Maryland federal court denies coverage under CGL policy for alleged theft of $1.5 million in goods

In IFCO Systems North America, Inc. v. American Home Assurance Company, No. 09-2874 (D. Md. June 23, 2011), the Court granted summary judgment to American Home Assurance Company, finding no coverage under the American Home policy for the insured's liability arising from alleged theft by the insured's employees of over $1.5 million of goods from a client's warehouse.

The insured, IFCO Systems North America, had contracted with Rite Aid of Maryland to provide pallet management and logistics support at Rite Aid's warehouse in Perryman, Maryland. Rite Aid notified IFCO that it believed that IFCO had stolen over $1.5 milling in Rite Aid goods from the Perryman facility. IFCO reported this claim to its insurer, American Home. American Home investigated the claim and disclaimed any duty to defend or indemnify. IFCO then filed a declaratory judgment action that the Policy covered the Rite Aid claim. The case is somewhat unusual in that in the declaratory judgment action, both IFCO and American Home are represented by insurance defense firms.

The Court agreed with American Home's argument based on a basic principle: the Policy defined an "occurrence" as "an accident", and theft is not an accident.

The Court rejected IFCO's argument that even though the IFCO employee who allegedly stole the Rite Aid goods did so intentionally, IFCO itself as a corporation was an innocent insured. The Court ruled that under the applicable law, the intentional acts of a corporation's employees do not constitute an "accident", even if the corporation did not foresee or intend the employee's actions.

IFCO next argued that that the Policy definition of "occurrence" is ambiguous and can be read to include even intentional acts by IFCO employees. The Court characterized this argument as absurd, noting that by IFCO's logic, repeated intentional acts would fall within the definition of "accident", even where an isolated intentional act may not. "Routinized theft cannot be accidental, even under insurance law."

IFCO also argued that the Policy provisions, read as a whole, imply that property losses due to theft will be covered by the Policy. The Court rejected this argument, noting that "The problem with this argument is that the "solitary provisions" of the Policy cited by [American Home] also happen to be the Policy's operative provisions establishing the scope of coverage."

Notwithstanding the Court's rejection of its arguments, IFCO filed a motion to alter or amend the Court's judgment, which is still pending.

Categories: Insurance, Maryland