discovery policies over loss sustained policies, the applicability of these issues may become increasingly infrequent.

The basic scope of coverage under the Loss Sustained Form (or similar forms) is for loss sustained through acts committed during the policy period.79 The Loss Sustained Form, however,. also provides coverage for earlier-sustained losses, provided that specific criteria are satisfied. Those criteria are set forth in a provision headed "Loss Sustained During Prior Insurance",80 which reads as follows:
(1)If you, or any predecessor in interest sustained loss during the period of any prior insurance that you or the predecessor in interest could have recovered under that insurance except that the time within which to discover loss had expired, we will pay for it under this policy, provided:
(a) This policy became effective at the time of cancellation or termination of the prior insurance; and
(b) The loss would have been covered by this policy had it been in effect when the acts or events causing the loss were committed or occurred. 81
B. Conditions for Application of the Prior Insurance Clause

Under the Prior Insurance Clause, for coverage to exist for loss sustained prior to the effective date of the current policy (or policy period), the following four requirements must be met:
1) The loss must have occurred during a period when the insured (or its predecessor in interest) was actually insured against the loss under a prior policy. If the current insured did not carry fidelity coverage at the time of the loss, or if under the facts of the specific loss no coverage was provided under the terms of its prior insurance, then the Prior Insurance Clause will not serve to create coverage.
2) The time period to discover loss under the prior policy must have expired. If the insured discovered the loss before the expiration of the period to discover loss under the prior policy, or if the prior policy did not limit the period during which to discover a loss, then the insured may still recover under that prior policy, and may not recover under its current policy. Note that if the prior insurance was also a Loss Sustained Form, this requirement will normally be met, because the extended period to discover loss under the Loss Sustained Form terminates immediately upon the effective date of the insured's new policy.82 Note, however, that earlier versions of the crime policy, and certain other forms providing "loss sustained" fidelity coverage, may not necessarily limit the time to discover loss, or, alternatively, may provide a discovery period that does not automatically teiminate upon the insured obtaining new coverage.83 In such cases, coverage would still be available under the prior insurance policy and the Prior Insurance Clause would not apply. Other policy provisions affecting the amount of coverage, however, may apply. 84
3) The coverage under the current policy and the prior policy must have been continuous. That is, there must have been no gap between coverage periods.
4) The loss is of the type that would be covered under the terms and conditions of the current policy given the specific facts of the claim.
Provided that the above criteria are met, the loss sustained while the prior insurance was in effect is treated as a covered claim (or part of a covered claim), under the current policy.

C. Amount Recoverable Under the Prior Insurance Clause

The Prior Insurance Clause in the Loss Sustained Form also includes the following language, the may affect the amount of coverage recoverable under that clause:
(2) The insurance under this Condition is part of, not in addition to, the Limits of Insurance applying to this policy and is limited to the lesser of the amount recoverable under:

(a) This policy as of its effective date; or
(b) The prior insurance had it remained in effect.
The following examples illustrate how the above language may affect the amount recoverable under the Prior Insurance Clause. For these examples, assume that the insured obtained the fidelity coverage under the Loss Sustained Form in two consecutive policy periods, from two different insurers, with the following limits and deductibles:

Policy Period Limit Deductible
1/1/04 to 1/1/05 $250,000 $50,000
1/1/05 to 1/1/06 $500,000 $100,000

Example 1: In June 2005, the insured discovered an employee embezzlement scheme with los: totaling $300,000, all of which occurred in 2004. Under the terms of the Loss Sustained Form, t extended period to discover loss under the prior policy terminated upon the effective date of the policy period. There is thus no coverage under the prior policy period; however, coverage exist the Prior Insurance Clause in the current policy period. The insured is therefore entitled to recover up to the lesser of the amount of what is available under the current policy period or what would h been recoverable under the prior policy period. Under the prior policy period, the first $50,000 of the loss is applied against the deductible. Because the remaining $250,000 of the loss is within the limit of liability for the prior policy period, that amount would have been recoverable. In the current period, however, the first $100,000 of the loss is applied against the deductible. Thus, only the amount of $200,000 is recoverable under the current policy period. Applying the Prior Insurance Clause, recovery is limited to that amount.
Example 2: In June 2005, the insured discovered an embezzlement scheme with loss totaling $600,000. Of this total, $300,000 was sustained in 2004, and $300,000 was sustained in 2005. application of the deductible, the insured is entitled to recover $200,000 of its $300,000 loss sustained in 2005. Under the current policy period, coverage would be available for the entirety of the $300,000 loss sustained in 2004. However, because the limit of liability in the prior policy period was $250,000, the insured may only recover that lesser amount under the Prior Insurance Clause. The total recovery is therefore limited to $450,000.
Example 3: In June 2005, the insured discovered an employee embezzlement scheme with loss totaling $300,000. Of this total, $100,000 was sustained in 2004, and $200,000 was sustained in 2005. Net of its deductible, the insured can only recover $100,000 for the portion of the loss sustained in 2005. The $100,000 remainder of the loss, sustained in 2004, is within the current policy period's limit of liability. Under the Prior Insurance Clause, however, coverage is limited to the lesser amount of $50,000, because under the prior policy period, a $50,000 deductible would have applied, and only $50,000 would have been recoverable. Thus total recovery is limited to $150,000.
Example 4: In June 2005, the insured discovered an employee embezzlement scheme with loss totaling' $800,000. Of this total, $100,000 was sustained in 2004, and $700,000 was sustained in 2005. Because the insurer is liable for the full policy limit for the loss sustained in 2005, the insured can' recover nothing further under the Prior Insurance' Clause.85 D. Coverage With the Same Insurer Over Consecutive Policy Periods

The application of the Prior Insurance Clause may be made more complex in cases due to interpretational issues involving the other provisions in the Loss Sustained Form, and may vary from state to state based upon how courts have interpreted fidelity policies for successive policy periods, particularly policies providing "loss sustained" coverage. Those different interpretations are discussed in greater detail in the next section of this chapter.

The Loss Sustained Form includes a provision headed "Loss Covered Under This Policy and Prior Insurance Issued By Us or Any Affiliate", which provides as follows:
If any loss is covered:
(1) Partly by this policy; and

(2) Partly by any prior cancelled 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 of the amount recoverable under this policy or the prior insurance.

