ORITANI SAV. & LOAN v. Fidelity & Deposit Co., Civ. A. No. 89-5355(HAA).

• Decision Date: 03 October 1991
• Docket Number: Civ. A. No. 89-5355(HAA).
• Citation: 821 F. Supp. 286
• Parties: ORITANI SAVINGS & LOAN ASSOCIATION, a corporation organized under the Banking Laws of New Jersey, Plaintiff, v. FIDELITY & DEPOSIT COMPANY OF MARYLAND, Defendant.
• Court: U.S. District Court — District of New Jersey

821 F. Supp. 286

ORITANI SAVINGS & LOAN ASSOCIATION, a corporation organized under the Banking Laws of New Jersey, Plaintiff, v. FIDELITY & DEPOSIT COMPANY OF MARYLAND, Defendant.

Civ. A. No. 89-5355(HAA).

United States District Court, D. New Jersey.

October 3, 1991.

OPINION

HAROLD A. ACKERMAN, District Judge.

This is a declaratory judgment action in which the plaintiff, Oritani Savings & Loan Corporation, ("Oritani"), seeks a ruling that the defendant, Fidelity & Deposit Company of Maryland, ("Fidelity"), is obligated to indemnify it under a Savings and Loan Blanket Bond. Presently before the Court is a motion by Fidelity for partial summary judgment dismissing the Third Count of plaintiff Oritani's Amended Complaint, or in the alternative seeking leave to file a Third-Party Complaint against John Rowe. I will decide this matter on the papers without oral argument as permitted by Federal Rule of Civil Procedure 78.

Procedural History

The parties have twice previously appeared before this Court. On July 9, 1990, the Court denied Fidelity's motion for summary judgment, holding, inter alia, that Oritani's complaint could be said to have asserted a claim under Insuring Agreement (A) and that as a question of fact existed as to whether Insuring Agreement (A) provided coverage in the matter, summary judgment was inappropriate.¹ Oritani Savings & Loan Association v. Fidelity & Deposit Company of Maryland, 741 F.Supp. 515, 524 (D.N.J.1990.) The parties again appeared before the Court in October, 1990 on Fidelity's motion for reconsideration of this Court's June, 1990 decision denying their motion for summary judgment, and on the Oritani Cross-Motions for summary judgment and leave to amend the Complaint to unambiguously assert a claim under Insuring Agreement (A) of the bond. Fidelity asserted three grounds in support of its motion for reconsideration, including, that the Court had erred in finding that a question of fact exists as to whether coverage is afforded under Insuring Agreement (A) of the blanket bond. Fidelity contended that the Court had misapplied the case of National Newark & Essex Bank v. American Insurance Co., 76 N.J. 64, 385 A.2d 1216 (1978) in interpreting Insuring Agreement (A) of the Oritani bond because the language in National Newark differs from that of Insuring Agreement (A). Specifically, the bond in National Newark lacked the definition of "Dishonest and Fraudulent Acts" present in Insuring Agreement (A) of the Oritani bond. This Court rejected Fidelity's first two grounds for reconsideration, and about the contention that the Court misapplied National Newark, concluded that:

In light of the difficulty of the issue, the absence of controlling authorities, and the fact that it is wholly unnecessary for me to decide it, (since I have already decided that there is coverage under section (B)), I decline to rule on this issue at this time.

Oritani, 744 F.Supp. at 1316. Consequently, the Court denied Fidelity's motion for reconsideration, granted Oritani's motion for partial summary judgment, and granted Oritani's motion for leave to amend. Oritani Savings and Loan Association v. Fidelity & Deposit Company of Maryland, 744 F.Supp. 1311 (D.N.J.1990).

Presently, the Court has once again been asked to consider Fidelity's motion for summary judgment holding that no coverage is afforded under Insuring Agreement (A) of the blanket bond. In light of what counsel for Fidelity have correctly pointed out to be the misapplication of National Newark & Essex Bank v. American Insurance Co., in my prior opinion (See Oritani, supra, 741 F.Supp. at 524), and for the reasons set forth below, I find that summary judgment in favor of Fidelity, the defendant, is appropriate. I have no need to discuss the factual background out of which these claims arise, as it has been completely set forth in this Court's July 1990 opinion. See Oritani, supra, 741 F.Supp. at 517-519.

