Auto Lenders v. Gentilini Ford

• Decision Date: 16 August 2004
• Citation: 854 A.2d 378,181 N.J. 245
• Parties: AUTO LENDERS ACCEPTANCE CORPORATION, Plaintiff, v. GENTILINI FORD, INC., Defendant and Third Party Plaintiff-Appellant, v. PNC Bank National Association, John Does 1-10, Randy Carpenter, Richard Baker, Shawn Hamilton, Shanda Boddie, Sean Murray, Thomas Eidell, Christopher Jackson, Tamika Fortune, Starr Barnum, Cassandra Brock, Latoya Savage, Kenyatta Saunders, Kenneth Graham, Corneilia Thrower, Joyce Taylor, Alfie Stephens, Delores Simpson, Tairat Ajoke Disu, Raymond Bickel, Edward Isiah Graham, Troy Butler, Julius Jermelle, Eugene Cobbs, Michael White, Jr., Benjamin Mansfield, Wayne Tucker, Charles Lentz, Joann Jacobs, Michele Sloan And Tiffany Richardson And Christi Insurance Group, Inc., Third Party Defendants, and The Ohio Casualty Group of Insurance Companies, American West Fire and Casualty Company and West American Insurance Company, Third Party Defendants-Respondents.
• Court: New Jersey Supreme Court

854 A.2d 378

181 N.J. 245

AUTO LENDERS ACCEPTANCE CORPORATION, Plaintiff, v. GENTILINI FORD, INC., Defendant and Third Party Plaintiff-Appellant, v. PNC Bank National Association, John Does 1-10, Randy Carpenter, Richard Baker, Shawn Hamilton, Shanda Boddie, Sean Murray, Thomas Eidell, Christopher Jackson, Tamika Fortune, Starr Barnum, Cassandra Brock, Latoya Savage, Kenyatta Saunders, Kenneth Graham, Corneilia Thrower, Joyce Taylor, Alfie Stephens, Delores Simpson, Tairat Ajoke Disu, Raymond Bickel, Edward Isiah Graham, Troy Butler, Julius Jermelle, Eugene Cobbs, Michael White, Jr., Benjamin Mansfield, Wayne Tucker, Charles Lentz, Joann Jacobs, Michele Sloan And Tiffany Richardson And Christi Insurance Group, Inc., Third Party Defendants, and The Ohio Casualty Group of Insurance Companies, American West Fire and Casualty Company and West American Insurance Company, Third Party Defendants-Respondents.

Supreme Court of New Jersey.

Argued January 5, 2004.

Decided August 16, 2004.

Eric C. Garrabrant argued the cause for appellant (Serber, Konschak & Jaquett, attorneys).

Andrew S. Kent, West Orange, argued the cause for respondents (Wolff & Samson, attorneys; Armen Shahinian and Scott D. Baron, of counsel).

Justice ZAZZALI delivered the opinion of the Court.

Randy Carpenter, an employee of Gentilini Ford, Inc., engaged in numerous credit-application frauds over the course of an eleven-month period, leading to the sale of twenty-seven automobiles to customers who otherwise would not have qualified for credit. In this appeal, we must determine whether losses sustained as a result of Carpenter's conduct are covered under an employee-dishonesty provision of Gentilini Ford's insurance policy. We must also decide whether Carpenter's conduct constitutes a single occurrence under the policy for the purpose of determining the insurance company's potential liability.

I.

The following facts are not in dispute. Appellant Gentilini Ford, Inc. (Gentilini) is an automobile dealership located in Woodbine, New Jersey. To facilitate the sale of automobiles to its customers, Gentilini entered into a retail-paper "Dealer Agreement" with PNC Bank, N.A. (PNC Bank). Under the terms of the agreement, PNC Bank provided financing for installment sales contracts that Gentilini executed with its customers. By a separate agreement between PNC Bank and Auto Lenders Acceptance Corporation (Auto Lenders), Auto Lenders had the option to finance any contract rejected by PNC Bank.

Gentilini's standard sales arrangement worked as follows. Customers seeking financing for automobile purchases submitted credit applications to Gentilini, which then forwarded the applications to PNC Bank or Auto Lenders for approval. PNC Bank had the first option to approve financing and tended to accept lower-risk applicants, leaving for Auto Lenders the higher-risk, though still creditworthy, applicants whom PNC Bank had refused. For each approved application, Gentilini would enter into an installment sales contract with the purchaser, taking a cash deposit after accepting the customer's note. Under the terms of Gentilini's Dealer Agreement with PNC Bank and Auto Lenders, the accepting lender advanced cash in the face amount of the customer's note to Gentilini. The lending institution would then take an assignment of Gentilini's rights under the customer's installment contract, including a security interest in the financed vehicle, any service contracts for the vehicle, and the right to any insurance proceeds subsequently paid for damage to the vehicle.

In early 1998, Auto Lenders investigated numerous credit applications that it had accepted through its arrangement with Gentilini. It discovered that Randy Carpenter, a Gentilini employee involved in automobile financing, had engaged in a number of credit-application frauds between February and December 1997 to secure loans for customers who otherwise were not creditworthy. Specifically, Auto Lenders learned that several customers without driver's licenses had fictitious licenses submitted on their behalf. Other customers, whose salaries were inadequate to qualify for credit, had falsified pay stubs submitted by facsimile to Auto Lenders. Indeed, a subsequent investigation revealed that many of the fraudulent submissions appeared to be alterations of Carpenter's own pay stubs. Auto Lenders concluded that, in total, twenty-seven of the credit applications it had approved contained falsified information.

