Oritani Sav. and Loan Ass'n v. Fidelity and Deposit Co. of Maryland

Decision Date12 June 1992
Docket NumberNo. 91-5874,91-5874
Citation989 F.2d 635
PartiesORITANI SAVINGS AND LOAN ASSOCIATION, a corporation organized under the Banking Laws of New Jersey v. FIDELITY AND DEPOSIT COMPANY OF MARYLAND (A Maryland Corp.) Fidelity & Deposit Company of Maryland, Appellant. . Submitted Under Third Circuit Rule 12(6)
CourtU.S. Court of Appeals — Third Circuit

Andrew T. Fede, Contant, Scherby & Atkins, Hackensack, NJ, for appellee.

James M. Mulvaney, Joseph P. McNulty, Michael S. Stein, McElroy, Deutsch & Mulvaney, Morristown, NJ, for appellant.

Before: MANSMANN, SCIRICA and ROTH, Circuit Judges.

OPINION OF THE COURT

ROTH, Circuit Judge.

This case arises from an insurance coverage dispute stemming from an incidence of telephone fraud perpetrated against Oritani Savings and Loan (Oritani). Oritani brought suit against Fidelity and Deposit Company of Maryland (Fidelity), seeking a declaratory judgment that Fidelity is obligated to indemnify Oritani under an insurance contract, a Savings and Loan Blanket Bond, executed between the parties. The district court held that Fidelity is obligated under the policy because telephone fraud is covered under the "On Premises" coverage provision in the policy. We disagree and will reverse. Moreover, because we find that, as a matter of law, no coverage is provided, we will remand to the district court to enter judgment in favor of the appellant.

I.

During the time period at issue, Oritani and Fidelity had a valid insurance contract. The blanket bond covered "[a]ll the Insured's offices or premises in existence at the time this bond becomes effective...." The provisions of this bond 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 Oritani suffered a "loss of property" within the meaning of Oritani suffered the loss from the following scheme of telephone fraud: On May 10, 1988, Jack Rowe, a vice president of Oritani responsible for processing wire transfer requests for Oritani's customers, received a telephone call from a person who identified herself as "Debbie" and said she was an employee of Oritani's branch office in Ho-Ho-Kus, New Jersey. 1 "Debbie" requested that Mr. Rowe effect a wire transfer of $85,300 from an Oritani customer account which "Debbie" identified by name, account number, and all other appropriate information. Mr. Rowe executed the transfer. On May 13, 1988, a similar request for a wire transfer for $87,300 from the same correctly identified account was made by "Susan," who also claimed that she was an employee of Oritani's Ho-Ho-Kus branch office. Mr. Rowe executed this transfer as well. On May 20, 1988, Mr. Rowe learned that the Ho-Ho-Kus office had no record of these wire transfers and that the identified account had insufficient funds to cover the transfers. However, the wired funds had already been disbursed by the recipient banks; Oritani therefore suffered a loss of $172,600.

                the policy.   However, Fidelity contests whether this loss of property is covered under the policy
                

While Mr. Rowe apparently made no effort to verify whether funds existed to cover the wire transfers, he testified that he followed his normal procedure in effecting the transfers. Moreover, Oritani has admitted that Mr. Rowe was not a knowing participant in the fraudulent scheme. Oritani has investigated the incident 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. The parties concede that Mr. Rowe did believe that "Debbie" and "Susan" were employees of Oritani calling from the Ho-Ho-Kus branch office.

