Natrona Heights Supermarket v. Firemen's Ins. Co. (memorandum)

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J-A11041-14 NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37 NATRONA HEIGHTS SUPERMARKET INC. AND FL&C DEVELOPMENT CORPORATION IN THE SUPERIOR COURT OF PENNSYLVANIA Appellee v. COMPANY OF WASHINGTON, D.C. Appellant No. 1105 WDA 2013 Appeal from the Judgment Entered June 12, 2013 In the Court of Common Pleas of Westmoreland County Civil Division at No(s): 7565 of 2010 BEFORE: GANTMAN, P.J., FORD ELLIOTT, P.J.E., and OLSON, J. MEMORANDUM BY GANTMAN, P.J.: FILED JULY 09, 2014 from the judgment entered in the Westmoreland County Court of Common Pleas, in favor of Appellees, Natrona Heights Supermarket Inc. and FL&C Development Corporation, in this insurance coverage dispute. We affirm. The trial court opinion fully and correctly sets forth the relevant facts of this case as follows: [Appellees] are two Pennsylvania companies [which] own and operate two Save-A-Lot grocery stores. One store is spring of 2007, Na noticeably began to decline, such that the Director of Operations began to inquire as to whether there was any explanation for the discrepancy. Likewise, the numbers at FL&C began to decline in 2007, and continued into 2008. J-A11041-14 Initially, no explanation for the deviations in gross profit was apparent. In January 2009, Natrona learned that a man, Troy Lauer, was taking shopping carts full of meat out of the store on a regular basis with the assistance of employees who would let him pass through the checkout line without paying. The police apprehended Lauer[;] and Josh Baker, an employee who participated in the theft, was taken into custody as well. Baker cooperated with law enforcement authorities and gave a statement implicating other coworkers, including a store manager, Karen Coffman, in thefts committed at both stores. Ultimately, numerous employees were implicated, either in stealing goods for themselves or in enabling customers and co-workers to steal from the stores. As one employee put it, there was stores for years. Upon receiving this information, [Appellees] notified their insurance carrier, [Appellant], and hired Case Sabatini & Co., a certified public accounting firm, to analyze their records and compute the amount of losses sustained from these employee thefts. Case Sabatini concluded that Natrona suffered a loss of product, at cost, of $396,5[9]8 during 2006, 2007, and 2008; and that FL&C suffered a loss of product, at cost, of $79,873 during 2007 and 2008. Certified Public Accountants, to analyze the records as well. While MD&D found that $425,000 in inventory was missing at Natrona (they di failed to identify the products that were stolen and/or the ion, [Appellant] asserts that the claim is barred both by an exclusion in the policy and the fact that the losses could be attributable to other factors other than employee theft, such as customer theft, price reduction sales, and casualty losses. Altho -2- J-A11041-14 tracted the normal historical shrink (a number derived after factoring in damaged goods, spoilage, and shoplifting) from their figures before concluding that there was a net employee theft loss. follows: A. Insuring Agreements Coverage is provided under the following insuring Agreements for which a Limit of Insurance is shown in the Declarations. 1. Employee Theft We will pay for alone or in collusion with other persons. ***** D. Exclusions 2. Insuring Agreement A.1. does not apply to: b. Inventory Shortages Loss, or that part of any loss, the proof of which as to its existence or amount is dependent upon: (1) An inventory computation; or (2) A profit and computation. loss However, where you establish wholly apart from such computations that you -3- J-A11041-14 have sustained a loss, then you may offer your inventory records and actual physical count of inventory in support of the amount claimed.