Pacific Enterprises v. Federal Insurance

MEMORANDUM *

Pacific Enterprises and its subsidiaries were covered under Federal Insurance Company’s crime policy during the relevant period from May 21, 1990 to May 21, 1991. The policy limit was $25 million, with a $500,000 deductible, and it provided fidelity insurance. Fidelity insurance is insurance against loss of money or securities caused by the theft or forgery by identifiable employees of the insured. The employee theft provision in the policy covered “direct losses of Money, Securities and other property caused by Theft or forgery by any identifiable Employee(s) of any Insured.” The depositors forgery coverage provision provided that Federal “shall be liable for direct losses caused by forgery or alteration of, on, or in any check, draft, promissory note, bill of exchange or similar written promise, order or direction to pay a sum certain in money, made or drawn by, or drawn upon the *628 insured.” The depositors forgery coverage excluded forgery committed by an employee, which is defined as a person in regular the service of the insured, or someone in collusion with an employee. The policy also stated that Federal was not liable for a loss sustained by one insured to…

concurring in part and dissenting in part.

I agree with the majority that the district court improperly granted summary judgment against Pacific as to the proof of its loss, and that the district court properly granted summary judgment against Pacific on its bad faith and punitive damages claims. I also agree with the majority that Federal bears the burden to prove a factual basis for the policy’s employee exclusion. Therefore, I concur in Parts A, B, and D of the majority disposition. However, I must respectfully dissent from Part C, because I disagree with the decision to reverse the district court’s denial of Pacific’s motion for partial summary judgment on its duty to mitigate.

I would affirm the district court’s denial of the summary judgment motion because the issue of whether Pacific was obligated to mitigate its damages is a distinct question from whether Pacific gave timely notice of its loss. Pacific’s duty to mitigate is a common law obligation which applies to every contract and exists independently from an insured’s obligation to notify the insurer of his loss. Under California law, “A plaintiff has a duty to mitigate damages and cannot recover losses it could have…