Regardless of the number of years this policy remains in force or the number of premiums paid, no Limit of Insurance cumulates from year to year or policy period to policy period.86
At least one commentator has interpreted the above-quoted Larger Amount Clause to permit the insured to recover, under the Prior Insurance Clause, the higher of the amounts recoverable under the current or previous policy periods.87 As drafted, however, the Larger Amount Clause appears to apply to a different situation from the Prior Insurance Provision,i.e., where the loss sustained during the prior (terminated) policy period is timely discovered under the extended period for discovery under that policy.88 Only in such a case would a loss be partly "covered" by the prior policy, as opposed to what is contemplated by the Prior Insurance Clause - a loss that "would have been covered" had it been timely discovered. Note further that the situation contemplated by the Larger Amount Clause would not occur if coverage in the prior policy period was pursuant to the Loss Sustained Form, because under that form the extended period to discover loss terminates immediately upon the effective date of new coverage. Such a situation could only occur if the insurance in the prior policy period did not provide for the automatic termination of the discovery period upon the inception of new coverage (e.g., if a form such as the 1997 Loss Sustained Form was used). In any event, the intention of the Larger Amount Clause is to limit the insured to a single recovery, in an amount up to the larger of the two applicable limits of liability, where coverage exists and remains recoverable under two consecutive policy periods by the same insurer or affiliated insurers.89 In no case should the Larger Amount Clause apply to vary the "lesser" amount recoverable under the Prior Insurance Clause.

The Loss Sustained Form also includes a provision stating that "[i]n the event more than one Deductible Amount could apply to the same loss, only the highest Deductible Amount may be applied.”90 This provision could be cited by an insured attempting to prevent an insurer from taking into account the prior policy period's deductible when determining the "lesser" of the two possible recoveries under the Prior Insurance Clause (as was done in Example 3 above). Such an argument, however, would run contrary to the plain language of the Prior Insurance Clause, which provides no greater coverage than the "amount recoverable" under the prior insurance, an amount limited to loss in excess of the deductible in force during that policy period.

E. Practice Pointers for Claims Professionals

Where prior insurance issues are implicated, consideration should be given to the following action items:
1. Request and obtain from the insured copies of all insurance policies in effect during the period the loss was sustained and/or was discovered.
2. Determine whether the insured may still recover under any prior policy (e.g., where the loss took place during the prior policy period and was discovered within the time limit, if any, under that policy to discover loss). If coverage is still available, consult the Other Insurance Clause in the current as well as the prior policy. If coverage is still available and the prior policy was issued by the same insurer or an affiliate, consult the Larger Amount Clause, if any.
3. Determine whether the insured could have recovered under the prior policy had the loss been timely discovered. If not, the prior policy is irrelevant to the claim. Note that this inquiry is not limited to coverage agreements and exclusions. If, for example, the insured had exhausted an aggregate limit under the prior policy, recovery under that policy was not available, and the Prior Insurance Clause will not apply.
4. If coverage was within the scope of coverage under the prior insurance, but the loss was discovered too late, the Prior Insurance Clause may apply if there was no gap in coverage.
5. Inform the insured that coverage under the Prior Insurance Clause is limited to the lesser of the amount recoverable under the prior insurance or the amount remaining under the applicable limit of insurance under the current policy. Note further that recovery under the Prior Insurance Clause is, in fact, under the current policy, including the aggregate limit thereof. Coverage under the prior policy itself is not revived.
V. Successive Policy Periods / Non-Cumulation Clauses


Most fidelity policies are drafted to provide for a single limit of liability for all loss caused by or involving the same dishonest employee, regardless of over how many years, or how many policy periods, that conduct took place. In some cases, however, insureds have been able to convince a minority of courts to permit separate recoveries up to the limit of liability under each of several policy periods during which the insured's injuries were sustained, despite policy language indicating that policy limits are not cumulative. Such decisions are generally based upon the theory that the insurance for each period represents a separate contract, as opposed a renewal or continuation of a continuous contract. Courts in such cases have also found that the policy's non-cumulation language was somehow ambiguous.

As discussed below, even in jurisdictions where "stacking" of policy limits has been permitted, such a result should no longer be possible under the current fidelity coverage forms most frequently in use. But, not all policies include the most current forms or language. Thus, when presented with a claim in which the insured seeks to stack policy limits, it is important to carefully review the language in each policy period, and to ascertain whether courts in the subject jurisdiction would permit stacking under the facts and policy language at issue in the case.

A. Under the Most Current Fidelity Policies

The most current forms of fidelity insurance, whether "discovery" policies 91 or the Loss Sustained Form, are drafted so that claims involving the conduct of the same dishonest employee over a period of years will implicate coverage only under the form in force in the policy period in which the loss is discovered.92 This is because, under current policy forms, there is generally no coverage for loss discovered after the conclusion of a policy period.

Assume, for example, a fidelity loss involving conduct and injuries in the years 2002 through 2004, which was discovered by the insured and reported to the insurer in 2005. Assume further that the insured obtained fidelity coverage from the same insurer for annual policy periods for each of those years.

If the forms used in 2002 through 2004 provided discovery coverage, the limits in force in those periods are basically irrelevant to the claim, because the loss was not discovered during those periods. Coverage exists only under the form and declarations in force in 2005, the period during which the loss was discovered.

If, alternatively, the Loss Sustained Form was used in the prior policy periods, coverage would still only be found under the form and declarations in force in 2005. This is because under the Loss Sustained Form the extended period to discover loss for the prior periods automatically expired when the 2005 coverage commenced.93 Although the loss was not “sustained” in 2005, coverage would still be available in the current policy period under the Prior Insurance Clause.

B. Under Older or Variant Policy Forms

Under older or variant policy terms, whether stacking is possible may depend on several factors, including the policy language in force at the time the loss is discovered, the policy language used in the one or more prior periods during when the loss was sustained, how courts in the applicable jurisdiction have interpreted (or disregarded) similar policy language, and whether under the facts of the case the court would view coverage for different policy periods as separate contracts or as one continuous contract.

Regardless of the jurisdiction or the language of any non-cumulation clause, as a threshold matter, stacking is definitely not possible if the coverage in force in prior periods has already lapsed.94 The 1997 Loss Sustained Form, for example, covers loss sustained during the policy period and discovered either during that period or within one year thereafter. Thus, where stacking is sought for sequential annual policy periods under the 1997 Loss Sustained Form, stacking could not extend to policy periods ending more than one year prior to the discovery of the loss, because even if viewed as separate contracts, coverage for such periods has lapsed.95

1. Non-Cumulation Clause

Many policies include non-cumulation provisions stating as follows:
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. 96
The clear intention of such clauses is to foreclose the possibility of stacking and to apply a single limit of liability to claims arising from conduct occurring over the course of two or more years. Not all courts, however, have enforced this language consistent with its expressed intention.

