Scirex Corporation v. Federal Insurance Company

Plaintiff Scirex Corp. ("Scirex"), a firm specializing in

clinical testing of new drugs for pharmaceutical companies,

brought this suit against defendant Federal Insurance

Company ("Federal") in the District Court for the Eastern

District of Pennsylvania, seeking payment under Federal's

"Blanket Employee Dishonesty" policy, which covered losses

caused by Scirex employees' fraudulent and dishonest acts.

Although the protocols for the four clinical trials at issue

required Scirex's nurses to observe patients for eight
hours and record their observations every thirty minutes,

in many cases the nurses sent patients home after as

little as an hour, yet they recorded and submitted

observations allegedly covering the full eight hours. Their

misrepresentations made it impossible for supervisors to

discover the breaches of protocol until a former employee

tipped them to the practice, at which advanced point the

four studies were unfit for Food and Drug Administration

review, and therefore were worthless.

Scirex replicated the studies, which cost a combined $1.2

million, at no charge to the sponsors. Federal, however,

refused to cover Scirex's losses. It defended on the ground

that the nurses' actions were not dishonest because they

had acted on their belief that strict adherence to protocol

was unnecessary, and that while their actions might have

been negligent, "dishonesty" implies a cognizance of one's

wrongdoing that they did not possess. Federal also

maintained that even if the nurses' actions were dishonest,

its policy covered only "direct" losses, and Scirex's losses

more strongly resembled ordinary business expenses from

failed ventures than losses, such as false claims of working

overtime, due directly to employee dishonesty. Finally,

Federal contended that even if it were liable for Scirex's

losses, it would be liable only in the amount of $280,000,

the policy limit for one occurrence, because the losses

across the four ruined studies were related.

Following a bench trial, the District Court held that

Scirex could not recover against Federal because

"dishonesty" implies a culpable intent, and the nurses'

"stubborn belief that the drug companies . . . were

imposing unnecessary requirements" did not equate to

dishonesty. Scirex Corp. v. Fed. Ins. Co., 2001 U.S. Dist.

LEXIS 19088, *8-9 (E.D. Pa. 2001). It therefore denied

Scirex's claim, but noted in dicta that, were the nurses'

actions to be found dishonest, the losses they caused would

be direct, and therefore Federal's policy would cover them.

Id. at *11. It also opined that, at all events, the policy would

limit Federal's liability to $280,000, the ceiling for one

occurrence. Id. at *14.

Because we conclude that the nurses' actions were

dishonest, as well as negligent, we hold that they are

covered by Federal's policy, and we reverse the District

Court's holding to the contrary. We are satisfied that,

whatever may be said of the decision to send patients home

early in violation of protocol, the nurses' practice of

submitting records containing observations they did not

make is ineluctably and irrefutably dishonest. However, we

agree with the District Court that the nurses' actions

directly caused Scirex's losses. Pennsylvania law equates

"direct cause" with "proximate cause," Jefferson Bank v.

Progressive Casualty Ins. Co., 965 F.2d 1274, 1281-82 (3d

Cir. 1992), and the nurses' conduct rendered those studies

worthless to their sponsors, and therefore worthless to

Scirex. Finally, although we believe that Federal's policy
covers Scirex's losses, we agree with the District Court that

Federal's liability is limited to $280,000 for the four studies.

I. Background Facts and Procedural History

In 1997 and 1998, Scirex conducted four clinical studies

for three different sponsors. Each tested a pain medication

for patients who had undergone dental surgery, and each

had a protocol, written by the pharmaceutical company

sponsoring the study, which specified in great detail the

procedures to be followed in that study. The four protocols

required patients to remain under the observation of Scirex

nurses, at Scirex's clinic, for at least eight hours after being

given the first medication dose. Because the effects of pain
medication to some extent vary by individual, the

pharmaceutical companies anticipated that there would be

a certain number of test subjects for whom the medication

would be ineffective, and for these subjects, the protocols

mandated providing supplemental pain medication.

Subjects who received such supplemental medication were

termed "rescued," while those who took only the drug being

studied were termed "unrescued."

