In Simon Marketing v. Gulf Ins. Co., 2007 WL 738975 (Cal. App. 2 Dist.), the insured, a marketing company, brought an action against its insurers under insurance policies providing coverage for losses to property caused by theft committed by the insured's employees.

 

The insured performed promotional and marketing services for its client, McDonald's Corporation. As part of these services, the insured designed promotional games, including “Who Wants to Be a Millionaire” and “Monopoly,” for McDonald's and its franchisees. The insured alleged that it lost business after its employee stole high-value winning game tickets from these games.

 

According to the insured, the employee, who was responsible for the “seeding” of high-value winning game tickets across the nation in McDonald's giveaway contests, organized a network of accomplices and coconspirators to funnel high-value winning game tickets to specific individuals. The employee, who later pled guilty and was sentenced to prison, stole game pieces with a total redemption value of approximately $21 million and received kickbacks from the winners.

 

The insurers moved for summary judgment on the ground that the policies did not cover the losses that the insured incurred. The lower court granted the motions for summary judgment, and the insured appealed.

 

The court of appeals affirmed, holding that the insurance policies that provided coverage for losses to property caused by theft or forgery committed by the insured's employees did not cover loss of business, measured by loss of income, which resulted from the insured's employee stealing the winning game tickets from the promotional games sponsored by McDonald's.

 

According to the court, the policies insured against physical loss of or damage to property, and not against detrimental economic impact unaccompanied by a distinct, demonstrable, physical alteration of property. Further, even if the game pieces were considered property that was being held by the insured, the loss of the game pieces was not borne by the insured, but rather, by McDonald's, who paid for the stolen prizes.