Fundquest Inc. v. Travelers Cas.

• Decision Date: 04 June 2010
• Docket Number: Civil Action No. 09-11471-RGS.
• Citation: 715 F.Supp.2d 202
• Parties: FUNDQUEST INCORPORATED v. TRAVELERS CASUALTY AND SURETY COMPANY and St. Paul Mercury Insurance Company.
• Court: U.S. District Court — District of Massachusetts

715 F.Supp.2d 202

FUNDQUEST INCORPORATED

v.TRAVELERS CASUALTY AND SURETY COMPANY and St. Paul Mercury Insurance Company.

Civil Action No. 09-11471-RGS.

United States District Court,D. Massachusetts.

June 4, 2010.

COPYRIGHT MATERIAL OMITTED.

Gerald A. Phelps, Law Office of Gerald A. Phelps, Quincy, MA, for FundQuest Incorporated.

CharCretia V. DiBartolo, Hinshaw & Culbertson LLP, Boston, MA, for Travelers Casualty and Surety Company and St. Paul Mercury Insurance Company.

MEMORANDUM AND ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

STEARNS, District Judge.

Plaintiff FundQuest Incorporated brought this lawsuit in Suffolk Superior Court alleging a common-law claim for breach of contract (Count I) and a violation of the Massachusetts Consumer Protection Act (Mass. Gen. Laws ch. 93A, § 11) (Count II). On September 3, 2009, defendants Travelers Casualty and Surety Company and St. Paul Mercury Insurance Company (collectively Travelers) removed the case to federal court on diversity grounds. Travelers moved for summary judgment on February 4, 2010. FundQuest filed a cross-motion for summary judgment on March 1, 2010. A hearing was held on May 27, 2010.

BACKGROUND

The relevant facts are not in dispute. On January 16, 2007, FundQuest hired John Curran as a full-time “maintenance specialist.” ¹ Def.'s Statement of Facts (SOF) ¶ 1. On August 15, 2007, Curran submitted a request to switch the direct deposit of his paycheck from Sovereign Bank to an account at Bank of America. In processing Curran's direct deposit request, Cindy Joyce, a FundQuest human resources employee, mistakenly inserted the payroll information of FundQuest's founder, President, and Chief Executive Officer, Robert Del Col. ² As a result, Del Col's bi-weekly paycheck began to be deposited into Curran's Bank of America account as of August 30, 2007. Curran did not notify FundQuest that he was receiving Del Col's appreciably larger paycheck. Instead, he complained of not receiving his own. FundQuest responded by adding Curran's bi-weekly pay to the direct deposit without deducting Del Col's salary. Curran collected both salaries until October 31, 2007, when he quit working at FundQuest. His pay stopped following his resignation, but he continued to receive Del Col's. Curran never notified FundQuest (or anyone else) of the ongoing error.

On January 16, 2009, Del Col woke up to the fact that he had not been paid for some sixteen months. FundQuest promptly reimbursed Del Col the amount he was owed in back salary ($258,964.27). In the interim, Curran had received thirty-three deposits intended for Del Col. Most of them, twenty-eight in total, were deposited after Curran left FundQuest.

FundQuest attempted to recover the sums mistakenly paid to Curran through a Financial Institution Bond issued by Travelers on October 30, 2008. ³ SOF-Ex. A. On February 18, 2009, FundQuest submitted a Proof of Loss in the amount of $258,964.27, the total of the errant “salary” paid to Curran. ⁴ SOF ¶ 19. On April 3, 2009, Travelers agreed to pay $39,066.05, less the $10,000 deductible set out in the Bond, for a total of $29,066.05. SOF ¶ 20. The offered amount reflected the sum wrongly paid to Curran while he was employed at FundQuest, but not the sum he received thereafter. SOF ¶ 20. On May 7, 2009, FundQuest's attorneys sent a Chapter 93A demand letter to Travelers seeking the full loss amount. Compl. ¶ 20. On June 11, 2009, Travelers rejected the demand, and instead issued a check to FundQuest in the amount of $29,066.05. Compl. ¶ 21. FundQuest filed this lawsuit on July 27, 2009, seeking the balance of the claim ($219,898.22), treble damages, costs, and attorney's fees. ⁵

DISCUSSION

Summary judgment is appropriate where “the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c)(2). “A ‘genuine’ issue is one that could be resolved in favor of either party, and a ‘material fact’ is one that has the potential of affecting the outcome of the case.” Calero-Cerezo v. U.S. Dep't of Justice, 355 F.3d 6, 19 (1st Cir.2004), citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

The issue before the court is whether Travelers correctly interpreted the Bond as limiting its liability to less than the full amount of the claim. FundQuest argues that it is entitled to the full amount under either the “employee dishonesty/theft” or the “misplacement” provision of the Bond.

