Camico Mut. Ins. Co. v. Heffler, Radetich & Saitta, L. L.P.

• Decision Date: 10 October 2014
• Docket Number: No. 13-3619,13-3619
• Court: U.S. Court of Appeals — Third Circuit
• Parties: CAMICO MUTUAL INSURANCE CO. v. HEFFLER, RADETICH & SAITTA, L.L.P., Appellant

CAMICO MUTUAL INSURANCE CO. v. HEFFLER, RADETICH & SAITTA, L.L.P., Appellant

No. 13-3619

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Submitted: September 8, 2014

October 10, 2014

NOT PRECEDENTIAL

On Appeal from the United States District Court for the Eastern District of Pennsylvania

(E.D. Pa. 2-11-cv-04753)

District Judge: Honorable Jan E. DuBois

Submitted Pursuant to Third Circuit LAR 34.1(a) September 8, 2014

Before: FISHER, JORDAN and HARDIMAN, Circuit Judges.

OPINION OF THE COURT

FISHER, Circuit Judge.

Heffler, Radetich & Saitta, L.L.P. ("Heffler") appeals the district court's grant of summary judgment to CAMICO Mutual Insurance Company ("CAMICO") and denial of Heffler's cross-motion for partial summary judgment regarding an insurance coverage dispute. For the reasons stated below, we will affirm.

I.

We write principally for the parties, who are familiar with the factual context and legal history of this case. Therefore, we will set forth only those facts that are necessary to our analysis.

CAMICO and Heffler entered into a claims-made Accountants Professional Liability Insurance Policy that was in effect from January 23, 2008 to January 23, 2009. This policy provided insurance for claims brought against Heffler, an accounting firm that, among other tasks, distributes settlement funds to claimants in class action suits. The policy insured both Heffler and others, including former Heffler employees.

In 2002, the Eastern District of Missouri approved a $490 million settlement in a class action against BankAmerica Corporation. Heffler was appointed by the court as the claims administrator, and Christian Penta, a senior claims analyst at Heffler from 2001 to 2004, was assigned to help administer the settlement. Heffler was paid for the work Penta performed and for other services it provided. Penta, while employed at Heffler and afterwards, defrauded three separate class actions, including the BankAmerica class action, of tens of millions of dollars by working with co-conspirators to file false claims.

Penta took a number of actions to further the fraud. He had his co-conspirators deliver their fraudulent claims directly to him so that he could ensure the claims were timely processed and approved for payment. In addition, he personally approved the fraudulent claims or otherwise ensured that the claims were approved by other Heffleremployees. Penta did not pocket the proceeds of these claims directly; rather, he was later given a portion of the fraudulently-obtained funds by the co-conspirators.¹ On September 11, 2008, Penta and his co-conspirators were charged with mail fraud and wire fraud. Penta pleaded guilty. Subsequently, David Oetting, a member of the BankAmerica class, brought a class-action suit against Heffler in the Eastern District of Pennsylvania seeking damages resulting from Penta's crimes. This suit was captioned Oetting v. Heffler. The suit alleged, among other claims, a breach of fiduciary duty, accountant malpractice, and negligent supervision.

Heffler notified CAMICO of its potential liability associated with Penta's actions on June 13, 2008, within the effective period of the CAMICO policy. CAMICO funded Heffler's defense, but subsequently advised Heffler that it reserved its right to recover costs and expenses relating to the defense that exceeded a $100,000 sub-limit in the policy concerning misappropriation, misuse, theft, or embezzlement. CAMICO later filed suit against Heffler with four causes of action: first, a declaratory judgment that CAMICO owed Heffler no defense or obligation beyond the $100,000 sub-limit; second, a claim for unjust enrichment; third, a claim for money had and received; and fourth, a claim for recovery of overpayment. Heffler, in response, filed counterclaims for a declaratory judgment that CAMICO's duty to defend and indemnify was not limited by the $100,000 sub-limit and for bad faith. The parties then filed cross-motions forsummary judgment. The district court granted CAMICO summary judgment as to the declaratory judgment claim, the claim for money had and received, and the claim for recovery of overpayment. It further denied Heffler's cross-motion for partial summary judgment and entered a final judgment in favor of CAMICO. Heffler timely appealed.

