ORITANI SAV. AND LOAN v. Fidelity and Deposit Co.

• Decision Date: 06 July 1990
• Docket Number: Civ. A. No. 89-5355.
• Citation: 741 F. Supp. 515
• Parties: ORITANI SAVINGS AND LOAN ASSOCIATION, Plaintiff, v. FIDELITY AND DEPOSIT COMPANY OF MARYLAND, Defendant.
• Court: U.S. District Court — District of New Jersey

741 F. Supp. 515

ORITANI SAVINGS AND LOAN ASSOCIATION, Plaintiff, v. FIDELITY AND DEPOSIT COMPANY OF MARYLAND, Defendant.

Civ. A. No. 89-5355.

United States District Court, D. New Jersey.

July 6, 1990.

COPYRIGHT MATERIAL OMITTED

Andrew T. Fede, Contant, Schuber, Scherby & Atkins, Hackensack, N.J., for plaintiff.

Joseph P. McNulty, McElroy, Duetsch & Mulvaney, Morristown, N.J., for defendant.

OPINION

HAROLD A. ACKERMAN, District Judge.

INTRODUCTION

Plaintiff, Oritani Savings & Loan Corporation, ("Oritani"), seeks a declaratory judgment in this matter that defendant, Fidelity & Deposit Company of Maryland, ("Fidelity"), is obligated to indemnify it under a Savings and Loan Blanket Bond (an insurance contract) executed between the parties. Oritani also claims that Fidelity breached its covenant of good faith and fair dealing by denying insurance coverage and that it is therefore entitled to compensatory and punitive damages, as well as attorneys' fees. The two count complaint asserting these claims was originally filed in the Superior Court of New Jersey, Bergen County, Law Division, on October 23, 1989, and the action was removed to this Court by Fidelity on December 27, 1989, on the grounds that there is diversity in citizenship and an amount in controversy in excess of $50,000.00. Presently before the Court is a motion by Fidelity for summary judgment on both counts of the complaint on the grounds that, under the express terms of the blanket bond and the undisputed facts of this case, no coverage is afforded for Oritani's claim.

BACKGROUND

The material facts of this case which bear on the issue of coverage are undisputed. It is admitted that the parties had a valid contract of insurance during the relevant time period. The blanket bond expressly covered "all the Insured's plaintiff's offices or premises in existence at the time this bond becomes effective...." At the time in question, Oritani had about eighteen branch offices all located in New Jersey.

The provisions of the bond at issue, (as identified in paragraph 2 a) of the Complaint), provide coverage for:

(A) Loss resulting directly from dishonest or fraudulent acts of an Employee committed alone or in collusion with others;

(B)(1) Loss of Property resulting directly from

(a) robbery, burglary, misplacement, mysterious unexplainable disappearance and damage thereto or destruction thereof while the Property is lodged or deposited within offices or premises located anywhere, or

(b) theft, false pretenses, common law or statutory larceny committed by a person

(i) present in an office of, or on the premises of, the Insured, or

(ii) present on the premises in which the Property is lodged or deposited.

It is undisputed that in May, 1988, Oritani suffered a "loss of property" within the meaning of the contract in the sum of $172,500.¹ However, defendant contests the issue of whether this loss of property was caused by dishonesty of an employee; or robbery, burglary, mysterious misplacement, etc.; or theft, false pretenses, etc., such that coverage should be afforded under the terms of the policy. The undisputed facts giving rise to the loss are as follows.

On May 10, 1988, Jack Rowe, a vice president of Oritani, was working in Oritani's main office in Hackensack, New Jersey, and, on this date, he had the responsibility of processing wire transfer requests for Oritani's customers. On said date, Mr. Rowe received a telephone call from a person who identified herself as "Debbie" and an employee of Oritani's branch office in Ho-Ho-Kus, New Jersey. Although Oritani did, in fact, have a branch office in Ho-Ho-Kus, Mr. Rowe does not recall whether there was, in fact, a "Debbie" working in that office at that time. At any rate, "Debbie" requested that Mr. Rowe effect a wire transfer of funds in the amount of $85,300.00 from an identified Oritani customer account. "Debbie" identified the customer Aaron D. Tyler, together with his account number XXXXXXXX, as well as all other appropriate information. Mr. Rowe responded by effecting the transfer. On May 13, 1988, a similar request for a wire transfer in the amount of $87,300.00 was made by one "Susan", who also identified herself as an employee from Oritani's Ho-Ho-Kus branch office; "Susan" requested that the money be transferred from the same customer account (Mr. Tyler's account), just as "Debbie" had done, and Mr. Rowe effected the transfer. On May 20, 1988, Mr. Rowe learned that the Ho-Ho-Kus office had no record of these wire transfers and further, that Mr. Tyler's account had insufficient funds to cover the transfers. Since the monies had already been dispersed by the recipient banks, however, Oritani suffered the loss in the total amount of $172,500.00.