Fidelity's Motion for Partial Summary Judgment

Fidelity, the defendant, is moving for partial summary judgment on Count Three of the plaintiff's Amended Complaint, in which the plaintiff seeks recovery under Insuring Agreement (A). The issue to be decided is whether the "Dishonest or Fraudulent Acts" clause of this blanket bond, including its definition of dishonest and fraudulent acts, covers the loss resulting from an act by an employee which complies with all company policies and was undertaken without the intent to cause loss to the bank or to financially benefit himself. The clause, contained in Insuring Agreement (A), provides:

Loss resulting directly from dishonest or fraudulent acts of an Employee committed alone or in collusion with others.

Dishonest or fraudulent acts as used in this Insuring Agreement shall mean only dishonest or fraudulent acts committed by such Employee with the manifest intent

(a) to cause the Insured to sustain such loss, and

(b) to obtain financial benefit for the Employee or for any other person or organization intended by the Employee to receive such benefit, other than salaries, commissions, fees, bonuses, promotions, awards, profit sharing, pensions or other employee benefits earned in the normal course of employment.

See Brief in Support of Defendant's Motion for Partial Summary Judgment, Exhibit F.

Fidelity contends that Insuring Agreement (A) only covers that specific loss which the employee dishonestly or fraudulently intended to cause his employer, and then only if, in causing that loss, the employee had the subjective intent to cause that loss by his deliberate fraudulent or dishonest conduct with the deliberate intent of gaining a benefit for himself or for someone else whom he intended should receive the benefit. The defendant further argues that as Oritani's admissions establish that John Rowe can be accused of no more than negligence or poor judgment, that he followed all company procedures, and that he did not intend to cause Oritani loss or to benefit himself, the loss is not covered by the bond as a matter of law.

Oritani, the plaintiff, contends that an issue of fact exists as to whether the plaintiff is entitled to coverage under Insuring Agreement (A). Oritani argues that the "manifest intent" to cause loss to the Insured, and gain to the employee or a third party required under the bond encompasses both actions taken by the employee with the subjective intent to act dishonestly or fraudulently and cause loss, and those actions which, though taken without the subjective intent to act dishonestly and cause a loss, are nonetheless sufficiently reckless or wanton about causing a loss that intent may be inferred. Oritani further argues that a fact issue exists as to whether Mr. Rowe's conduct was sufficiently reckless to warrant coverage under the bond.

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 the 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 judgment as a matter of law." Fed.R.Civ.Pro. 56(c). Put differently, "summary judgment may be granted if the movant shows that there exists no genuine issues of material fact that would permit a reasonable jury to find for the nonmoving party." Miller v. Indiana Hospital, 843 F.2d 139, 143 (3rd Cir.1988), cert. denied, 488 U.S. 870, 109 S.Ct. 178, 102 L.Ed.2d 147 (1988). A fact is material if it influences the outcome under the governing law. Anderson v. Liberty Lobby, Inc. 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).

The moving party has the initial burden of production; they must make a prima facie showing that they are entitled to summary judgment. 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. & Indemn., 833 F.2d 32, 34 (3d Cir. 1987). Once such a showing is made, the burden switches and the nonmoving party must show the moving party is not entitled to summary judgment. 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. Matsushita Elec. Indus. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); 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). The burden of persuasion is stringent and remains on the moving party. If there remains any doubt as to whether a trial is necessary, summary judgment should not be granted. See Celotex Corp., 477 U.S. at 330-33, 106 S.Ct. at 2556-58; Adickes v. S.H. Kress & Co., 398 U.S. 144, 157-61, 90 S.Ct. 1598, 1608-10, 26 L.Ed.2d 142 (1970).

Because jurisdiction in this case is founded on diversity of citizenship, I am bound to apply New Jersey law to the present controversy. See Erie Railroad Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938); Wilson v. Asten-Hill Manufacturing Co., 791 F.2d 30, 32 (3d Cir.1986). Under New Jersey law, the construction of contracts is a question of law for the court. Northeast Custom Homes, Inc. v. Howell, 230 N.J.Super. 296, 301, 553 A.2d 387 (Law Div.1988). Ultimately, at trial, the Court must instruct the jury as to what coverage the policy provides. Davis v. Equitable Life Assur. Soc., 90 N.J.Super. 328, 331, 217 A.2d 459 (App.Div.1966). However, ordinarily the issue of whether the employee's act was dishonest within the bond coverage is for the jury to decide unless the facts reasonably permit of but a single conclusion. Mortgage Corp. of N.J. v. Aetna Cas. & Surety Co., ...