Omnisource Corp. v. Cna/Transcontinental Ins. Co.

• Citation: 949 F.Supp. 681
• Decision Date: 25 November 1996
• Docket Number: No. 1:95-CV-324.,1:95-CV-324.
• Parties: OMNISOURCE CORP., Plaintiff, v. CNA/TRANSCONTINENTAL INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Indiana

949 F.Supp. 681

OMNISOURCE CORP., Plaintiff, v. CNA/TRANSCONTINENTAL INSURANCE COMPANY, Defendant.

No. 1:95-CV-324.

United States District Court, N.D. Indiana, Fort Wayne Division.

November 25, 1996.

Thomas A. Herr, James Fenton, Cathleen M. Shrader, Barrett and McNagny, Fort Wayne, IN, for plaintiff Omnisource Corp.

Leonard E. Eilbacher, Craig J. Bobay, Brian L. England, Hunt Suedhoff, Borror, & Eilbacher, Fort Wayne, IN, for defendant CNA/Transcontinental Ins. Co.

MEMORANDUM OF DECISION AND ORDER

COSBEY, United States Magistrate Judge.

I. INTRODUCTION

This matter is before the Court¹ on cross motions for summary judgment. The record before the Court consists of the pleadings and the following affidavits: Kathleen A. Hurst ("Hurst aff. ___"); Charles Quinby ("Quinby aff. ___"). The Defendant, CNA/Transcontinental Insurance Company ("CNA") moved for summary judgment on August 15, 1996. On September 16, 1996, the Plaintiff, Omnisource Corporation ("Omnisource"), responded to the first motion and filed its cross motion. CNA filed a joint reply-response on October 4, 1996. Finally, on October 15, 1996, Omnisource replied. This Court has jurisdiction based on diversity, 28 U.S.C. § 1332, and the parties apparently agree that Indiana law applies.

For the reasons hereinafter provided, Omnisource's motion for summary judgment will be GRANTED and CNA's motion will be DENIED.

II. FACTUAL BACKGROUND

The present case arises from a declaratory judgment action brought by Omnisource in which it seeks coverage from its insurer, CNA. The parties agree on the pertinent facts and dispute only whether Omnisource is entitled to coverage. The question before the Court is whether a loss arising from a letter of credit transaction² undertaken by Omnisource with a foreign company, Metales Especializados (hereafter "Metales") was a "covered loss" within the meaning of the policy. Before turning to this legal issue, a narrative recitation of the undisputed facts is in order.

Omnisource is in the business of buying and selling scrap metal. (Complaint ¶ 6.) On or about July 5, 1994, it entered into a purchase contract with Metales, a purported Costa Rican firm, whereby Metales agreed to sell Omnisource a large quantity of scrap copper ("the underlying contract"). (See Pl. Compl. exhs. B & C.)

The contract required payment through a letter of credit. (Id. ¶ 11.) Omnisource thus arranged for the letter of credit to be issued by its bank, Bank One ("Bank One"). (Id. ¶ 11; see Pl.Compl. exh. D.) Omnisource provided to Bank One an application and agreement for an irrevocable letter of credit (Pl.Compl. exh. D.) in favor of Metales up to an aggregate amount of $248,724.00. The application/agreement further provided that drafts and documents must be dated and negotiated not later than August 22, 1994, in Costa Rica. (Id.) The application/agreement then provided that the letter of credit would be available upon presentation of a sight draft³ accompanied by:

1. a commercial invoice in original;

2. a certificate of origin;

3. a packing list;

4. a full set clean on-board ocean bills of lading relating to shipment;

5. war/marine insurance to be provided by the buyer.

(Id.) ("the supporting documents") (see Hurst aff. ¶ 6). Bank One then issued a letter of credit on these requested terms and transmitted it to the confirming bank,⁴ Barnett Bank of Miami ("Barnett Bank"). (Compl. ¶ 12; see Pl.Compl. exh. E.)

Thereafter, someone presented to the Barnett Bank a sight draft that was drawn on the Barnett Bank and entitled "Letter of Exchange." (See Pl.Compl. exh. F.) It was purportedly payable "at sight" to the order of Metales in the amount of $260,000.20. It further provided:

The drawer as well as the drawee, endorser or guarantor, as well as any person(s) that intervene(s) in this letter of exchange, have renounced to their address, demands for payment, procedure for legal action for lack of acceptance and/or payment, authorizing herein an extension without any previous advise or notification.

(Id.) The Letter of Exchange was purportedly (but illegibly) signed by Metales. (Id.)