2. Courts Enforcing a Non-Cumulation Provision

Because the language of non-cumulation clauses is fairly straightforward, courts may simply enforce them as written. The Supreme Court of Virginia in Graphic Arts Mutual Insurance Co. v. C. W. Warthen Co., for example, found unambiguous and enforced an anti-stacking clause, without reference to any other provision in the policy. 97

Other courts have conditioned enforcement of non-cumulation clauses and have focused their inquiry, on whether the parties intended that there be only one continuous coverage over successive periods. In Eddystone Fire Company No.1 v. The Continental Insurance Companies, for example, a divided appellate court affirmed after a bench trial the lower court's determination that such an intent existed, and enforced non-cumulation provisions to apply a single policy limit to a four-year loss.98 The case is an interesting one, because the facts were mixed. On the one hand, the subject. bonds were "identical in form and content," were obtained annually from the same broker, and were all signed by the same person as Secretary on behalf of the insurer. In the view of the court, these facts demonstrated the parties' intention "to enter a continuing bonding scheme." The actual insurers varied from period to period, but the court discounted that fact because the face sheet of each bond referenced the Continental Insurance Companies, all at the same address. The court found most significant the fact that each bond contained a provision stating that by acceptance of the bond, the insured gave notice of the cancellation of the previous years' bond, which was identified by bond number. The dissent pointed out that said cancellation clause was not countersigned by the insured. However, the main thrust of the dissenting opinion was that the non-cumulation clause, while normally enforceable, should not have applied in that case because the insurers were different entities.

The case of Wausau Business Ins. Co. v. US Motels Management, Inc.,99 concerned the thefts of a single employee during two consecutive policy periods under the 1997 Loss Sustained Form. The insured sought to stack recovery limits "because the occurrence spanned more than one policy period." The court, construing the policy's non-cumulation language in the context of the Larger Amount Clause, rejected that argument, finding as follows:
The intent of this provision could not be clearer. As to any loss extending beyond the policy period, the most plaintiff agreed to pay was "the larger of the amount recoverable under this insurance or the prior insurance," in this case, the policy limits of $100,000 per occurrence. 100
In so holding, the Wausau court distinguished cases from other jurisdictions in which the non-cumulation language was found ambiguous when appearing on its own, rather than in conjunction with provisions such as Larger Amount Clause or a Prior Insurance Clause. The court in Reliance Insurance Company v. Treasure Coast Travel Agency, Inc, which also denied an insured's attempt to stack policy limits, made the same distinction.101 Apparently both courts appreciated the fact that the Larger Amount Clause expressly contemplates and requires the application of a single limit of liability, regardless of whether the insurance is viewed as one policy or several policies.102 The Supreme Court of North Dakota in Kavaney Realtor & Developer, Inc. v. Travelers Insurance Company, while applying the continuous policy/separate policies analysis used in Eddystone, nevertheless found that a non-cumulation clause, in combination with a Prior Insurance Clause, "indicates the intention that the policies constitute one continuous and noncumulative contract." 103

C. Courts Permitting Multiple Recoveries

The case of A.B.S. Clothing Collection, Inc, v. Home Ins. Co represents an example of how far some courts will go to fmd ambiguities in insurance agreements and increase an insurer's liability beyond that set forth in the policy.104A.B.S. concerned thefts by two employees, committed over the course of four years. During three of those four years, the employer was insured under a comprehensive general liability insurance policy, which included crime coverage with a $100,000 limit of liability, and which also included a non-cumulation clause, a Prior Insurance Clause and a Larger Amount Clause. When the loss was discovered and reported, the insurer made a $100,000 payment which it believed was the full extent of its liability. The insured, however, contended that it was entitled to recover up to the crime policy limit for each of the four years in which loss was sustained, including $100,000 incurred during the first year when the insured had coverage from another carrier.

The court framed the fundamental issue as whether or not coverage for successive policy periods should be viewed as one continuous contract. Examining the issue in the context of its view of fairness and public policy, the A.B.S. court observed that limiting a party's recovery to one year's policy limit, after the party had paid several years' premiums, would be "contrary to the insured's reasonable expectations of coverage." Thus, to vindicate those expectations, the A.B.S. court explained that "courts will not limit the insurer's liability for losses incurred during successive years of its own coverage unless there is clear and unambiguous language showing the parties intended to enter one continuous contract.”105 The court then went on to opine that various policy provisions were contradictory and ambiguous106 as to whether the parties' intended to create a single continuous contract or multiple contracts. By so framing the issue, the court simply ignored the fact that the Larger Amount Clause specifically contemplates and expressly requires the application of a single limit of liability where the same (continuous) claim is covered under more than one policy period or policy, which clause should be applied even if the policies are viewed as separate contracts.

It should be noted that had A.B.S. involved more current fidelity forms, even the A.B.S. court would not have permitted stacking. The A.B.S. court itself cited to and recognized as enforceable policy language limiting coverage to loss discovered no later than one year from the end of the policy period.107 Had the prior policies included the relevant language from current policies terminating the extended period to discover loss, the court likely would have held that coverage would have existed only in the policy period in which the loss was discovered. It should also be noted that, in response to the holding in A.B.S. and similar cases, the Surety Association of America issued a policy endorsement drafted to prevent stacking even under the reasoning of those courts.108

The case of Spartan Iron & Metal Corp. v. Liberty Ins. Corp.,.109 which permitted stacking, is unpublished, but it has been cited to in several published court decisions. 110 Spartan concerned an employee dishonesty loss sustained during two consecutive policy periods. The court found and construed in favor of the insured an "ambiguity" in the policy, finding that the definition of "occurrence" contemplated a long-term loss, while the loss sustained language of the policy limited coverage to loss from events "occurring" during a given policy period. The Spartan court also found the non-cumulation clause and the Larger Amount Clause to be ambiguous, without explaining in what respect, apparently because other courts had reached varying results in interpreting such clauses.111 The Spartan court, however, conceded that the issue of ambiguity was "a close question." It noted that it reached its decision by applying the approach of courts considering whether the insurance provided was a continuous contract or separate contracts. Supporting its conclusion that separate contracts were intended, the Spartan court cited the following facts: (i) each policy was separately numbered; (ii) a separate annual premium was paid for each; (iii) each policy limited coverage to loss sustained during the policy period; and (iv) the cancellation of prior insurance provision in the declarations form had not been filled out to specify that the prior year's policy number was cancelled.

The holding in Spartan was followed in Glaser v. Hartford Casualty Ins. Co. 112 The Glaser court also found an ambiguity as to whether a separate "occurrence" takes place in each of several successive policy periods, in that a "loss sustained" provision refers to events occurring within a single policy period. The same "ambiguity" was also cited by the Ninth Circuit in Karen Kane, Inc. v. Reliance Insurance Company as a basis for permitting stacking, in addition to the rationale employed in the A.B.S. case.113 Note that such a strained ambiguity could not be found under discovery policies, such as the Commercial Crime Policy or the Financial Institution Bond, which do not define coverage based on the periods during the loss occurred.