II.

The district court had jurisdiction under 28 U.S.C. § 1332(a)(1). This Court has appellate jurisdiction under 28 U.S.C. § 1291. We exercise plenary review over a district court's order resolving cross-motions for summary judgment. Tristani ex rel. Karnes v. Richman, 652 F.3d 360, 366 (3d Cir. 2011). To determine whether summary judgment is appropriate, we apply the same standard as the district court. Id. Summary judgment is appropriate when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a).

III.

Heffler puts forward two arguments. First, it contends that the policy sub-limit for misappropriation, misuse, theft, or embezzlement does not apply. Second, it asserts that CAMICO is not entitled to recoup litigation costs from Heffler that are in excess of the sub-limit. Neither of these arguments is persuasive.

A.

The district court held that CAMICO's defense and indemnification obligations in the Oetting action are capped by a policy sub-limit of $100,000. This sub-limit applies to"Damages and Claim Expenses for each covered Claim arising from, related to or in connection with any Insured's misappropriation, misuse, theft or embezzlement of funds." J.A. 556. Former Heffler employees are considered an Insured when performing "Professional Services for the benefit of the Named Insured or a Predecessor Firm on or after the Retroactive Date." Heffler is the Named Insured. In concluding that the sub-limit applied, the district court recognized that Penta engaged in misappropriation, misuse, theft, or embezzlement of funds; that Penta was performing Professional Services for Heffler's benefit after the Retroactive Date; and that Penta was an Insured. We agree with each of these conclusions, which are beyond legitimate dispute on the record.

In interpreting an insurance contract, a court is "to ascertain the intent of the parties as manifested by the language of the written instrument." Gene & Harvey Builders, Inc. v. Pa. Mfrs. Ass'n Ins. Co., 517 A.2d 910, 913 (Pa. 1986) (quoting Standard Venetian Blind Co. v. Am. Empire Ins. Co., 469 A.2d 563, 566 (Pa. 1983)) (internal quotations marks omitted).² When a provision is ambiguous, "[it] is to be construed in favor of the insured and against the insurer . . . . Where, however, the language of the contract is clear and unambiguous, a court is required to give effect to that language." Id. (citation omitted).

We first look to the contract to determine whether Penta's conduct constitutes misappropriation, misuse, theft, or embezzlement of funds. "[A] court construes [w]ordsof common usage [in a contract] . . . according to their natural, plain, and ordinary sense." Liberty Mut. Ins. Co. v. Sweeney, 689 F.3d 288, 293 (3d Cir. 2012) (second alteration in the original) (internal quotation marks omitted). On the other hand, "if technical words are used, they will be construed in their technical sense unless a contrary intention clearly appears." Blue Anchor Overall Co. v. Pa. Lumbermens Mut. Ins. Co., 123 A.2d 413, 415 (Pa. 1956).

Misappropriation, theft, and embezzlement are technical words with specific legal meanings, while misuse is a word of common usage. After an extended discussion of the technical and common meanings of these words, the district court held that Penta's behavior satisfied the definition of each of those terms. For example, it defined misappropriation as "[t]he application of another's property or money dishonestly to one's own use." J.A. 15 (citing Black's Law Dictionary 1019 (8th ed. 2004)). The underlying Amended Complaint in the Oetting action shows that Penta approved false claims submitted by Penta and his co-conspirators. These claims funneled funds to which class members were entitled to Penta and his co-conspirators instead. This is the "application of another's . . . money dishonestly to one's own use." Penta at least misappropriated funds, behavior sufficient to invoke the applicable sub-limit.³

Next, we must determine whether Penta was performing Professional Services for the benefit of Heffler. Professional Services are "any professional services performed byan Insured as long as the fees or commissions, if any, or other benefits from such services inure to the benefit of [Heffler]." J.A. 560. Assuming for the moment that Penta was an Insured, Heffler's sole argument that Penta's actions were not Professional Services is that none of the fees, commissions, or other benefits derived from the actions Penta took in furtherance of the fraud scheme inured to the benefit of Heffler. This view is far too narrow. If this were in fact the case, it...