In July 1998, after several of the loans under investigation went into default, Auto Lenders filed suit against Gentilini for fraud and breach of contract. In its complaint, Auto Lenders sought to enforce a portion of the Dealer Agreement that gave it an absolute right of recourse against Gentilini if any of the information conveyed by Gentilini during the finance-approval process proved to be untrue. Pursuant to the agreement, Auto Lenders sought to exercise its right to have Gentilini repurchase all outstanding installment contracts that had not been paid in full, regardless of whether any individual contract contained fraudulent information. It, therefore, demanded judgment in the amount of $831,932.90.

Gentilini filed its answer and a third-party complaint in October 1998, denying liability to Auto Lenders and asserting claims against PNC Bank, Randy Carpenter, and the customers identified by Auto Lenders who allegedly submitted fraudulent credit applications. Later, in June 1999, Gentilini amended its answer and third-party complaint, naming the Ohio Casualty Group of Insurance Companies, American West Fire & Casualty Company, and West American Insurance Company (collectively Ohio Casualty) as additional third-party defendants. Gentilini alleged that Ohio Casualty had an obligation to defend Gentilini and indemnify it for its losses under an existing insurance policy, but Ohio Casualty denied any such duty.

Auto Lenders and Gentilini entered a stipulation in December 2000 whereby Gentilini agreed to pay Auto Lenders $215,000 in full settlement of Auto Lenders' claims against Gentilini. With the exception of Gentilini's claims against Ohio Casualty, all claims against all remaining parties were voluntarily dismissed.

Gentilini based its claims against Ohio Casualty on a "Commercial Package" insurance policy. The "Building and Personal Property Coverage Form" of the policy defined Ohio Casualty's basic commitments with respect to "Covered Property," which included "Business Personal Property" such as "Stock" (defined as "merchandise held in storage or for sale"), but specifically excluded "[a]utomobiles held for sale" and all "[a]ccounts, bills, currency, deeds, food stamps or other evidences of debt, money, notes or securities." However, an endorsement attached to the policy, designated as the "Master Pak for Property," modified the terms of the property coverage form. Relevant to the present appeal is the endorsement's "Employee Dishonesty" provision, which provides in pertinent part:

(1) You may extend the insurance provided by this Coverage Form to apply to direct loss of or damage to Business Personal Property and "money" and "securities" resulting from dishonest acts committed by any of your employees acting alone or in collusion with other persons (except you or your partner) with the manifest intent to:

(a) Cause you to sustain loss or damage; and also

(b) Obtain financial benefit (other than salaries, commissions, fees, bonuses, promotions, awards, profit sharing, pensions or other employee benefits earned in the normal course of employment) for:

(i) Any employee; or

(ii) Any other person or organization.

....

(3) The most we will pay under this Extension for loss or damage in any one occurrence is $5,000.

(4) All loss or damage:

(1) Caused by one or more persons; or

(2) Involving a single act or series of related acts; is considered one occurrence.

Ohio Casualty moved for summary judgment in reliance on the parties' pleadings and the plain language of the insurance policy. Gentilini filed a cross-motion for summary judgment.

The Law Division granted summary judgment in favor of Gentilini on the issue of coverage under the employee-dishonesty provision of the policy.¹ In its decision, the court concluded that Carpenter's conduct constituted "dishonest acts" as defined by the policy and that his actions resulted in a "direct loss" to Gentilini. In addition, the court rejected Ohio Casualty's argument that Carpenter's conduct was one "occurrence" under the policy. It concluded that Carpenter defrauded Auto Lenders on twenty-seven different occasions, not that he engaged in twenty-seven fraudulent acts culminating in a single, overarching fraud. Accordingly, the court determined that Ohio Casualty's policy provided coverage to Gentilini Ford for $135,000, or $5,000 for twenty-seven separate occurrences.

Gentilini subsequently moved for an entry of final judgment and prejudgment interest, and applied to recover its attorneys' fees both for defending against Auto Lenders' action and for enforcing its rights against Ohio Casualty under the insurance policy. The trial court granted the motion and awarded interest and fees as requested by Gentilini. A final judgment of $191,206.83, encompassing damages, attorneys' fees, expenses, and prejudgment interest was entered in November 2001. Ohio Casualty appealed.

On appeal, a divided panel of the Appellate Division reversed summary judgment in favor of Gentilini and remanded the matter to the Law Division for entry of judgment in favor of Ohio Casualty. Auto Lenders Acceptance Corp. v. Gentilini Ford, Inc., 358 N.J.Super. 28, 38, 816 A.2d 1068 (2003). Turning first to Carpenter's fraudulent conduct, the majority determined that Carpenter's actions were not covered by the policy's terms because his "manifest intent" was not "to cause loss or damage" to Gentilini, but to defraud Auto Lenders. Id. at 34, 816 A.2d 1068. If anything, the majority...