Although the protocols provided for rescuing certain

subjects, they did not provide for treating those subjects

otherwise differently; specifically, they stated that

"[s]ubjects are required to remain at the study facility for

the entire eight-hour postdosing observation period, even if

the supplemental analgesic medication is taken." (R.W.

Johnson Protocol.) During one of the four studies, however,

Algos, the study's sponsor, told Scirex that rescued patients

did not have to remain in the clinic for the full eight hours.

That excepting instruction applied only to Algos's study,

and even then, only to rescued subjects. The other three

studies were to proceed strictly according to protocol.

During the course of a subject's eight-hour stay, the

protocols required Scirex's nurses to observe the subject

and record their observations. The records had to be

"timely, accurate and complete," because they were what

the FDA evaluated: "[t]imely, accurate, and complete

reporting and analysis of safety information from clinical

trials is crucial for the production of subjects, investigators,

and the sponsor, and is mandated by regulatory agencies

worldwide." (R.W. Johnson Protocol.) Nurse Mary Ellen

Conforto, a Scirex supervisor and tenured employee,

testified that she understood the need for the records to be

accurate, and agreed that if a patient were released early,

the records should have reflected the change. She

explained, however, that it was common for nurses to fill

out a patient's record ahead of time, in order to cut down

on paperwork at the end of the day, and that the nurses in

doing this would predict and record in advance the time

that a patient would leave if he or she remained for the

required eight hours. Still, she acknowledged that if a

patient whose record had been so prepared then left earlier
than anticipated, an addendum to that patient's record

should have been prepared and submitted.

Despite these understandings, over the course of the four

studies, at various times Scirex nurses released both

rescued and unrescued patients early, that is, before eight

hours had passed, but they submitted records for those

patients that made it appear that the nurses had followed

the protocols and observed them for the full eight hours.

These discrepancies were discovered when Scirex received a

tip from an ex-employee, following which it conducted an

"audit" of test subjects that involved calling them and

asking what time they were discharged. The audit showed

that unrescued patients were often released early,

sometimes after as little as one hour. One of the audits

reported that "[a]ll of the unrescued subjects stated they

were discharged from the unit before the completion of the

8-hour follow-up period, indicating follow-up periods of 1 to

7 hours. However, in all cases the nurses' notes indicated

the subjects were discharged after 8 hours." (Compliance

Audit Report, Algos Protocol.) As the FDA's clinical testing

requirements are exacting and inflexible, the discrepancies

between the actual release times and the recorded release

times rendered the four studies worthless, and Scirex had

to make financial amends to the pharmaceutical

companies. Indeed, Scirex performed each study again

without charge to its sponsor.

At the time of these events, Scirex had an insurance

policy with Federal that had a limit of $280,000 and

covered direct loss caused by any fraudulent or dishonest

acts committed by its employees. It provided that:

The most we will pay for any loss under Blanket

Employee Dishonesty for any loss caused by any

employee whether acting alone or in collusion with

others, either resulting from a single act or any

number of acts, regardless of when those acts occurred

during the period of this insurance or prior insurance,

is the amount of loss, not to exceed the Limit of

Insurance for Blanket Employee Dishonesty shown in

the Declarations.

(Policy at 6, "Limits of Insurance.") A separate provision

limited liability for multiple related acts, stating 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." (Policy at 7.)

Scirex submitted a claim to Federal under this policy,

contending that the actions of the nurses in sending

patients home early, and submitting data sheets that
falsely indicated that the patients had remained for the

required eight hours, were "fraudulent or dishonest" and

were therefore covered under the policy. It ultimately

sought compensation for the loss of its investment in the

four studies, an amount that included employee salaries,

facility rentals, and other task-specific expenses. It claimed

$185,000 on the R.W. Johnson study, $575,408 on the

Forest Labs study, and a combined $473,679 on the two

Algos studies, for a total of approximately $1.23 million.

In response to Scirex's claim, Federal's claim adjuster,

Patricia Duffy, testified that "for the purposes of the

discussion with the insured, I accepted the fact that what

they were presenting to me seemed to be fraudulent-- or

seemed to be a dishonest act." (Duffy Dep. at 17.) She

therefore requested that the claim be paid at policy limits.