The rules governing the construction of an insurance contract are well established. “[W]e construe the policy ‘according to the fair and reasonable meaning of its words,’ interpret exclusionary clauses against the insurer, and resolve all ambiguities against the insurer. These tasks of contract interpretation, including the determination of ambiguity or its lack, are matters for the court.” U.S. Aviation Underwriters, Inc. v. Fitchburg-Leominster, Flying Club, Inc., 42 F.3d 84, 86 (1st Cir.1994), quoting Camp Dresser & McKee, Inc. v. Home Ins. Co., 30 Mass.App.Ct. 318, 324, 568 N.E.2d 631 (1991). ⁶ If the court determines an insurance term to be ambiguous, its interpretation is a question for the finder of fact. ⁷ Edmonds v. United States, 642 F.2d 877, 881 (1st Cir.1981). The issue will almost always turn on the parties' intent, Colasanto v. Life Ins. Co. of N. Am., 100 F.3d 203, 211 (1st Cir.1996), as manifested in the policy language read as a whole, while construing the disputed words in their usual and ordinary sense. Fireman's Fund Ins. Co. v. Special Olympics Int'l, Inc., 346 F.3d 259, 261 (1st Cir.2003).

I. Breach of Contract

“To state a claim for breach of contract under Massachusetts law, a plaintiff must allege, at a minimum, that there was a valid contract, that the defendant breached its duties under its contractual agreement, and that the breach caused the plaintiff damage.” Guckenberger v. Boston Univ., 957 F.Supp. 306, 316 (D.Mass.1997) (citations omitted). To establish a breach, plaintiff has the burden of proving the failure of the defaulting party to conform to one or more of the contract's material terms. A term is material when it involves “an essential and inducing feature” of the contract. Buchholz v. Green Bros. Co., 272 Mass. 49, 52, 172 N.E. 101 (1930). “Though questions of materiality are usually to be determined by the trier of fact, ... the rule is not universal. As is true of virtually any factual question, if the materiality question in a given case admits of only one reasonable answer (because the evidence on the point is either undisputed or sufficiently lopsided), then the court must intervene and address what is ordinarily a factual question as a question of law.” Gibson v. City of Cranston, 37 F.3d 731, 736 (1st Cir.1994) (cognate Rhode Island law).

a. Dishonesty/Theft

In the claim submitted to Travelers on February 18, 2009, FundQuest completed section I of the Proof of Loss form that provides for “employee dishonesty or employee theft claims.” SOF-Ex. B at 2. Insuring Agreement A to the Bond provides that Travelers will indemnify FundQuest for:

(A) Loss resulting from dishonest or fraudulent acts committed by an Employee acting alone or in collusion with others. Such dishonest or fraudulent acts must be committed by the Employee with the manifest intent:

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

(b) to obtain financial benefit for the Employee and which, in fact, result in obtaining such benefit.

Insuring Agreement B to the Bond provides that Travelers will indemnify FundQuest for:

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

* * *

(b) theft, false pretenses, common-law or statutory larceny, committed by a person present in an office or on the premises of the Insured,

while the Property is lodged or deposited within offices or premises located anywhere.

Travelers interprets the employee dishonesty/theft provision of the Bond to cover only the mistaken deposits made during Curran's tenure as an employee of FundQuest and to exclude those made after he resigned. ⁸ Travelers acknowledges that its argument distinguishing acts committed before an employee's termination from those occurring after he leaves employment raises an issue of first impression in Massachusetts. Travelers relies on a Seventh Circuit case, Cont'l Corp. v. Aetna Cas. & Sur. Co., 892 F.2d 540 (7th Cir.1989), in which a corrupt manager (Maciejewski) at a title insurance company (American) was found to have executed a real estate fraud scheme by issuing fraudulent title insurance policies. Before the scheme was discovered, the manager left the title insurer to work for a competitor (Safeco). There he promptly implemented the same scheme. The facts then become complicated, but at the end of the day, the competitor brought a racketeering conspiracy suit against the title insurer, arguing that it had been complicit in the fraud. The title insurer's parent company (Continental) settled the case and then sought indemnification from the defendant insurer (Aetna) for the losses it attributed to the acts of the corrupt employee.

The Seventh Circuit rejected a decision of the district court ordering indemnification. The bond at issue in Cont'l Corp. contained language similar to that in the FundQuest Bond: “The terms of the bond provide coverage only for losses ‘resulting directly from’ the dishonest or fraudulent acts of an American employee, and defines ‘employee’ to include only persons ‘employed in, at, or by any of the Insured's offices, and who are compensated ... and whom the Insured has the right to control.” 892 F.2d at 548 (emphasis in original). In agreeing with Aetna's decision not to pay on the bond, the Seventh Circuit gave short shrift to the parent company's “rather unconvincing” causation theories, including the argument that it was entitled to reimbursement for...