D. Practice Pointers for Claims Professionals

When considering non-cumulation issues over successive policy periods, consideration should be given to the following:
1. Determine whether the claim was timely discovered under the terms of the policies in force when the loss was sustained. If the period within which to discover loss has expired, there is no possibility of stacking, because coverage no longer exists under the prior policies.
2. If the period to discover loss has terminated under the prior policy (written by the same or an affiliated insurer), consult the Larger Amount Clause, if any. The insured is entitled to a single recovery up to the largest applicable limit of insurance.
3. If the loss occurred in a jurisdiction in which stacking has been permitted, consult legal counsel to review the rationale governing such stacking cases and the applicability of such rationale to the facts under review. Also, consider whether the current policy is a continuation of the prior insurance. Identical or sequential policy numbers and the issuance of "renewals" or "continuation certificates", for example, demonstrate the intent for continuous coverage. If the notice of cancellation of prior insurance provision was properly filled out on the declarations form in the current policy, that fact should preclude stacking.

V. Other Insurance


A. Other Insurance Clauses

Occasionally, an insured will have other, concurrent coverage from a different insurer114 that applies, in whole or in part, to the same loss involved in its fidelity claim.115 When this occurs, a determination must be made as to the liability, if any, of each insurer.

Fidelity policies typically include an "other insurance" clause intended to limit the applicability Of the fidelity coverage to that portion of the loss not covered by other insurance. The Financial Institution Bond, for example, states that "[c]overage afforded hereunder shall apply only as excess over any valid and collectible insurance or indemnity obtained by the Insured...”116 Similarly, the Commercial Crime Policy provides, in relevant part, as follows:
This policy does not apply to loss recoverable or recovered under other insurance or indemnity. If the limit of the other insurance or indemnity is sufficient to cover the entire amount of the loss, this policy will apply to that part of the loss, other than that falling within any Deductible Amount, not recoverable or recovered under the other insurance or indemnity.

However, this insurance will not apply to the amount of loss that is more than the applicable Limit of Insurance shown in the Declarations.117
The above examples of Other Insurance Clauses are known as "excess" clauses because, while not eliminating coverage, they require that the other insurance be treated as primary and the fidelity coverage is limited to that portion of the loss, if any, in excess of the other insurance. By itself, the application of such an excess clause is very simple. The result is essentially the same as if the Deductible Amount were to be raised to the amount recoverable under the other insurance, if the other insurance is greater than the Deductible Amount. If, however, the other insurance is less than the Deductible Amount, the other insurance will not affect the amount covered by the fidelity policy.

By way of example, assume an insured incurs a loss totaling $300,000 and the loss is covered both under a fidelity policy with an "excess" Other Insurance Clause, issued by Insurer A, and a separate policy issued by Insurer B, with no Other Insurance Clause. Assume further that the applicable limits and deductibles are as follows:
  Deductible Limit
Insurer A $50,000 $1,000,000
Insurer B $ 5,000 $100,000

Under this example, the insured is entitled to recover $100,000 from Insurer B. Insurer A's coverage is limited to the excess portion of the loss, i.e., $200,000.

The issues become complex, however, where both policies include an excess Other Insurance Clause, because both policies cannot be "excess" of the other. There are also two other general types of Other Insurance Clause, "escape clauses" and "pro-rata" clauses. Determining the liability of each insurer may depend upon the combination of Other Insurance Clauses under the two or more concurrent policies.

"Escape" clauses attempt to absolve the insurer of all liability if there is any other valid and collectible insurance covering the loss. An example of an escape clause follows:
If at the time of an occurrence any valid and collectible insurance is available to the insured (in this or any other carrier), except insurance purchased to apply in excess of the limit of liability of this policy, no insurance shall be afforded hereunder as respects such occurrence.118
Note that escape provisions are disfavored by courts and not always enforced.119

"Pro rata" clauses call for the total amount payable to the insured under all of the concurrent policies to be allocated between the insurers proportionately, based upon the limits of the policies. The liability of the insurer with the pro-rata clause is then limited to its proportionate share of the loss.120

B. Competing Other Insurance Clauses

Different combinations of Other Insurance Provisions may yield different results. For example, where the two concurrent policies both include the same variety of Other Insurance Clause, courts will generally view the clauses as "mutually repugnant," and will therefore prorate coverage between the two policies.121 While results may vary in different jurisdictions, the following is a chart showing how courts have historically tended to apply competing Other Insurance Clauses: 122

POLICY
"OTHER
CLAUSE"		 A's INS.
POLICY
"OTHER
CLAUSE"		 B's INS.
RESULT
Prorata Prorata Prorationl23
Prorata Excess Primary = prorate
Excess = secondaryl24
Prorata Escape Prorationl25
Excess Excess Prorationl26
Excess Escape Primary = escape
Excess = secondaryl27
Escape Escape Prorationl28

Not all jurisdictions, however, will limit their analysis to the language of the competing Other Insurance Clauses. Many courts will focus on the facts of the claim in the context of the purpose of the two respective policies. This approach, referred to as the "total insuring intent test," results in primary coverage being assigned to the insurer under the policy whose specific scope comes "closest to the risk" involved in the claim,129 with the other insurance treated as excess.130 In a fidelity context, for example, a fidelity bond covering a specific employee (often referred to as a "schedule form"), will more specifically cover the risk of defalcations by that employee than a crime policy including coverage for employee dishonesty generally (ie., under a "blanket" form). Under the total insuring intent test, the fidelity bond would be considered primary, and the crime coverage secondary.

Other Insurance Clauses may also extend to other "indemnity.”131 If a claim is caused, in whole or in part, by employees of the insured's outside vendor, or temporary employees supplied to the insured through a third party agency, such vendor or agency may be obligated to indemnify the insured for the loss. In such a case, under the terms of the Other Insurance Clause in the Commercial Crime Policy, the indemnity owed to the insured by the vendor or agency should be considered primary, and the insured's crime coverage should be viewed as secondary. The vendor or agency, however, may have its own insurance coverage, which coverage may, in turn, also include an Other Insurance Clause. In such a case, the courts will generally enforce the indemnity obligation between the insureds, and will treat the indemnitor's coverage as primary "notwithstanding the existence of an other insurance clause in [the indemnitor's] policy.”132

C. Practice Pointers for Claims Professionals

Where other insurance issues are implicated, consideration should be given to the following actions:
1. Request and review copies of all applicable policies, paying particular attention to the basic scope of coverage and the Other Insurance Clause, if any. Note that contacting the insured's agent or broker may be helpful in identifying and obtaining copies of other applicable policies.
2. Note whether the Other Insurance Clause expressly extends to "other indemnity," as is the case under the Commercial Crime Policy. Under the facts of the claim, it may be that another party is contractually obligated to indemnify the insured against the loss. Explore such possibilities, and inform the insured of its obligation to pursue such alternative sources of recovery.
3. Contact the other insurer(s). It may be possible to negotiate an agreement as to allocation of loss.
4. The Other Insurance Clause applies to other insurance that is "recoverable." If the insured neglects to pursue such recovery by, e.g., missing a deadline for submitting a discovered claim to its other insurer, the Other Insurance Clause should still apply to limit coverage.
VI. Conclusion


As is apparent from the foregoing discussion, even where coverage arises, fidelity policies will not always cover the full amount of the insured's loss. The provisions of the policy should be carefully examined and, in some cases, the provisions of prior or other policies must be reviewed to determine what recovery, if any, is available. Most fidelity policies contemplate treating as a single occurrence all loss involving the same wrongdoer, and contemplate a single recovery for such claims. The application of policy limits, however, will vary depending upon the language of the policy or policies, the factual basis for the claims, and the law of the applicable jurisdiction. Care must be taken in considering such issues and, when necessary, counsel familiar with the law of the applicable jurisdiction should be consulted. Prompt and accurate written communication with the insured concerning applicable policy limits and deductibles serves the interests of both the insurer and the insured, and may help avoid misunderstanding and disputes.



