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In R&L Zook v. Pacific Indem., No. 07-03774 (May 1, 2008), the U.S. District Court for the Eastern District of PA determined that checks that were allegedly improperly cashed by an insured check cashing company did not trigger coverage under that company's liability policy and did not require an insurer to defend the check cashing company in an underlying lawsuit in which the company was being sued for its alleged improper check cashing.

In Zook, the check cashing company raised a creative argument that, because it had been sued for negligent cashing of checks drawn on a third party's account, it was being accused of "property damage" (i.e. damage to the checks) such that its liability insurance was triggered and its insurer was required to defend the check cashing company in the underlying lawsuit. Addressing this issue, the Court and the parties looked to the liability policy's definition of "Property Damage":

Property Damage means: physical injury to tangible property, including resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the occurrence that caused it. Tangible property does not include any software, damage or other information that is in electronic form.

The insurer argued that the checks were not "tangible property" and, thus, any damage to them could not be covered. The check cashing company countered by arguing that the phrase "tangible property" was ambiguous and reasonably susceptible to differing interpretations and, as such, must be construed against the insurer in accordance with PA law.

Because "tangible property" was not separately defined in the liability policy, the Court, following the guidance of Madison Constr. Co. v. Harleysville Mut. Ins. Co., 735 A.2d 100, 108 (Pa. 1999), looked to common definitions of tangible and intangible property in both Black's Law Dictionary and Merriam-Webster?s Dictionary of Law, as well to other PA cases. Each of these sources effectively defined the phrase to include only property that, in and of itself, has some intrinsic value. Consequently, the Court concluded that the phrase "tangible property" was not ambiguous and that, because checks are merely representative of value (as are stock certificates, bonds, and promissory notes), but have no intrinsic value, the alleged damage to the checks at issue was not Property Damage triggering any duty to defend under the liability policy.

As is often the case, the holding here may be limited to these specific facts. Indeed, I suspect that the court could rule differently if Hello Kitty checks are at issue and my 8 year old daughter were called to testify as an expert on their intrinsic value. (Just kidding, of course.)

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