"Directly Resulting From" Policy Requirement Is Determined By Application Of Contract Principles of Interpretation, Not Tort Principles Of Causation
FIRST STATE BANK OF MONTICELLO v. OHIO CASUALTY INSURANCE CO. (February 5, 2009)
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James Stilwell was an entrepreneur and property owner in central Illinois. Stilwell found himself at times in need of cash, however. He devised a scheme whereby he would write a check on his account at Tuscola National Bank (“TNB”) and present it to First State Bank of Monticello (“FSB”) in return for a bank money order. Stilwell frequently had no money in his account at TNB. Even though cashing a check for a noncustomer was against FSB’s policy, it sold him almost $2 million in money orders over the course of several months. When questioned by bank representatives, Stilwell made up stories to cover his scheme. Finally, TNB froze his account, leaving FSB with $307,000 in worthless checks. Stilwell agreed to repay FSB, but died before he did. FSB filed a claim with its insurer, Ohio Casualty Insurance Company (“Ohio Casualty”). Ohio Casualty denied the claim on two grounds: that the loss was not covered under the policy and that it was an excluded loss because it was caused by a FSB employee. FSB filed suit to recover. The district court granted summary judgment to FSB. FSB requested prejudgment interest in a Rule 59(e) motion. The court declined. Both Ohio Casualty and FSB appeal.
In their opinion, Judges Wood, Sykes and Tinder affirmed. The Court first addressed Ohio Casualty’s argument that FSB did not suffer a “loss . . . resulting directly from . . . false pretenses . . . committed . . . on the premises” as required by the policy. It first rejected the argument that FSB suffered no loss because it received Stilwell’s check. A loss is a depletion of funds. The fact that the loss did not occur at the moment of the presentment is of no consequence. Next, the Court rejected the argument that the loss did not directly result from Stilwell’s conduct. The Court distinguished between tort principles of causation and contract interpretation principles in determining “direct” cause. The Court recognized that some courts refer to tort principles of causation but that Illinois applies contract principles to determine policy coverage. Here, given the plain meaning of “direct,” FSB’s loss was a direct result of Stilwell’s conduct. Finally, the Court addressed and rejected Ohio Casualty’s argument that a policy exception for loss “caused by an Employee” applied to FSB’s loss. The Court concluded that losses that an employee failed to prevent were not included in the definition of losses “caused” by an employee.
On FSB’s cross-appeal, the Court quickly dispensed of the prejudgment interest issue. FSB requested prejudgment interest for the first time in its Rule 59(e) motion. The district court was entitled to consider it untimely.