Upon receiving Duffy's request, however, an attorney at

Federal's home office questioned whether Scirex's loss had

been "direct." The policy does not define"direct" or "direct

loss," and eventually Federal denied the claim, finding that

Scirex's losses were more akin to ordinary expenses from a

failed business venture than losses, such as fraudulently-

claimed overtime, caused by employee dishonesty. It also

asserted that even if there had been a direct loss, Scirex

would have been entitled only to one policy limit of

$280,000, rather than four, because the four ruined

studies constituted only a single "occurrence or event."

Scirex subsequently filed suit for the losses it incurred, up

to the limit of $280,000, on each study.

At trial, Federal asserted for the first time that the

nurses' actions had not been "fraudulent or dishonest." The

District Court agreed, based on its finding that the Scirex

nurses did not believe their conduct to be wrongful. The

Court reasoned that "the words ‘fraudulent' and ‘dishonest'

both focus on the intent of the actor, and connote

intentional conduct by the actor as wrongful," Scirex, 2001

U.S. Dist. LEXIS 19088 at *9, but the nurses acted on their
"stubborn belief that [they] were right and that the drug

companies were imposing unreasonable and unnecessary

requirements." Id. at *8-9. It reasoned that they "gained no

personal benefit from their actions," although it

acknowledged that by sending patients home early, they

might have gained "a slight reduction in paperwork,

yielding an earlier end to their workday." Id. at *9. In

summary, the Court found that while the nurses' actions

might have been ill-considered, they did not believe they

were being duplicitous or dishonest, and therefore their

actions were not dishonest within the meaning of the

policy. It accordingly found against Scirex. The District

Court also stated that, although the nurses' actions ruined

four studies, the losses all stemmed from a "series of

related acts," and therefore only $280,000 would be

recoverable if coverage were found to exist. Id. at *14.

The District Court had jurisdiction under 28 U.S.C.
S 1332. We have jurisdiction under 28 U.S.C.S 1291.

Although the District Court made certain fact findings

which would be subject to deferential review, primarily at

issue on appeal are the District Court's legal conclusions

that Federal's insurance policy does not cover the Scirex

nurses' acts, and that if it does cover those acts, Scirex is

entitled to only one payout for the four studies, over which

we exercise plenary review.

II. Discussion

A. Does Federal's Policy Cover the Nurses' Acts?

1. Were the nurses' acts dishonest?

Federal's policy covers "fraudulent or dishonest acts." We

will assume that the nurses did not commit fraud in

ordering patients' early discharge and failing to record

those discharges accurately; aside from a very slight

reduction in their workload, they did not benefit from their

questionable conduct. The District Court noted this lack of

fraud, but also found no dishonesty because the word

" ‘dishonest' focus[es] upon the intent of the actor, and

connote[s] intentional conduct perceived by the actor as

wrongful." Scirex, 2001 U.S. Dist. LEXIS 19088 at *9. "The

evidence as a whole makes clear that Ms. Conforto and the
other nurses honestly believed that they were substantially

complying with the requirements of the protocols. In their

view . . . there was no real need to keep the patients at the

clinic when they wanted to go home early." Id. at *8.

Dishonesty, the Court concluded, must mean something

more than an error in judgment.

In its brief, Federal enthusiastically endorses this view. If

the evidence supports the notion that the nurses honestly

believed they were substantially complying with the

protocols' requirements, it asks, how can their acts be fairly

termed "dishonest?" Federal points to many cases where

courts have held that "willfulness and an intent to deceive

must be present in order for an employee's actions to be

dishonest." Rock Island Bank. v. Aetna Cas. & Sur. Co., 706

F.2d 219, 222 (7th Cir. 1983); see also Jellico Grocery Co.

v. Sun Indem. Co., 272 Ky. 276 (1938) (finding no

dishonesty where an employee violated express instructions

not to extend credit to a certain customer, to the employer's

detriment, because there was no showing of intent); Couch

on Insurance S 161:27 (stating that mere irregularities,

mistakes, negligence, errors in judgement or incompetence,

committed without intent to deceive, do not constitute

fraud or dishonesty).1

Federal relies most heavily on Universal Credit Co. v.