  1. This article refers to and draws primarily upon three commonly-used policies providing fidelity coverage: (i) the Financial Institution Bond, Standard Form No. 24 (revised January 1986) [hereinafter Financial Institution Bond],reprinted in STANDARD FORMS OF THE SURETY ASSOCIATION OF AMERICA (Surety Ass'n of Am.) [hereinafter STANDARD FORMS], (ii) Commercial Crime Policy (Discovery Form), Form No. 00220702 [hereinafter Commercial Crime Policy],reprinted in STANDARD FORMS, and (iii) Crime Protection Policy, Standard Fonn No. SP 0001 (Surety Ass'n of Am., revised March 2000), reprinted in COMMERCIAL CRIME POLICY at 677 [hereinafter Crime Protection Policy]. There are, of course, many other forms used to provide fidelity coverage in which the language of the applicable provision may vary. Attention must always be paid to the precise terms of the policy at issue.

  2. See Fed. Deposit Ins. Co., Risk Management Manual of Examination Policies, § 4.4, available at http://www.fdic.gov/ regulations/safety/manual/section4-4_toc.html (discussing considerations for banks in determining how much fidelity coverage to purchase, and explaining how higher deductibles result in lower premiums, but also require the insured bank to absorb greater risks);see also infra, Ch. 2 of this volume (discussing fidelity insurance from the insured's point of view).

  3. The Crime Protection Policy, for example, calls for such a countersignature. The Financial Institution Bond does not.

  4. See Commercial Crime Policy (Loss Sustained Form), Form No. 0023 07 02, reprinted in COMMERCIAL CRIME POLICY at 703 [hereinafter Loss Sustained Form].

  5. .See supra, note 1.

  6. See Commercial Crime Policy, supra note 1, at Condition E., § 1.f. Note that whether under the Commercial Crime Policy or the Loss Sustained Form, the extended period to discover loss terminates immediately upon the insured obtaining any other fidelity insurance policy. Note also that coverage under the Financial Institution Bond is limited to loss discovered during the policy period, without any extended period to discover loss. See Financial Institution Bond,supra note 1, at Conditions and Limitations, § 3. For an in-depth analysis of issues concerning when a loss is considered to have been "discovered" by the insured, see infra Ch. 13. See also Michael J. Weber & Ronald G. Mund, ,Discovery - What Does It Do, What It Is, and Who Must Discover,in COMMERCIAL CRIME POLICY ch. 9, supra note 1.

  7. The Financial Institution Bond, although a discovery policy, includes a provision addressing prior insurance by the same insurer under an expired or cancelled bond, for which the period for discovery had not expired at the time the loss was discovered.See Financial Institution Bond, supra note 1, at Limit of Liability Under This Bond and Prior Insurance, Conditions and Limitations, § 8. However, because the period for discovery under the Financial Institution Bond is coterminous with the period of the bond itself, that provision would not apply to successive policy periods under the Financial Institution Bond itself. Thus, except where the prior insurance was some other type of policy providing loss sustained coverage, the prior insurance provision of the Financial Institution Bond would appear to rarely apply.

  8. Commercial Crime Policy,supra note I, at § F.14.a. The same definition of occurrence also appears in the Employee Dishonesty Coverage Form, Form A - Blanket, CR 00 01 10 90 ,reprinted in COMMERCIAL CRIME POLICY supra note 1, at 725.

  9. Commercial Crime Policy,supra note 1, at § C/O.a.

  10. See, e.g., Business Interiors, Inc. v. The Aetna Cas. and Sur. Co., 751 F.2d 361 (10th Or. 1984) (quoting a provision defining occurrence as follows with respect to the application of the deductible: "As respects anyone employee, dishonest or fraudulent acts of such employee during the policy period shall be deemed one occurrence for the purpose of applying the deductible. ").

  11. See, e.g., Wausau Bus. Ins. Co. v. US Motels Mgmt, Inc., 341 F. Supp. 2d 1180 (D. Colo. 2004) (wide variety of thefts and frauds by a single employee over a four-year period found to constitute a single occurrence); Omne Servs. Group, Inc. v. Hartford Ins. Co., 2 F. Supp. 2d 714 (£.0. Fa. 1998); Jefferson Parish Clerk of Court Health Ins. Trust Fund v. Fid. & Deposit Co. of Md., 673 So. 2d 1238, 1245 (La. Ct. App. 1996) (repeated dishonest acts by the same employee held to be one occurrence); Diamond Trans. Sys., Inc. v. Travelers Indem. Co., 817 F.Supp. 710, 711-712 (N.D. III. 1993) (holding that an employee's three- year fraudulent check-cashing scheme was a single occurrence); Christ Lutheran Church v. State Farm Fire & Cas. Co., 471 S.E.2d 124 (N.C App. 1996), aff'd, 477 S.E.2d 33 (N.C 1996) (employee's two-year embezzlement scheme was held to constitute one occurrence); Valley Furniture & Interiors, Inc. v. Trans. Ins. Co., 26 P.3d 952 (Wash. App. 2001) (six years of embezzlement by payroll manager, for himself and for two other employees, was a single occurrence); Reliance Ins. Co. v. Treasure Coast, 660 So. 2d 1136, 1137 (Fla. App. 1995) ("[Although this employee's embezzlements occurred over a four year period, they constitute a single occurrence. "); Bethany Christian Church v. Preferred Risk Mut Ins. Co., 942 F.Supp. 330 (S.D. Tex. 1996) (employee's thefts through altered and unauthorized checks over a three-year period held to be a single occurrence); see also Bus. Interiors, Inc. v. The Aetna Cas. & Sur. Co., 751 F.2d 361 (10th Or. 1984) (thirty-one forgeries and nine material alterations to checks by same employee over seven-month period was one occurrence)

  12. See Auto Lenders Acceptance Corp. v. Gentilini Ford, Inc., 854 A.2d 378 (N.J. 2004); Shemitz Lighting, Inc. v. Hartford Fire Ins. Co., 2000 WL 1781840 (Conn. Super. Nov. 9, 2000).