Oritani initially claimed that Fidelity breached its obligations under Insuring Agreement (B) of the insurance contract by refusing to provide coverage for Oritani's loss ("Count One") and that Fidelity's denial of coverage constituted bad faith ("Count Two"). Fidelity moved for summary judgment which was denied by the district court. See Oritani Savings & Loan Ass'n v. Fidelity & Deposit Co. of Md., 741 F.Supp. 515 (D.N.J.1990) ("Oritani I ".) On July 23, 1990, Fidelity filed a motion for reargument. Oritani opposed this motion and sought leave to amend its complaint to assert a claim for coverage under Insuring Agreement (A) ("Count Three"). On September 24, 1990, the district court denied Fidelity's motion for reargument, granted Oritani leave to file an amended complaint, and granted summary judgment for Oritani on Count One. See Oritani Savings & Loan Ass'n v. Fidelity & Deposit Co. of Md., 744 F.Supp. 1311 (D.N.J.1990) ("Oritani II "). The amended Count Three of Oritani's complaint was dismissed by the district court. See Oritani Savings & Loan Ass'n v. Fidelity & Deposit Co. of Md., No. 89-5355, 1991 WL 498924, 1991 U.S.Dist. LEXIS 14901 (Oct. 3, 1991) ("Oritani III "). Count Two was dismissed by Stipulation filed October 11, 1991. Fidelity filed its Notice of Appeal on October 24, 1991.

II.

The district court had jurisdiction over this diversity case under 28 U.S.C. § 1332(a). Appellate jurisdiction for this appeal from a final order of the district court is predicated upon 28 U.S.C. § 1291.

This court's review of a grant of summary judgment is plenary. See Erie Telecommunications, Inc. v. City of Erie, 853 F.2d 1084, 1093 (3d Cir.1988). "On review the appellate court is required to apply the same test the district court should have utilized initially." Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir.1976), cert. denied, 429 U.S. 1038, 97 S.Ct. 732, 50 L.Ed.2d 748 (1977).

A court may grant summary judgment only when the submissions in the record "show that there is no genuine issue as to This appeal involves the construction of the parties' insurance contract. The parties do not dispute the material facts giving rise to this case. Under New Jersey and federal law, questions of contract construction are questions of law subject to plenary review on appeal. See Cooper Labs. v. International Surplus Lines, 802 F.2d 667, 671 (3d Cir.1986).

                any material fact and that the moving party is entitled to judgment as a matter of law."   Fed.R.Civ.P. 56(c).   In determining whether summary judgment is appropriate, "[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor."  Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986).   The inquiry is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law."  Id. at 251-52, 106 S.Ct. at 2511-12
                
III.

New Jersey law prescribes construing an insurance contract to comport with the parties' intent and reasonable expectations. See McNeilab, Inc. v. North River Ins. Co., 645 F.Supp. 525, 546 (D.N.J.1986); Sparks v. St. Paul Ins. Co., 100 N.J. 325, 495 A.2d 406, 414 (1985). New Jersey recognizes that the language of insurance contracts is often the result of technical semantic constructions and unequal bargaining power. Sparks, 495 A.2d at 412. Therefore, New Jersey law generally embraces the application of the doctrine of contra proferentum to insurance contracts. "The recognition that insurance policies are not readily understood has impelled courts to resolve ambiguities in such contracts against the insurance companies." Id.

Even when insurance contracts are not patently or technically ambiguous, New Jersey requires courts to construe "contracts in accordance with the reasonable expectations of the insured." Id. The parties' reasonable expectations must be examined when "the phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage." State Dept. of Envt'l. Protection v. Signo Trading Int'l, Inc., 130 N.J. 51, 612 A.2d 932, 938 (1992) (quoting Weedo v. Stone-E-Brick Inc., 81 N.J. 233, 405 A.2d 788, 795 (1979)). Coverage will be provided if policy language is "insufficiently clear to justify depriving the insured of her reasonable expectation that coverage would be provided." Sparks, 495 A.2d at 413. Our constructive task is twofold. First, we must determine if any patent ambiguity exists in the policy language such that coverage must be provided. Second, if such an ambiguity does not exist, we must determine, were coverage denied, whether the policy language is insufficiently clear such that the average policyholder would be deprived of a reasonable expectation of coverage.

The crucial policy language provides the following coverage:

On Premises

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

(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 the telephone fraud at issue involved false pretenses. Moreover, Oritani has conceded that it cannot prove that the persons making the telephone calls to Mr. Rowe were physically present in its offices or on its premises. Nevertheless, the district court held that this "On Premises" provision was ambiguous and that coverage had to be afforded. The district court found first that the language of section (B)(1)(b)(i) could modify either the word "person" or the phrase "false pretenses" and second, that the word "present...

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