United States Guarantee Co., 183 A. 806 (Pa. 1936). In that

case, an insurer contracted to indemnify an employer for all

direct pecuniary losses sustained by "any act or acts of

fraud, dishonesty, larceny, embezzlement, forgery or
wrongful extraction" committed by any of its employees. Id.

In order to ascertain whether any of the employer's vehicles

had been sold without repayment of the amount loaned, an

employee, Gregory, was charged with the duty of checking

the cars at the dealer's place of business. He recorded the

results of his inspection on a report that contained the

printed statement: "I have personally seen and checked the

auto numbers on the cars listed above, and certify that the

information given is correct." In reality, Gregory had relied

on the dealer for his information and had not personally

checked to see whether particular cars were on hand. As a

result, the dealer doublesold some cars and thereby

suffered a loss. Id.

The Pennsylvania Supreme Court said, "[i]t seems too

clear to require citation of authority to support it that

negligence is not fraud, and acts resulting from mistake of

judgment are not acts of fraud or dishonesty any more than

acts done negligently," id. at 807, and it found no

insurance coverage. Notably, however, the fidelity bond in

Universal Credit Co. covered only "acts done for the purpose

of harm or with a view to personal profit," id. at 806,

qualifying language that does not exist in Federal's bond

with Scirex.

Moreover, many cases expressly hold motive and intent

irrelevant to the concept of dishonesty. In National Newark

and Essex Bank v. American Ins. Co., 385 A.2d 1216 (N.J.

1978), a bank manager made records that misstated the

value of securities pledged as collateral for loans. When the

borrower defaulted and the bank learned that the loans

were inadequately secured, the bank filed a claim under a

bond covering losses resulting from "dishonest or

fraudulent acts" of employees. At the same time, however,

the bank informed the insurer that there was no evidence

of any "defalcation, mysterious disappearance, kiting

operation or other purported [criminal] act." Id. at 1220.

The insurer denied the claim based on this concession, on

the grounds that the employee's acts were not dishonest or

fraudulent. The New Jersey Supreme Court held that the

employee's acts of "misrepresenting or failing to disclose

important facts concerning the loans" were dishonest, id.,
and noted that, in a fidelity bond, the words "dishonest"

and "fraudulent" "extend beyond criminal acts and are to
be given a broad signification and taken most strongly

against the surety company." Id. at 1222. It concluded that

those words "encompass[ ] any acts which show a want of

integrity or a breach of trust." Id.

Other courts are in accord. See, e.g., Mortgage Corp. of

New Jersey v. Aetna Casualty & Sur. Co., 115 A.2d 43, 46

(N.J. Super. 1955) ("[W]here an employee . . . is employed

to perform a series of acts and to certify a set of facts on

physical inspections, and that employee certifies to those

facts, without having made the physical inspection .. . he

is unfaithful to his employer," and his lack of integrity

"brings him squarely within the definition of‘dishonest.' ");

First National Bank of West Hamlin v. Maryland Casualty

Co., 354 F. Supp. 189, 193 (S.D. W.Va. 1973) (holding that

an employee acts dishonestly when he certifies that

automobiles are on the car dealer's premises when in fact

he does not know if they are).

In this case, Scirex's nurses understood that they were to

record their observations of test subjects every thirty

minutes for eight hours, yet in many cases their records

included "observations" for times when the patients were

sitting at home. Even worse, these fictionalized records

falsely implied that the patients had remained in the clinic

for the full eight hours, and therefore that the tests had

proceeded according to protocol. Thus, not only did the

nurses fictionalize the records, they made it virtually

impossible to discover the fictionalization until disclosure

by the informant. Faced with such flagrant

misrepresentation in a field characterized by strict

adherence to procedure, we conclude that the nurses'

conduct was clearly dishonest, as well as highly unfaithful.

Our conclusion is buttressed by our practice of construing

a policy's ambiguities against its drafter. See Medical

Protective Company v. Watkins, 198 F.3d 100, 105 (3d Cir.