  13. See supra note 12

    .
  14. 751 F.2d 361 (10th Or. 1984).

  15. Id.

  16. Id. at 362.

  17. Id.. at 363.

  18. Id. The decision in Business Interiors appears to use the terms "occurrence" and "Ioss" interchangeably.

  19. Id. (citing Appalachian Ins. Co. v. Liberty Mut Ins. Co., 676 F.2d 56, 61 (3d Or. 1982)). The Appalachian case, which is cited in Business Interiors and several other leading fidelity cases examining single or multiple occurrence(s), was not itself a fidelity case, but concerned a liability insurance policy. The court in Appalachian stated as "general rule" that an "occurrence is determined by cause or causes of the resulting in injury. " Appalachian Ins. Co., 676 F.2d at 61. Applying that "general rule," the court in Appalachian found there to have been a single cause, (i.e. the insured's adoption of certain discriminatory employment practices), and, hence, a single "occurrence," underlying a multi-plaintiff class-action suit based on numerous employee complaints spanning a period of several years. It should be noted, however, that the policy at issue in Appalachian expressly defined of "occurrence" to include "continuous or repeated exposure to conditions" resulting in injury, and provided that "all such exposure to substantially the same general conditions... shall be deemed one occurrence." Appalachian Ins. Co., 676 F.2d at 59, n.8.
  20. Business Interiors, 751 F.2d at 363.

  21. Id..

  22. 341 F. Supp. 2d 1180 (D. Colo. 2004).

  23. Id. at 1182.

  24. Id

  25. Id. at 1184.

  26. Id at 1183-1184. This reasoning from U.S. Motels Management was found persuasive, quoted and followed on this point in the case of Glaser v. Hartford Cas. Ins. Co., 364 F. Supp. 2d 529 (D. Md. 2005). The court in Glaser, however, in contrast to the holding in U.S. Motels Management, found an ambiguity in the term "occurrence" as it applied to successive policy periods. Glaser thus held that a single employee's multiple dishonest acts within a single policy period constituted one occurrence, but permitted a separate recovery for each year the subject policy was in force.Glaser, 364 F. Supp. 2d. at 536-538. See notes 114- 115 infraand accompanying text
  27. 551 N. W.2d224 (Minn. 1996).

  28. Id. at 231.

  29. Id. On this point, the American Commerce court distinguished Business Interiors on the grounds that the dishonest employee in that case had employed only a single method of embezzlement, i.e., forging checks. Note, however, that the loss in Business Interiors also arguably arose trom two methods of embezzlement-thirty-one forgeries and nine material alterations to checks.

  30. 854 A.2d 378 (N.J. 2004).

  31. Id. at 396. This variant of the definition of occurrence differs ftom that found in the Commercial Crime Policy in that OJ it refers to "persons" rather than "employees," (ii) it uses numbered, disjunctive subparts with respect to the "persons" and "acts" clauses, whereas in the Commercial Crime Policy the second clause is grammatically linked to and modifies the first, and (iii) it uses the phrase "series of related acts. " Those differences may be significant in attempting to distinguish Gentilini from cases arising under the Commercial Crime Policy. Note, however, that this "variant" definition of occurrence found in Gentilini also appeared in the American Commerce case.

  32. Gentilini, 854 A.2d at 396.

  33. Id at 397.

  34. Id.

  35. Id.

  36. Id. at 397 (citing Appalachian, 676 F.2d at 61).

  37. 252 F.3d 738 (5th Cir. 2001).

  38. Id. at 739.

  39. Id. Note that according to the Ran-Nan decision, the position taken by the insurer in that case mirrored the "literal" reading of the policy language that was raised, rhetorically, and rejected in favor of a "fair reading" by the court in Gentilini. See Gentilini, 854 A.2d at 397- 98.

  40. Ran-Nan, 252 F.3d at 739.

  41. Id. at 740.

  42. Id.

  43. 2 F. Supp. 2d 714 (ED. Pa. 1998).

  44. Note that Omne predates the New Jersey Supreme Court's decision in Gentilini.

  45. Id. at 719 (emphasis supplied by the court).

  46. See Omne, 2 F. Supp. 2d at 719. The court in Omne also held, in the alternative, that the subject loss was caused by a "series" of acts

  47. .See supra, note 12. Note, however, that the reasoning of a number of courts on this issue appears to be based more upon the single "cause" analysis employed in Business Interiors rather than on simply enforcing the unambiguous terms of the subject policies.

  48. 313 F.3d 841 (3d Cir. 2002) (applying Pennsylvania law).

  49. Id.. at 844.

  50. Id. at 852 (citing Business Interiors). Note that the Scirex court, unlike the Gentilini court, understood and enforced the "commonly understood" and "accepted" purpose of single loss language, i.e., to limit, rather than expand, the insurer's liability.

  51. Id.
    .
  52. 26 P.3d 952 (Wash. App. 2001).

  53. Id. at 955.

  54. The subject definition of "series" was "a group of usually three or more things or events standing or succeeding in order and having a like relationship to each other." Gregory v. Home Ins. Co., 876 F.2d 602 (7th Cir. 1989) quotes the same definition of "series," adding alternatively "a spatial or temporal succession of things; a group that has or admits an order or arrangement exhibiting progression." Id. at 606, n.4. Commenting upon these definitions of "series," the Gregory court noted that "[t]he inclusion of this term could require a temporal connection." Id. See also Omne, 2 F. Supp. at 719 (discussing the "spatial and temporal connection" between an employee's acts under a "series of acts" clause).

  55. Valley Furniture, 26 P.3d at 108.

  56. Am. Commerce,551 N.W.2d at 231. Note that COUCH ON INSURANCE 3d, 3185: 60 (1995),Determining Number of Occurrences of Defalcation By Employee,adopts this understanding of the phrase "series of related acts."

  57. Am. Commerce, 551 N.W.2d at 231.

  58. Gentilini, 854 A.2d at 398.

  59. 628 F. Supp. 1129, 1133-34 (D. Kan. 1985).

  60. Gentilini 854 A.2d at 398 (citing Huff, 628 F. Supp. at 1133-34).

  61. The Huff case, cited in Gentilini, involved a directors and officers liability policy, defining "occurrence" as "any claim or claims made involving one or more insureds arising out of the same act, interrelated acts, errors, omissions or scheme." Huff, 628 F. Supp. at 1130. The case concerned the alleged negligence of certain bank officers in approving four unprofitable loans. The only similarity between the loans was that they all involved the same method of financing, i.e., a "loan swap." Noting that the four unprofitable loans were made to "different borrowers, were for different purposes, and had separate collateral," the Huff court concluded that the subject loans "cannot be found to be interrelated." Id. at 1133-34 (emphasis added). Note that the term "interrelated" in insurance policies is more apt to be perceived by courts to be ambiguous than the term "related," which is a "more commonly understood term in everyday language." See Am. Home Assurance Co. v. Allen, 814 N.E.2d 662,667-670 (Ind. Ct. App. 2004), and cases cited therein.