[1] In addition, in deciding to deny coverage, [Appellant] relies upon Section E.1.p. of the [P]olicy, which states that property covered under this insurance so we [the insurer] (Trial Court Opinion, filed March 12, 2013, at 1-4) (internal citations omitted). Procedurally, upon denial of their insurance claim, Appellees filed a complaint against Appellant on October 18, 2010, alleging breach of contract. Appellees also sought a declaratory judgment that Appellant was required to indemnify them for the employee theft losses. On December 2, 2010, Appellant filed an answer and new matter, to which Appellees filed a reply on January 7, 2011. On November 29, 2012, the parties proceeded to a bench trial. -in-chief, Appellant moved for a compulsory non-suit on the basis that Appellees failed to prove a covered 2012, the court directed the parties to file written closing arguments. The court found in favor of Appellees on March 12, 2013. Specifically, the court awarded Appellee Natrona $394,290.00 (the $396,598.00 amount of loss ____________________________________________ 1 -4- J-A11041-14 the 2007 loss above the $250,000.00 Policy limit for that year), and awarded $79,873.00 to Appellee FL&C. The court also awarded Appellees pre- judgment interest at the rate of 6.00% from February 26, 2010 (the date aim). Appellant timely filed post- trial motions on March 21, 2013, which the court denied on June 3, 2013. On June 12, 2013, the court entered judgment on the verdict in favor of Appellees. Appellant timely filed a notice of appeal on July 2, 2013. On July 11, 2013, the court ordered Appellant to file a concise statement of errors complained of on appeal pursuant to Pa.R.A.P. 1925(b), which Appellant timely filed on August 1, 2013. Appellant raises three issues for our review: WHETHER IT WAS ERROR FOR THE TRIAL COURT TO DENY HAD FAILED TO PROVE A LOSS AT THE CLOSE OF THEIR CASE IN CHIEF? WHETHER THE AWARD OF $79,873 TO [APPELLEE] FL&C DEVELOPMENT CORPORATION IS SUPPORTED BY COMPETENT EVIDENCE? WHETHER THE TRIAL COURT ERRED AS A MATTER OF LAW 2 Our standard and scope of review in this case is as follows: ____________________________________________ 2 -5- J-A11041-14 Our appellate role in cases arising from non-jury trial verdicts is to determine whether the findings of the trial court are supported by competent evidence and whether the trial court committed error in any application of the law. The findings of the trial judge in a non-jury case must be given the same weight and effect on appeal as the verdict of a jury, and the findings will not be disturbed on appeal unless predicated upon errors of law or unsupported by competent evidence in the record. Furthermore, our standard of review demands that we consider the evidence in a light most favorable to the verdict winner. Levitt v. Patrick, 976 A.2d 581, 588-89 (Pa.Super. 2009) (quoting Baney v. Eoute, 784 A.2d 132, 135 (Pa.Super. 2001)). Additionally, the well- settled standard of review for the denial of a motion for a compulsory nonsuit is: A motion for compulsory non-suit allows a defendant to entered only in cases where it is clear that the plaintiff has not established a cause of action; in making this determination, the plaintiff must be given the benefit of all reasonable inferences arising from the evidence. When so viewed, a non-suit is properly entered if the plaintiff has not introduced sufficient evidence to establish the necessary elements to maintain a cause of action; it is the duty of the trial court to make this determination prior to the submission of the case to the jury. A compulsory non-suit is proper only where the facts and circumstances compel the conclusion that the defendants are not liable upon the cause of action pleaded by the plaintiff. Church v. Tentarelli, 953 A.2d 804, 806 (Pa.Super. 2008), appeal denied, 599 Pa. 685, 960 A.2d 835 (2008) (quoting Mahan v. Am-Gard, Inc., 841 A.2d 1057-58 (Pa.Super. 2003), appeal denied, 579 Pa. 712, 858 A.2d 110 -6- J-A11041-14 (2004)). For purposes of dispositio argues Appellees failed to submit sufficient evidence to establish a loss covered under the Policy. Appellant asserts Appellees provided only gross profit deviations to support their claims of employee theft. Appellant contends the Policy disallows use of this evidence to prove loss, and Appellees failed to provide inventory records or an actual physical count of the loss allegedly attributable to employee theft. Additionally, Appellant tatement in its opinion that it relied on evidence alone failed to establish a right to recovery. On this basis, Appellant insists the trial court improperly denied its motion for compulsory -in-chief. Alternatively, even if Appellee Natrona established a loss under the Policy, Appellant argues Appellee FL&C did not sustain its burden of proof because it produced no evidence of theft or any inventory records to support its claim of loss. Specifically, Appellant asserts there was no documented theft that occurred at the FL&C store and all the witnesses testified about theft occurring only at the Natrona store. Appellant further complains about any comparison between the Policy in this case to the insurance policy at issue in Movie Distributors -7- J-A11041-14 Liquidating Trust v. Reliance Insurance Company, 595 A.2d 1302 (Pa.Super. 