1999).

Federal explains that it is common nursing practice to fill

out observation reports ahead of time, then to change them

if the actual observation does not fit the expected

observation. (See Federal Br. at 17-18.) From that it argues

that the nurses failed to change their pre-recorded

observations because "they did not perceive an early
discharge to be an adverse event that needed to be

recorded," (id.), the implication being that they were

negligent, not dishonest. We disagree, for, even if the

nurses were merely negligent in deciding that an early

discharge is a trivial event, they were dishonest in

submitting records implying that no early discharges took
place. Indeed, Federal relies upon Nurse Conforto's

testimony that it is nursing practice to record observations

ahead of time, yet she herself testified that she could think

of no reason why the record of a patient who was released

early should not note that. (Conforto Dep. at 93.6-9.) We

therefore reverse the District Court's holding that the

nurses' actions were not dishonest within the meaning of

Federal's policy.

2. Were Scirex's losses direct?

Even though we conclude that the nurses' actions were

dishonest, that does not end our inquiry because Federal's

policy covers only "direct" losses. The District Court stated

in dicta its belief that the losses were direct, but on appeal

Federal seeks to affirm the denial of coverage on the

alternate ground that the losses were indirect. See

University of Maryland v. Peat Marwick Main & Co. , 923

F.2d 265, 275 (3d Cir. 1991) (Court of Appeals can affirm

the judgment below on any ground, including a ground not

relied upon in the decision below). Federal's policy covers

only "direct loss caused by fraudulent or dishonest acts,"

and the loss must occur "to money, securities, or other

property." It maintains that Scirex's losses are not covered

for two reasons: because they are "ordinary and legitimate

business expenses," not direct losses; and because they are

not recoverable losses "to money, securities, or other

property." We examine each contention in turn.

Federal's first argument is that Scirex's losses are

indirect, likening them to ordinary operating expenses for a

business venture that ultimately fails. It seeks conceptually

to distinguish direct losses from indirect losses by means of

example:

If the nurses had falsified their work to make it appear

that they were entitled to overtime and Scirex had paid

them $1,000 in fictitious overtime, then Scirex would
have incurred a "direct loss" in that amount. Similarly,

if the nurses had pilfered office supplies worth

$100,000, then Scirex would have sustained a "direct

loss" in that amount.

(Federal Br. at 36.) The implication is that covered losses

must be ones that relate to the employees themselves,

rather than ones that occur because an employee does his

or her job negligently, dishonestly or improperly.

Here, according to Federal, Scirex seeks to recover what

amounts to ordinary expenses. Although Scirex seeks to

recover for the labor, equipment, and expertise that went

into the studies, Federal contends that "Scirex was not

‘tricked' into incurring these expenses by the nurses'

alleged misconduct. Insofar as they may be called‘losses,'

they are losses only because Scirex was unable to charge

the sponsors for the studies on which they were incurred.
That is an ‘indirect' loss." [Federal Br. at 36-37.] It cites

several cases to support its position. See, e.g., Lynch Props.,

Inc. v. Potomac Ins. Co., 962 F. Supp. 956 (N.D. Tex. 1996)

(embezzlement of customer's funds held to be "direct" loss;

embezzler's employer's obligation to replace those funds

held "indirect" loss); Continental Bank, N.A. v. Aetna Cas. &

Sur. Co., 626 N.Y.S. 2d 385, 387-88 (N.Y. Sup. Ct. 1995) (in

policy containing "directly from" language, no coverage for

insured whose employees caused "actual loss" to customers

of insured).

Scirex counters that it "made a substantial investment in

[the] studies, and up to the time of the employee

falsifications, those studies were valuable. When the

employees falsified data in the studies, however, those

studies became worthless, and Scirex' investment was lost.

This was a ‘direct loss' within the meaning of the policy."

(Scirex Rep. Br. at 9.) It submits that our jurisprudence

favors that interpretation.