  62. Am. Commerce 551 N.W.2d at 228. The court, however, found a second "occurrence" in the form of a check fraud scheme carried out by the same employee using a different method.

  63. Financial Institution Bond, supra note 1, at Single Loss Defined, Conditions & Limitations, § 4 (c).

    .
  64. FDIC v. Fid. & Deposit Co. of Md., 45 F.3d 969,974 (5th Cir. 1995).

  65. See Roodhouse Nat'l Bank v. Fid. & Deposit Co. of Md., 426 F.2d 1347 (7th Cir. 1970) (applying a limitation of liability clause, similar to the modem Single Loss provision, to loss caused by multiple forgeries by the same person (not an employee)).

  66. See In re Baker & Getty Financial Services, Inc., 93 B.R. 559, 569 (Bankr. N.D. III. 1988).

  67. Citizens Bank of Newburg v. Kan. Bankers Sur. Co., 971 F.Supp. 1301, 1304 (E.D. Mo. 1997).

  68. Note, however, that with respect to certain other types of covered loss (e.g., resulting from such causes as robbery or negligence), the Financial Institution Bond's definition of Single Loss includes a "series of related acts" clause.

  69. See Purdy Co. of III. v. Transp. Ins. Co., 568 N.E.2d 318 (III. App. Ct. 1991) (interpreting policy language similar to the Single Loss provision).

  70. Bay Cities Paving & Grading, Inc. v. Lawyers' Mut. Ins. Co., 855 P.2d 1263, 1267 (Cal. 1993); see also Benjamin Moore & Co. v. Aetna Cas. & Sur. Co., 843 A.2d 1094, 1106 (N.I 2004) (discussing sequential occurrence policies in environmental cases and observing: "There is simply no principled basis to treat progressive environmental damage as separate occurrences in order to access insurance coverage but as a fractionalized single occurrence in determining the applicability of deductibles. ").

  71. Am. Commerce Ins. Brokers v. Minn. Mut. Fire & Cas. Co., 551 N.W.2d 224,229 (Minn. 1996).
  72. SeeFinancial Institution Bond, supra note 1, at Aggregate Limit of Liability, Conditions and Limitations, § 4.

  73. For a discussion of such bonds, see James A. Knox, Jr. & Matthew Horowitz, Probate Bonds, & James A. Knox, Jr., Public Official Bonds, in THE LAW OF MISCELLANEOUS AND COMMERCIAL SURETY BONDS, chs. 4 and 6 (Todd C. Kazlow & Bruce C. King eds., 2001).

  74. Note that under the Financial Institution Bond, if lost securities are replaced through the use of a lost instrument bond, the lost instrument bond is not considered a payment toward the insurer's aggregate limit of liability.

  75. A different analysis applies to public official bonds, which generally are not discovery policies, and which, depending on their terms and/or applicable statutes, mayor may not permit separate recoveries up to the penal sum for loss sustained in separate policy renewal periods. See Knox, supra note 73, at 97-99.

  76. .Note that the insurer's total payments includes not only the direct payment of claims, but also attorney's fees, costs and expenses incurred where the insurer elects to defend the insured in a legal proceeding brought against the insured by a third party, and any settlement paid by the insurer in such legal proceeding.See Financial Institution Bond, supra note 1, at Notice of Legal Proceedings Against Insured - Election to Defend, General Agreement, § F.

  77. See Financial Institution Bond, supra note 1, at Aggregate Limit of Liability, Conditions and Limitations, § 4 (stating in relevant part: "The Aggregate Limit of Liability shall not be increased or reinstated by any recovery made and applied in accordance with subsections (a), (b) and (c) of Section 7.").

  78. .See infra, § VI. The insured's prior policies are also of relevance as to specific employees for whom coverage was cancelled under such prior policies. See infra Ch. 15 (discussing the termination of coverage as to a specific employee); see also Martha L. Perkins & Lana M. Glovach, Cancellation and Termination of Coverage, in COMMERCIAL CRIME POLICY, ch. 14, supra note 1.

  79. Note that the Loss Sustained Form provides the insured with an extended period of one year after the policy period to discover the loss.

  80. Hereinafter, the Prior Insurance Clause.

  81. Loss Sustained Form, supra note 4, at Conditions, E, § I.q.

  82. Loss Sustained Form,supra note 4, at Conditions, E, § 1.q.

  83. See, e.g.,Crime General Provisions, Form No. CR 10000497, General Conditions, B.5.,reprinted in COMMERCIAL CRIME POLICY, at 717 [hereinafter, the 1997 Loss Sustained Form].

  84. See text accompanying notes 87 through 90 infra (discussing the "Larger Amount Clause") and notes 116 through 134 infra (discussing other insurance).

  85. See Wausau Bus. Ins. Co. v. U.S. Motels Mgmt., Inc., 341 F. Supp. 2d 1180, 1185 (D. Colo. 2004) (construing Prior Insurance Clause and denying additional recovery above single policy limit).

  86. Loss Sustained Form, supra note 4, at Conditions, E, § 1.o. [hereinafter, the Larger Amount Clause].

  87. Linda M. Soughan, Limits of Liability, in HANDLING FIDELITY BOND CLAIMS, ch. 10 at 316-17 (Michael Keeley & Timothy M. Sukel eds., 1999).

  88. The Financial Institution Bond, supra note 1, at Limit of Liability Under This Bond and Prior Insurance, Conditions and Limitations, § 8, includes a similar Larger Amount Clause, the application of which is expressly limited to prior cancelled or terminated policies "in which the period for discovery has not expired at the time any such loss is discovered[.]" The Larger Amount Clause in the Loss Sustained Form appears to be limited in application in the same manner.

  89. SeeEdward G. Gallagher,Limit of Liability, in COMMERCIAL CRIME POLICY, ch. 8 supra note 1, at 456-458.

  90. Loss Sustained Form, supra note 4, at Deductible, C. Note that the Commercial Crime Policy (Discovery Form) includes the same clause.

  91. See supra note 1.

  92. Note, however, as discussed infra, the coverage provided in previous policy periods may, in some cases, affect the amount of coverage under the terms of the form in force when the loss is discovered.

  93. See supra note 7, and accompanying text.

  94. Note that under the Prior Insurance Clause, coverage may be available in the current policy period for loss incurred during the period of a previously-terminated policy. That, however, is not "stacking" because coverage cannot exceed the applicable limit of insurance in the current policy period.