1991), appeal denied, 529 Pa. 658, 604 A.2d 249 (1992), because the relevant insurance policy in Movie Distributors prohibited the insured from using profit and loss computations or inventory computations to prove the existence of a loss or the amount of loss. Appellant submits that policy is distinguishable from the Policy at issue here because the Policy in this case permitted Appellees to prove the amount of loss using inventory records, under circumstances described in the Exception to the Policy Movie Distributors, was therefore erroneous. Appellant maintains Appellees failed to satisfy the Exception to the Policy Exclusion when they did not submit inventory records to sustain their claim of loss; instead, Appellees merely proffered gross profit deviations, which the Policy expressly prohibits. Appellant concludes the ust vacate the judgment, and enter judgment in favor of Appellant. We disagree. The interpretation of an insurance policy is a question of law subject to de novo review. Kvaerner Metals Division of Kvaerner U.S., Inc. v. Commercial Union Insurance Company, 589 Pa. 317, 908 A.2d 888 Id. at 331, 908 -8- J-A11041-14 ed in Pappas v. UNUM Life Insurance Company of America, 856 A.2d 183, 189 (Pa.Super. 2004). When the language of the insurance policy is clear and unambiguous, the Seven Springs Farm, Inc. v. Croker, 748 A.2d 740, 744 (Pa.Super. 2000) (en banc), 1212 (2002). , 569 Pa. 202, 801 A.2d When a provision in the insurance policy is ambiguous, h Kvaerner, supra. In Movie Distributors, VTR was in the business of wholesaling video releases to dealers for personal home video use. VTR ultimately discovered employee theft occurring at one of its warehouses and filed a claim with its upport of its claim, VTR presented witness accounts of theft along with evidence of profit and loss computations. Reliance denied the claim, stating the insurance policy expressly prohibited the use of inventory or profit and loss computations to prove a loss under the policy. The dispute proceeded to trial, after which a jury found in favor of VTR. or to that part of any loss, as the case may be, the proof of which, either as -9- J-A11041-14 to its factual existence or as to its amount, is dependent upon an inventory Movie Distributors, supra at 1306. This Court held that the use of inventory or profit and loss computations is permissible when there is independent evidence of the existence of a loss. Id. at 1307. VTR presented undisputed evidence of testimony that she had observed various VTR employees stealing tapes. Id. at 1303. Thus, this Court determined VTR was permitted to establish the amount of loss using inventory and profit and loss computations, and Id. at 1308.3 Instantly, Appellees presented, inter alia, the following testimony/evidence in their case-in-chief to support their claims of employee theft: (1) Joe Ferraccio, owner of Appellees Natrona Heights Supermarket, Inc. and FL&C, testified he received a phone call that Troy Lauer was stealing large quantities of meat from the Natrona store, and after informing authorities, police apprehended Mr. Lauer and Joshua Baker (an employee of ____________________________________________ 3 In its decision, this Court highlighted the argument posed by parties in other jurisdictions construing similar insurance policy exclusions, that to give the language in the exclusion its plain meaning would render the protection purchased with the policy valueless because, unless the thief is caught redhanded, there is no direct proof of the amount of loss. Conversely, if the thief is caught red-handed, there is no loss because the goods would be recovered. Id. at 1307. - 10 - J-A11041-14 the Natrona store who permitted Mr. Lauer to pass through the check-out points without paying); (2) Robert Karpinski, an assistant manager at the Natrona and FL&C stores, testified that Karen Coffman, manager of both supermarkets, stole from both supermarkets; (3) Mr. Karpinski also admitted stealing and that he was fired for falsifying refunds at the Natrona store; (4) Ronald Miller, CPA, offered expert testimony that there was no reasonable explanation other