In Jefferson Bank v. Progressive Casualty Ins. Co., 965

F.2d 1274 (3d Cir. 1992), plaintiff bank sought

indemnification under a loan created with the aid of an

imposter notary, who affixed her invalid notarization to the

mortgage, and then failed to record it. The customer

subsequently granted other mortgages on the same
property, at least one of which was recorded, and when the

customer defaulted on all loans, the plaintiff bank was

unable to take possession of the property. The defendant

insurer argued that the bank's loss was not covered under

the bond's coverage for losses "resulting directly from"

fraudulent signatures, because the loss was caused not by

the forged signature of the notary, but by the fact that the

building was so heavily encumbered. We disagreed, holding

that under Pennsylvania law, the "direct cause of a loss"

does not have to be the "sole cause" or "immediate cause,"

but need only be a proximate or substantial cause:

[D]irect cause or immediate cause is a nebulous and

largely indeterminate concept, and one that does not

enjoy favor under Pennsylvania law. As we have

suggested, Pennsylvania, consistent with general

notions of proximate causation, requires that plaintiffs

in negligence cases show substantiality, rather than

immediacy, in order to demonstrate proximate cause.

Id. at 1281-82.

We believe that Jefferson Bank's proximate cause

approach is proper here, and under that test, we conclude

that the nurses' acts directly caused Scirex's losses. It is

uncontested that their failure to follow protocol and their

deceptive recordkeeping singlehandedly rendered the

studies worthless. We find Scirex's reasoning persuasive: it

is in the business of producing products, pharmaceutical

studies, that are tailored specifically to individual clients'
needs. It produces a study only when commissioned by a

particular sponsor, and for that reason, it has relatively

little overhead or ongoing costs of doing business. Rather,

as Scirex states, "the salaries of the employees who

conducted the ruined studies, as well as the cost of office

space and supplies allocated to the four studies, would not

have been incurred if Scirex had not contracted to produce

those studies." [Scirex Rep. Br. at 18.] Scirex's losses were

directly tied to these studies, and by rendering those

studies worthless, the nurses' behavior proximately, and

therefore directly, caused Scirex's losses.

Federal also submits that, to recover under its policy,

"the loss must occur to money, securities or other
property," and that Scirex cannot recover under any of

these categories. (Fed. Br. at 35.) It concludes that this is

not a "loss to money" because money has not been stolen,

and while it might (as Scirex argues) be a loss to property,

that would lead to no recovery because the policy values

property as the least of: (1) actual cash value of the

property on the day the loss was discovered; (2) cost to

repair; or (3) cost of replacing the property with material of

like kind and quality. While Scirex would favor (3), the cost

of replacing the studies, Federal submits that the policy

would force choice (1), which would yield the value of the

studies on the day the nurses' actions were discovered.

Since the studies were at that point already ruined, Federal

argues that they were valueless and therefore Scirex could

recover nothing. Even if Scirex could recover under its

desired option (3), Federal submits, it would recover only

the cost of replacing a study of like kind, which is an

imperfectly-conducted study.

We agree that this is not a "loss to money," because if it

were, certainly it would be an indirect loss and therefore

not covered under the policy. Scirex's theory is that it made

a product, pharmaceutical studies, which it sold for money.

By damaging the product, the nurses' actions directly

caused a loss, but under this theory, it is a direct loss only

to property, that is, the studies. Any loss "to money" would

be indirect, because it would be a derivative loss caused by

Scirex's inability to sell its damaged product. If Scirex is to

show a direct loss, that loss must therefore be to property.

In our view, this is a loss "to property," and it is therefore

subject, at least in theory, to the policy's property valuation

rubric. But we disagree that this taxonomy leads to a

recovery of zero, because it is possible to read the policy in

two ways. The "strict literalism" method, which Federal

supports, would force us to ascertain property value at the

time the loss was discovered, which here would lead to a

trivial recovery since the botched studies had no real value.

We agree with Scirex that such a reading would essentially

render the policy's property protections illusory, because it

would effectively protect goods only in their damaged state

-- by definition, once losses are discovered, the damage has
already been done. Such protection is no protection at all,
and we will not reach that result when a reasonable

alternative interpretation is present.