  95. For example, the court in Karen Kane, Inc. v. Reliance Ins. Co., 202 F.3d 1180 (9th Cir. 1999), applying California law, treated the insurance for consecutive policy periods as three separate policies, thereby permitting recovery up to the policy limit for each period. Discovery of the loss, however, came too late for coverage under the first of three such "policies," and the insured was therefore not permitted to recover for loss incurred during the first policy period.

  96. 1997 Loss Sustained Form, supra note 4, at General Conditions, 111. In both the Loss Sustained Form and the 1997 Loss Sustained Form, the non-cumulation clause appears as part of the Larger Amount Clause. See supra text accompanying notes 87-90.

  97. 397 S.E.2d 876 (Va. 1990).

  98. 425 A.2d 803 (Fa. Super. 1981).

  99. 341 F. Supp. 2d 1180 (D. Colo. 2004).

  100. Id. at 1184.

  101. 660 So. 2d 1136 (Fla. Dist. Ct. App. 1995)

  102. See Shared Interest Mgmt., Inc. v. CNA Fin. Ins. Group, 725 N.Y.S.2d 469 (N.Y. Sup. Ct. App. Diy. 2001) (applying a single limit of insurance because policy renewals did not constitute separate policies or, alternatively, even if they did, recovery was still limited under the anti-stacking language in the Larger Amount Clause); accord Diamond Transport Sys., Inc. v. The Travelers Indemnity Co., 817 F. Stipp. 710 (N.D. III. 1993) (enforcing non- cumulation provision appearing in Larger Amount Clause).

  103. 501 N.W.2d 335,342 (N.D. 1993).

  104. 34 Cal. App. 4th 1470 (Cat. Ct. App. 1995).

  105. Id. at 1478.

  106. It is noteworthy that both the trial court and the dissent in A.B.S. found that the policies unambiguously preclude stacking.

  107. Id. at 1484. Presumably, on remand, the trial court permitted recovery only in the policy period in which the loss was discovered and the policy period immediately prior to that discovery.

  108. See Gallagher, supra note 89, at 467-468.

  109. 6 Fed. Appx 176 (4th Cir. Mar. 28, 2001).

  110. See Wausau Bus. Ins. Co. v. US Motels Mgmt., Inc., 341 F. Stipp. 2d 1180 (D. Colo. 2004); Shared Interest Mgmt., Inc. v. CNA Fin. Ins. Group, 725 N.Y.S.2d 469 (N.Y. Sup. Ct App. Div. 2001) (declining to follow the holding in Spartan); Glaser v. Hartford Cas. Ins. Co., 364 F. Supp. 2d 529 (D. Md. 2005) (finding Spartan to be persuasive).

  111. 0n this point, the court in Wausau, 341 F. Stipp. 2d at 1184, n.3, declined to follow Spartan, noting that under Colorado law, "ambiguity cannot be evaluated at this level of abstraction."

  112. 364 F. Supp. 2d 529 (D. Md. 2005).

  113. Karen Kane, Inc., 202 F.3d at 1188 (9th Cir. 1999).

  114. This discussion does not extend to terminated coverage, which is addressed by the Prior Insurance Clause, nor concurrent coverage by the same insurer or its affiliate, which may implicate the Larger Amount Clause.

  115. See, e.g., James B. Lansing Sound, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. 801 F.2d 1560 (9th Cir. 1986) (loss covered under a comprehensive crime insurance policy, and also under an employee dishonesty policy).

  116. Financial Institution Bond,supra note 1, at Conditions and Limitations, § 9.

  117. Commercial Crime Policy, supra note 1, at Condition E.(q).

  118. See e.g., Underground Constr. Co. v. Pac. Indem. Co., 49 Cal. App. 3d 62,65 (Cal. Dist. Ct. App. 1975).

  119. Douglas Richmond, Issues and Problems in "Other Insurance," Multiple Insurance, and Self-Insurance, 22 Pepp. L. Rev. 1373, 1387 (1995).

  120. See COUCH ON INSURANCE supra note 56, at 219:28.

  121. See, e.g., Fed. Ins. Co. v. Gulf Ins. Co., 162 S.W.3d 160, 164 (Mo. Ct. App. 2005).

  122. This summary, including footnotes, is reprinted in its entirety from the first edition of this volume, i.e., Linda M. Soughan, Limits of Liability in HANDLING FIDELITY BOND CLAIMS (Michael Keeley & Timothy M. Sukel eds., 1999), ch. 10 at 328-329, which acknowledges the assistance of David A. Tartaglio & R. Joseph DeBriyen in preparing the summary.

  123. This gives effect to both clauses. See, e.g.. Commercial Union Assurance Co. v. Aetna Casualty & Sur. Co., 445 F. Supp. 1190 (D. N.H. 1978).

  124. The excess clause is given effect and the policy with the prorate clause is held to be primary. See, e.g., Owen Pac. Marine, Inc. v. Ins. Co. of N. Am., 90 Cal. Rptr. 286 (Cal. Ct. App. 1970).

  125. See, e.g., Peerless Cas. Co. v. Cont'l Cas. Co., 301 P.2d 602 (Cal. Ct. App. 1956).

  126. When both policies contain excess clauses, enforcement of both is obviously impossible. The general rule treats the provisions as canceling each other out and prorates the coverage. See, e.g., Fire Ins. Exch. v. Am. States Ins. Co., 46 Cal. Rptr.2d 135 (Cal. Ct. App. 1995).

  127. The excess clause is given effect and the escape clause is not as they are generally disfavored by the judiciary. See, e.g Employers Reinsurance Corp. v. Mission Equities Corp., 141 Cal. Rptr. 727 (Cal. Ct. App. 1977).

  128. Generally, courts will treat the provisions as canceling each other and will prorate coverage. See, e.g., Underground Cost. Co., Inc. v. Pac. Indem. Co., 122 Cal. Rptr. 330 (Cal. Ct. App. 1975).

  129. COUCH ON INSURANCE, supra note 56, at 219:49.

  130. See e.g., State Farm Mut Auto. Ins. Co. v. Zurich Ins. Co., 439 N.W.2d 751 (Minn. App. 1989) ("[T]he insurer whose coverage was effected for the primary purpose of insuring that risk will be liable first for payment, and the insurer whose payment on the risk was the most incidental to the basic purpose of its insuring intent will be liable last"); and Alpaugh ex rel. Alpaugh v. Cont'l Ins. Co., 863 So. 2d 623 (La. Ct App. 4th Cir. 2003) (holding driver's automobile policy which specifically provided coverage for accidents is primary and general liability policy providing automobile driver coverage for volunteers of non-profit organizations is secondary, or excess).

  131. Commercial Crime Policy, supra note 1, at Conditions, E.(q).

  132. 132.Fed. Ins. Co. v. Gulf Ins. Co., 162 S.w.3d at 165.

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