The required supporting documents were also presented to Barnett Bank along with a sight draft. (Id. ¶ 13.) Because they appeared on their face to be in good order, the bank paid the amount stated on the sight draft to the person presenting the documents. See Dolan, supra, § 6.01 at 6-2. With the payment of the sight draft by the bank, Omnisource immediately became obligated to it for the amount paid under the letter of credit. (Pl.Compl. Exh. F, ¶ 14)

The shipment of copper to which the ocean bill of lading referred never arrived. (Id. ¶ 14.) CNA concedes that the supporting documents were forged. (Compl. ¶ 13; Ans. ¶ 13; see Br. in Supp. of CNA Mot. for Summ.J. at 17).⁵ Thus, the bill of lading received by Barnett Bank was worthless. Nonetheless, Omnisource was obliged to reimburse Bank One for the amounts paid upon the irrevocable letter of credit. See White & Summers, supra, § 26-1 at 108. As a result, Omnisource sustained a loss of $261,160.20. (Compl. ¶ 14.)

During the relevant time period, Omnisource was insured by a policy issued by CNA which provided in pertinent part:

FORGERY OR ALTERATION COVERAGE FORM

(Coverage Form B)

A. COVERAGE

We will pay for loss involving Covered Instruments resulting directly from the Covered Causes of Loss.

1. Covered Instruments: Checks, drafts, promissory notes, or similar written promises, orders, or directions to pay a sum certain in "money" that are:

a. Made or drawn by or drawn upon you;

b. Made or drawn by one acting as your agent;

or that are purported to have been so made or drawn.

2. Covered Causes of Loss: Forgery or the alteration of, on or in any Covered Instrument.

(Compl. ¶ 15; Ans. ¶ 15.) ("the coverage provision"). Omnisource made a demand upon CNA for payment under the policy which CNA rejected. (Compl. ¶ 17.)

CNA contends that the contract for insurance must be enforced according to its precise terms, and that the instruments at issue were not "checks, drafts, promissory notes, or similar written promises, orders or directions to pay a sum certain in money that are made or drawn by or drawn upon Omnisource within the terms of the policy." CNA also contends that the sight draft was not a "covered instrument" because it was not a "forgery." Finally, CNA challenges whether any purported loss resulted "directly from" the forgery.

Omnisource contends that the documents presented to the Barnett Bank must be viewed as a whole and thus constitute an instrument covered under the policy. Moreover, Omnisource maintains that they were "drawn upon" Omnisource and that its loss arose "directly from" the forgery in the supporting documents. The Court will addresses these respective issues, after first reciting the applicable legal standard.

III. SUMMARY JUDGMENT STANDARD

Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). However, Rule 56(c) is not a requirement that the moving party negate his opponent's claim. Fitzpatrick v. Catholic Bishop of Chicago, 916 F.2d 1254, 1256 (7th Cir.1990). Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery, against a party "who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and in which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). The standard for granting summary judgment mirrors the directed verdict standard under Rule 50(a), which requires the court to grant a directed verdict where there can be but one reasonable conclusion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). A scintilla of evidence in support of the non-moving party's position is not sufficient to successfully oppose summary judgment; "there must be evidence on which the jury could reasonably find for the plaintiff." Id. at 252, 106 S.Ct. at 2512; In re Matter of Wildman, 859 F.2d 553, 557 (7th Cir.1988); Klein v. Ryan, 847 F.2d 368, 374 (7th Cir.1988); Valentine v. Joliet Township High Sch. Dist. No. 204, 802 F.2d 981, 986 (7th Cir.1986). No genuine issue for trial exists "where the record as a whole could not lead a rational trier of fact to find for the nonmoving party." Juarez v. Ameritech Mobile Communications, Inc., 957 F.2d 317, 322 (7th Cir.1992) (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986)).

Initially, Rule 56 requires the moving party to inform the court of the basis for the motion, and to identify those portions of the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any," which demonstrate the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323, 106 S.Ct. at 2553. The non-moving party may oppose the motion with any of the evidentiary materials listed in Rule 56(c), but reliance on the pleadings alone is not sufficient to withstand summary judgment. Goka v. Bobbitt, 862 F.2d 646, 649 (7th Cir.1988); Guenin v. Sendra Corp., 700 F.Supp. 973, 974 (N.D.Ind.1988); Posey v. Skyline Corp., 702 F.2d 102, 105 (7th Cir.), cert. denied, 464 U.S. 960, 104 S.Ct. 392, 78 L.Ed.2d 336 (1983). In ruling on a summary judgment motion, the court accepts as true the non-moving party's evidence, draws all legitimate inferences in favor of the non-moving party, and does not weigh the evidence nor the credibility of witnesses. Anderson, 477 U.S. at 249-51, 106 S.Ct. at 2511. However, "[i]t is a gratuitous cruelty to parties and their witnesses to put them through the...