North SHORE BANK FSB v. PROGRESSIVE Cas. Ins. Co.
| Decision Date | 15 April 2011 |
| Docket Number | Case No. 10-C-71 |
| Parties | NORTH SHORE BANK FSB, Plaintiff, v. PROGRESSIVE CASUALTY INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — Eastern District of Wisconsin |
In October of 2006, a seemingly successful business owner from Illinois, Russell Ott ("Ott"), approached North Shore Bank ("the Bank") seeking a loan to purchase a motor home. (Docket No. 1 at ¶6.) Although such transactions may be common for banks, certain factors made this transaction somewhat unique. First, there was the size of the loan. Ott sought a loan of $404,881.00 to purchase a motor home with a retail price of $679,995.00. (Docket No. 1 at ¶6.) Second, there was the fact that Ott sought to purchase this vehicle from his own dealership, Pro Source Motorsports, located southwest of Chicago. (Docket No. 1 at ¶6.)
Because this transaction was somewhat unusual, the Bank sent a representative to Illinois to inspect the motor home Ott sought to purchase as well as Ott's dealership. (Docket No. 1 at ¶8.) The loan officer confirmed the vehicle identification number ("VIN") on the motor home against the VIN on the vehicle's Certificate of Origin and took several photos of motor home. (Docket No. 1 at ¶8; see also Docket No. 1 at 6.) Ott's dealership appeared busy and with a large inventory. (Docket No. 1 at ¶9.)
The Bank closed the loan and subsequently received a title for the motor home reflecting the Bank's security interest. (Docket No. 1 at For two years, Ott made all payments on the loan but on December 3, 2008, the loan became past due. (Docket No. 1 at The Bank began an investigation into the motor home and learned that the Certificate of Origin Ott provided was a fraud. As a result, the Bank did not have a valid security interest in the motor home. (Docket No. 1 at }12.) From its investigation the Bank believes that Ott created a fake Certificate of Origin and affixed a fake VIN plate to the motor home to match the VIN on the fake Certificate of Origin. (Docket No. 1 at ¶13.) The Bank further believes that the vehicle it inspected was actually a 2003 Beaver Marquis with a VIN of 1RFC651933020168 whereas the Certificate of Origin was for a 2007 Beaver Marquis with a VIN of 1RFC651373020168. (Docket Nos. 1 at ¶13; 45 at ¶¶17, 25.) The manufacturer of the Beaver Marquis motor homes confirmed that it never issued a Certificate of Origin for a vehicle with the VIN that appeared on the Certificate of Origin that Ott presented to the Bank. (Docket No. 38.) Through its investigation, the Bank learned that federal investigators believe that Ott has defrauded financial institutions of a total of about $45,000,000.00. (Docket Nos. 35 at ¶13; 40at ¶18; 43 at ¶18.)
Upon discovering this fraud, the Bank sought to recover $371,646.59 under the bond issued by Progressive Casualty Insurance Company ("Progressive") on the basis that the Bank relied upon a counterfeit Certificate of Origin in issuing the loan. (Docket No. 1 at ¶¶15-17.) Progressive denied coverage on the basis that the fraudulent Certificate of Origin was not "counterfeit" as that term is defined within the bond.
The bond provides, in part, as follows:
(E) Loss resulting directly from the Insured having, in good faith, for its own account or for the account of others, * * *
(3) acquired, sold or delivered, or given value, extended credit or assumed liability, on the faith of any item listed in (a) through (e) above which is a Counterfeit.
Actual physical possession of the items listed in (a) through (h) above by the Insured, its correspondent bank or other authorized representative, is a condition precedent to the Insured's having relied on the faith of such items.
(Docket No. 40 at ¶19; Docket No. 32-17 at 8.) A Certificate of Origin is included in the items listed in (a) through (h). (Docket No. 32-17 at 8.) The bond defines "counterfeit" as "a Written imitation of an actual, valid Original which is intended to deceive and to be taken as the Original." (Docket No. 32-17 at 12.)
On January 27, 2010, the Bank filed suit in this court. (Docket No. 1.) This case was randomly assigned to this court and all parties have consented to the full jurisdiction of a magistrate judge. (Docket Nos. 7, 15.) Following a period for discovery, both parties have moved for summary judgment. (Docket Nos. 30, 33.) Each party has responded, (Docket Nos. 42, 44), and replied, (Docket Nos. 48, 51). The pleadings on the parties' motions are closed and the matter is ready for resolution.