We conclude that the policy's property valuation language

is not designed to limit recovery in this situation. By fixing

the amount of recovery to "the actual cash value of the

property on the day the loss was discovered," the policy

seems to us to anticipate a loss to property whose market

value fluctuates over time. In such situations, the policy

language would preempt any debate over the proper time of

valuation, but it is not useful where, as here, there is no

real market for the product -- the studies are produced at

a fixed price specially for one consumer, and they are

valueless to all others. Applying the policy language literally

in this situation would render recovery almost impossible

for any producer of custom-made products, a clearly

counter-intuitive result that we are unwilling to reach.

We conclude that the nurses' actions caused a direct loss

to property, and the policy's property valuation language

does not limit Scirex's recovery.

B. Did the Nurses' Actions Cause a Single Loss or

Four?

Scirex claims that the nurses' repeated failure to follow

protocol and accurately record their observations ruined

four enormous studies valued at $185,000, $575,000,

$317,000, and $156,000 respectively. It seeks recovery up

to the $280,000 policy limit for each study, for a total of

$880,786. Federal argues that the entire recovery, if there

is one, should be limited to $280,000. The District Court in

dicta concluded that the various instances of dishonesty

were sufficiently related to constitute one occurrence or

event, and limited the recovery to $280,000. We agree.

The policy's Limits of Liability Clause reads:

The most we will pay for any loss under Blanket

Employee dishonesty for any loss caused by an

employee whether acting alone or in collusion with

others, either resulting from a single act or any

number of acts, regardless of when those acts occurred

during the period of this insurance or prior insurance,

is the amount of loss, not to exceed the Limit of

Insurance for Blanket Employee Dishonesty shown in

the Declarations.

* * *

All 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.

Stipulation P35(c) (emphasis added).

Scirex argues that the key word in the first passage is

"any," which can be interpreted to mean "each" as well as

"all." It further submits that the "each" interpretation is

more reasonable than the "all" interpretation because the

policy uses the singular "loss" rather than the plural

"losses." "Each loss," it concludes, is a more natural

reading than "all loss," and any ambiguity should be

resolved against Federal. (Scirex Br. at 23.) Regarding the

second passage, Scirex suggests that its purpose is merely

to define what constitutes "one occurrence or event," and it

points out that no language suggests that Federal will pay

only one policy limit per occurrence or event.

Reading the policy language as a whole, however, we are

satisfied that it limits Federal's liability to $280,000 for an

event or series of related events. Although it does not say so

explicitly, the accepted purpose of defining "an occurrence

or event" is to limit liability, and in the insurance industry

"occurrence" is commonly understood to mean all loss

caused by a single act or related events. See , e.g., Couch on

Insurance, S 160:61; see also Appalachian Ins. Co. v. Liberty

Mut. Ins. Co., 676 F.2d 56, 61 (3d Cir. 1982) (if there is but

one cause for all of the losses, they are part of a single

occurrence). Scirex's interpretation, which would make

possible a separate recovery for each loss even if those

losses are part of the same occurrence, would lead us to

grant a separate recovery for each forged check passed as

part of an employee's forgery scheme, a result that has

been squarely rejected. See, e.g., Business Interiors, Inc. v.

Aetna Cas. & Sur. Co., 751 F.2d 361 (10th Cir. 1984)

(concluding that the employee's fraudulent acts constituted

a single loss for policy purposes).

The District Court found that, "as to all of the four

studies in question, plaintiff 's losses resulted from a ‘series

of related acts': The same nurses were involved in all of the

alleged wrongdoing, they acted in concert, and all of the

alleged wrongful acts constituted a series of related acts."

Scirex, 2001 U.S. Dist. LEXIS 19088 at *14. This finding is

not clearly erroneous, for the nurses themselves did not

seem to distinguish among the four studies in terms of

their responsibilities. We therefore conclude that their

conduct caused a single loss. Federal's policy limits its

liability to $280,000 per loss, so that is the amount to

which Scirex is entitled for its ruined studies.

* * *

Click the case caption above for the full text of the Court's opinion.

For the foregoing reasons the judgment of the District

Court will be reversed and the case remanded with

directions to enter judgment for Scirex for $280,000,
parties to bear their own costs.

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