than theft to explain the losses experienced at the Natrona and FL&C stores; (5) Jonelle Mosthaff, an employee at the Natrona store, testified that customers in line at the Natrona store would ask her to let them leave the supermarket without paying for their merchandise because other employees permitted such behavior; (6) Ms. Mosthaff also testified that Karen Coffman and the Natrona store had a reputation of allowing stealing; (7) Ms. Mosthaff further admitted she was reprimanded for falsifying refunds; (8) Evelyn Robinson, the manager who replaced Karen Coffman for the Natrona store, explained few employees complied with company rules when she arrived; (9) Ms. Robinson also stated she had been testified that customers would ask her to slide products through the checkout belt without scanning them; and (10) the deposition testimony of Joshua Baker, in which Mr. Baker stated he saw Karen Coffman and other employees regularly take merchandise from the Natrona store without paying; Mr. Baker also admitted he was caught allowing Troy Lauer to take a - 11 - J-A11041-14 grocery cart full of meat from the store without paying. Additionally, CPA Miller offered expert testimony concerning the amount of loss sustained at each supermarket. Specifically, Mr. Miller testified that Appellee Natrona sustained a loss of $396,598.00; and Appellee FL&C sustained a loss of $79,873.00. -in-chief, Appellant moved for a compulsory non-suit, which the court denied. After trial, the court found in favor of Appellees. The court explained: Because we find that the cumulative witness testimony overwhelmingly establishes that [Appellees] suffered losses as a result of pervasive employee theft from 2006 thru 2008, we must consider whether [Appellees] have presented sufficient evidence to establish the dollar amount of the loss suffered that was attributable to this employee theft. We will first consider whether [Appellees] established their loss through inventory records and a physical count of the inventory, as the [P]olicy requires, and whether those records support a specific dollar amount of loss position, [Appellees] offered the following evidence. Joseph Ferraccio, a principal in [Appellee] companies, testified that grocery store inventory is taken two to four time a year by an outside accounting firm called Retail in the grocery industry to use this outside accounting firm to count grocery store inventory and, in fact, RGIS kept At the end of 2006, Ferraccio noticed for the first time that him to become concerned. In response, [Appellees] hired the accounting firm of Case Sabatini to analyze their financial situation in an effort to determine the extent of - 12 - J-A11041-14 the loss. At trial, [Ronald] Miller, CPA, testified on behalf of [Appellees] and explained the methodology employed by [Appellees], which calculated loss based upon a profit and loss calculation. He then explained the methodology Q. Now what does it mean, Mr. Miller, when Matson Driscoll says book inventory was overstated? A. Well, the way I understand the work that approach than what was taken in the books of Natrona Heights. If by taking the beginning inventory and costs, subtracting sales that were then were $100 and cost was $80, then they would have reduced inventory by $80 for that particular inventory should have been at the end of the claim period. And the difference between what the total inventory should have been at the end of the claim period and what the RGIS account was[,] was of the work that they did there. Q. Would that indicate to you a loss of [$]425,000 in inventory? A. It does, yes. On the other side of the equation was the testimony of The following is her testimony with respect to the instructions given her by the insurance carrier: A. Our instructions from the carrier were that because the method used by Case Sabatini, the method of discovery of the claim had been a gross profit computation, we were instructed that we needed to be able to determine that there was a theft and to value that theft based on some other method. We, in our report, showed essentially to information provided, we tried to do a roll forward to - 13 - J-A11041-14 see if we could isolate and identify where there might have been a loss in inventory, but, as we expected, because the inventory roll forward, part of it, is directly associated with the profit and loss statement, it gives us the same result as the gross profit deviation. At the