"The court shall grant summary judgment if 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); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986); McNeal v. Macht, 763 F. Supp. 1458, 1460-61 (E.D. Wis. 1991). Material facts are those facts which, under the governing substantive law, might affect the outcome of the suit. Anderson, 477 U.S. at 248. A dispute of such material facts is "genuine" if the evidence is such that a reasonable trier of fact could find in favor of the nonmoving party. Id.
The movant bears the burden to establish that there is no genuine issue of material fact and that he or she is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Adickes v. S.H. Kress & Co., 398 U.S. 144, 159 (1970); see also Celotex Corp., 477 U.S. at 323. The moving party satisfies its burden by demonstrating "that there is an absence of evidence to support the nonmoving party's case." Celotex Corp., 477 U.S. at 325. Any doubt as to the existence of a genuine issue for trial is resolved against the moving party. Anderson, 477 U.S. at 255; Cain v. Lane, 857 F.2d 1139, 1142 (7th Cir. 1988); Spring v. Sheboygan Area School Dist., 865 F.2d 883, 886 (7th Cir. 1989). Further, "on summary judgment, a court can neither make a credibility determination nor choose between competing interests." Sarsha v. Sears, Roebuck & Co., 3 F.3d 1035, 1041 (7th Cir. 1993).
If the moving party meets its burden, the nonmoving party then has the burden to present specific facts showing that there is a genuine issue of material fact. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986).
Progressive contends that although fraudulent, the Certificate of Origin relied upon by the Bank is not "counterfeit" as a matter of law and thus the bond does not provide coverage for the Bank's claim. (Docket No. 31 at 9-16.) Not surprisingly, the Bank contends that the fraudulent Certificate of Origin was plainly "counterfeit" and thus the bond provides coverage for its loss. (Docket No. 34 at 8-12.) In response, in addition to reiterating its argument that the Certificate of Origin was not counterfeit, Progressive contends that the Bank failed to act in good faith, as the bond requires. Progressive also argues that, even if the bond provides coverage, the Bank's loss is a maximum of $315,000.00, which, because of the $100,000.00 deductible for the bond, leads to a maximum claim against Progressive in the amount of $215,000.00. (Docket No. 42.)
This case comes before the court on diversity jurisdiction pursuant to 28 U.S.C. § 1332, and thus this court is required to apply state substantive law. Lexington Ins. Co. v. Rugg & Knopp, Inc., 165 F.3d 1087 (7th Cir. 1999). Progressive contends in a footnote in its initial brief that Wisconsin law applies in this case. (Docket No. 31 at 9.) The plaintiff does not dispute Progressive's assertion or otherwise address the choice of law question. Thus, in the absence of any dispute, the law of this court's forum state, i.e. Wisconsin law, applies in the present case. Massachusetts Bay Ins. Co. v. Vic Koenig Leasing, 136 F.3d 1116, 1120 (7th Cir. 1998) (quoting Wood v. Mid-Valley, Inc., 942 F.2d 425, 426-27 (7th Cir. 1991)) ( ); see also Grundstad v. Ritt, 166 F.3d 867, 870 (7th Cir. 1999) (same).
Therefore, this court must attempt to predict how the Wisconsin Supreme Court would decide the issues presented here. Lexington Ins. Co., 165 F.3d at 1090 (citing Allen v. TransAmerica Ins. Co., 128 F.3d 462, 466 (7th Cir. 1997)). "Where the state supreme court has not ruled on an issue, decisions of the state appellate courts control, unless there are persuasive indications that the state supreme court would decide the issue differently." Id "In the absence of Wisconsin authority, [a federal court] may consider decisions from other jurisdictions." Id (citing Valerio v. Home Ins. Co., 80 F.3d 226, 228 (7th Cir. 1996)).
Judicial interpretation of a contract, including an insurance policy, seeks to determine and give effect to the intent of the contracting parties. Wisconsin Label Corp. v. Northbrook Property & Cas. Ins. Co., 2000 WI 26, ¶ 23, 233 Wis. 2d 314, 607 N.W.2d 276. Insurance polices are construed as they would be understood by a reasonable person in the position of the insured. Kremers-Urban Co. v. American Employers Ins. Co., 119 Wis. 2d 722, 735, 351 N.W.2d 156 (1984). However, [a court does] not interpret insurance policies to provide coverage for risks that the insurer did not contemplate or underwrite and for which it has not received a premium. Wisconsin Label[v. Northbrook Prop. & Cas. Ins. Co.], 2000 WI 26, 233 Wis. 2d 314, P25, 607 N.W.2d 276.
Am. Family Mut. Ins. Co. v. Am. Girl, Inc., 2004 WI 2, ¶23, 268 Wis. 2d 16, 673 N.W.2d 65.
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