demanded compensation from the University for the embezzlement.
Fidelity contends that a "loss" refers to a transaction or series of transactions causing detriment to the insured. Thus, all losses in this case would derive directly from Finnerty's actions, and discovery of these losses would occur when Georgetown had knowledge of them. This definition of discovery of loss is contrary to both logic and law. A loss is not a transaction itself, but the result of that transaction. Only when the result of a transaction is known is the loss discovered. See Russell Gasket Co. v. Phoenix of Hartford Ins. Co., supra, at 208.
In the instant case, the distinction between direct and third party losses is important. An insured is not covered under the policy for possible losses. Rather, a loss must accrue to the insured before he may claim indemnification. In cases where the loss is initially suffered by a third party, but the insured is obligated to compensate that party, the loss does not accrue until the third party demands such compensation from the insured. See Aetna Casualty and Surety Co. v. Guaranty Bank and Trust Co., 370 F.2d 276, 280 (1st Cir. 1966). There was no loss, within the meaning of the insurance contract, until the third party claimed indemnification. The loss could not be discovered until it existed. Id., at 280.
Plaintiff cites many cases supporting the proposition that " "discovery' means that time when the insured gains sufficient factual knowledge, not mere suspicion, which would justify a careful and prudent man in charging another with dishonesty." Alfalfa Electric Coop. Inc. v. Travelers Indemnity Co., 376 F. Supp. 901, 906 (W.D.Okl.1973). Plaintiff extrapolates from this that (1) in May of 1976 Defendants had met this standard, (2) the loss was therefore "discovered" in 1976, and (3) Defendants have failed to meet the Section 8 requirements. None of the cases cited by Plaintiff involves a third party loss. Moreover, all of those cases involved a discovery clause tied to a notice provision. The Courts in those cases were ascertaining the extent criminal behavior must be known before notice is given to the insurer. Since timely notice was given in the instant case, and no loss existed until there was a third party demand for indemnification, Plaintiff's allegations must fail.
The undisputed facts indicate that Defendant timely filed, and Plaintiff accepted, notice of an occurrence which might give rise to a claim for loss. Defendant and Plaintiff were in constant contact regarding this occurrence, but the complexities of the case, including the third party loss, precluded Defendant from filing Proof of Loss. As soon as NIH, the third party, demanded compensation from Georgetown, Defendant filed the Proof of Loss. As a matter of law, Defendant's filing was timely. There is no evidence of record, nor is it alleged by Plaintiff, that Defendant is in violation of any other term of the contract.
It is therefore by the Court this 7th day of January, 1980.
ORDERED, that Defendant's Motion for Partial Summary Judgment be and hereby is GRANTED; and it is
FURTHER ORDERED, that Plaintiff's Motion for Summary Judgment be and hereby is DENIED.
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