conclusion of her analysis, [Ms.] Hart determined of the loss could have been theft-related, she refused to guess what that amount may have been. In other words, both experts explained the results of the evaluation conducted by MD&D as having been based upon an analysis in which the physical count of the inventory by The [P]olicy clearly states that coverage does not apply to amount is solely dependent upon an inventory computation or a profit and loss computation. However, this limitation is modified by the pro establish wholly apart from such computations that you inventory records and actual physical count of inventory in support of t analysis in which the physical count of the inventory by nction with the analysis conducted by Case Sabatini, meets the requirements for proof of loss under the [P]olicy. Employee theft was proven by the credible testimony of multiple witnesses and loss was calculated by reference to a reduction in inventory. In the alternative, if we did not accept the analysis and supporting documentation of the experts as a method of calculating the loss that falls within the parameters of the insurance [P]olicy, then we would find ourselves in the same circumstances as in Movie Distributors - 14 - J-A11041-14 with a clause in the [P]olicy which renders the insurance protection purchased valueless. Accordingly, we find that [Appellees] have met their burden and proven by a preponderance of the evidence that they suffered a total employee theft loss of $476,452. Natrona should be awarded $394,290 (the $396,598 loss set forth on Exhibit 4, less $2,308, which is the portion of the 2007 loss that is above the $250,000 policy limit for that year), and FL&C should be awarded $79,873. Furthermore, [Appellees] are entitled to pre-judgment interest at the rate of 6% from February 26, 2010 (the (Trial Court Opinion, filed March 12, 2013, at 5-8) (internal citations omitted) (emphasis reasoning. See Levitt, supra. Appellees presented voluminous witness testimony to support their claim of loss during their case-in-chief, including testimony from several employees and former employees of the supermarkets, some of whom pursuant to the Policy at Section A(1), that was not solely dependent on inventory records or profit and loss computations. As such, the Policy establishing their claim of loss through the testimony of various witnesses, Appellees then used expert testimony from CPA Miller to establish the tion of this evidence places the case squarely within the Exception to the Policy Exclusion. The record makes clear Appellees presented ample evidence during their case-in-chief to - 15 - J-A11041-14 sustain their claim of loss due to employee theft at both stores and to es contention that Appellee FL&C presented no evidence to support its claim of employee theft or concerning the amount of loss at the FL&C store. Consequently, the court properly denie -suit. See Church, supra. court found Appellees presented overwhelming credible eyewitness testimony to sustain their claim of loss and the amount of loss, without evidence of amount of loss to note that the methodology employed by 4 Additionally, Appellant offers nothing more than a bald assertion that ____________________________________________ 4 i.e., spoilage and that, when accounting for shrink, she reached the same dollar loss result as - 16 - J-A11041-14 See Policy at Section F (definitions).) See also Movie Distributors, supra at 1306 (explaining terms inventory and profit and loss computations in insurance policy are ambiguous). Any ambiguity in the Policy is construed in favor of Appellees and against Appellant. See Kvaerner, supra. Further, Mr. Ferraccio testified at trial that it is not the industry standard to keep a physical inventory of each item in the store. Importantly, both experts profit and loss computations are determined using the inventory records Appellees failed to satisfy the Exception to the Policy Exclusion lacks merit. Concerning Movie Distributors is relied on Movie Distributors as an alternative basis for relief. (See Trial Court Opinion at 7-8.) We agree with the trial court protection purchased with this Policy, similar to the policy in Movie - 17 - J-A11041-14 Distributors. See id.; Movie Distributors, supra issues merit no relief. Accordingly, we affirm. Judgment affirmed. Judgment Entered. Joseph D. Seletyn, Esq. Prothonotary Date: 7/9/2014 - 18 -

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