Oritani has admitted that Mr. Rowe was not a knowing participant in the aforementioned fraudulent scheme which caused Oritani to suffer this loss. It appears that Mr. Rowe made no effort to verify whether funds existed to cover the wire transfers at the time they were made, and it further appears that the account in question was little more than a year old and its balance never exceeded $4,000. See Affidavit of Andrew T. Fede, June 13, 1990, ("Fede Aff."), and Exhibit A. Nevertheless, Mr. Rowe testified at his deposition that he followed his normal procedure in effecting the transfers. See Rowe dep. at 49, (Defendant's brief, Exhibit D). Oritani's procedures for effecting wire transfers was the subject of a memorandum dispersed to branch managers and senior officers of the bank. See Rowe dep. at 27-28 (Fede Aff., Exhibit K). Oritani has investigated the matter and has been unable to determine whether the persons who made the phone calls were actually employees of Oritani and/or present in Oritani's branch office. See Oritani's Answer to Admission No. 4. However, the parties apparently concede that Mr. Rowe was of the impression that "Debbie" and "Susan" were employees of and calling from the Ho-Ho-Kus branch office. The callers used Mr. Rowe's nickname, "Jack", when making the calls, and he states that only employees of Oritani would know this. See Rowe dep. at 58. The funds that were transferred were Oritani funds that were on deposit and wired by United Jersey Bank to the First National Bank in Barthesville, Oklahoma, and the Lawrence National Bank in Lawrence, Kansas. Oritani's Answer to Admission No. 5.

Defendant has now moved for summary judgment asserting that no coverage is afforded, because there is no evidence that "Debbie" and "Susan" were actually on Oritani's premises at the time the fraudulent schemes were carried out.

DISCUSSION

A. Standard of Review

Rule 56 of the Federal Rules of Civil Procedure provides that "judgment ... shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.Pro. 56(c). The moving party has the initial burden of satisfying this standard, (Matsushita Elec. Indus. v. Zenith Radio Corp., 475 U.S. 574, 585-86, 106 S.Ct. 1348, 1355, 89 L.Ed.2d 538 (1985)), which can be accomplished by demonstrating that there is an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986); Peters Twp. School Dist. v. Hartford Acc. & Indem., 833 F.2d 32, 34 (3d Cir.1987).

In opposing summary judgment, the nonmoving party cannot rely upon the allegations of his pleadings; he must come forward with evidence supporting a claim that there is a material fact in dispute to be resolved by the trier of fact. First Nat'l Bank v. Cities Serv. Co., 391 U.S. 253, 289, 88 S.Ct. 1575, 1592, 20 L.Ed.2d 569 (1968). All inferences to be drawn from the facts should be resolved in favor of the nonmoving party. Tigg Corp. v. Dow Corning Corp., 822 F.2d 358, 361 (3d Cir.1987).

However, the construction of contracts is a question of law for the court. Ram Constr. Co., Inc. v. Am. States Ins. Co., 749 F.2d 1049, 1053 (3d Cir.1984); Northeast Custom Homes, Inc. v. Howell, 230 N.J.Super. 296, 301, 553 A.2d 387 (Law Div.1988). Ultimately, at trial, it would be necessary for this Court to instruct the jury as to what coverage the policy provides. Davis v. The Equitable Life Assur. Soc., 90 N.J.Super. 328, 331, 217 A.2d 459 (App.Div.1966). As the parties concede, the issue presented to this Court for decision involves only a question of law; namely, whether no coverage is afforded under the insurance policy, because there is no evidence that Debbie and Susan were actually on the insured's premises.

B. Choice of Law

Since this is a diversity suit, the first issue that must be addressed is the choice of law to be applied. Under Klaxon Co. v. Stentor Co., 313 U.S. 487, 494, 61 S.Ct. 1020, 1020-21, 85 L.Ed. 1477 (1941), I must look to the conflict of law rules prevailing in the State in which this Court sits, namely, New Jersey, to determine the applicable law. The parties have proceeded on the premise that New Jersey law governs this dispute; the plaintiff's offices which are the subject of the insurance contract are located in New Jersey; and it appears that the contract was executed in New Jersey. Thus, I shall apply New Jersey law. See State Farm Ins. Co. v. Simmons' Estate, 84 N.J. 28, 37, 417 A.2d 488 (1980); McNeilab, Inc. v. North River Ins. Co., 645 F.Supp. 525, 529 n. 5 (D.N.J.1986), aff'd, 831 F.2d 287 (3d Cir.1987).

C. The "ON THE PREMISES" Clause

The issue presented to me for decision — whether the "on the premises" clause of a blanket bond bars coverage for a fraudulent scheme involving the use of a telephone call from off the premises of the insured — has apparently not been decided by any court in the state of New Jersey. Thus, I am to be guided by relevant state precedent governing interpretation of insurance policies...