Private Bank & Trust v. Progressive Cas Ins
Decision Date | 27 May 2005 |
Docket Number | No. 04-2515.,04-2515. |
Citation | 409 F.3d 814 |
Parties | PRIVATE BANK & TRUST COMPANY, Plaintiff-Appellant, v. PROGRESSIVE CASUALTY INSURANCE COMPANY, Defendant-Appellee. |
Court | U.S. Court of Appeals — Seventh Circuit |
Jonah Orlofsky (argued), Chicago, IL, for Plaintiff-Appellant.
Charles F. Morrissey (argued), John K. Silk, Karbal, Cohen, Economou & Dunne, Chicago, IL, for Defendant-Appellee.
Before FLAUM, Chief Judge, and EVANS and SYKES, Circuit Judges.
This is an insurance coverage dispute arising from a fraud that caused a loss to the Private Bank & Trust Company. A man using a false identity, phony corporate documents, and stolen checks opened a corporate account at Private Bank's branch office in Wilmette, Illinois. Two days later, when the funds were cleared for use, he withdrew more than $400,000 from the account by telephone. The fraud was eventually discovered, and the bank filed a claim with its insurer, Progressive Casualty Insurance Company. Progressive denied the claim, Private Bank sued, and the district court granted summary judgment in favor of the insurance company.
We affirm. The financial institution bond at issue in this case covers losses "resulting directly from theft, false pretenses... or ... larceny committed by a person present in an office or on the premises of the Insured." The perpetrator of the fraud in this case was not present in the bank at the time he made the telephone withdrawal which caused the bank's loss. The bond's fraud coverage is expressly limited to losses that occur when the perpetrator of the fraud is present on the premises of the insured. We decline to adopt a rule of construction that would expand the bond's "on premises" fraud coverage to include losses from off-premises transactions that are preceded by on-premises fraudulent acts.
On April 14, 2003, a man purporting to be "Lawrence Goodman" entered Private Bank's branch office in Wilmette and opened a corporate checking account. Representing himself as an employee of BBI Enterprises, Inc., "Goodman" presented an Illinois driver's license; articles of incorporation and an IRS Employer Identification Number for BBI Enterprises; and an employee identification card purportedly issued by BBI which, like the driver's license, showed "Goodman's" photograph. "Goodman" deposited two checks worth a total of $461,057.18 drawn on the account of Lear Corporation and made payable to "BBI Enterprises, Ltd." The Private Bank employee who opened the account for "Goodman" did not require his endorsement but instead endorsed both checks with a bank stamp.
Two days later, as soon as the deposited funds were cleared for use, "Goodman" purchased approximately 1,160 gold coins from a Chicago merchant who also owned an account at Private Bank. "Goodman" telephoned the bank and requested a transfer of $400,200 from the recently opened BBI account into the account of the gold dealer. Private Bank honored the telephonic request and the funds were transferred. Approximately two weeks later, Private Bank discovered that "Goodman" was actually one Robert A. Manola and the two checks he presented for deposit were stolen. The company Manola pretended to represent was a sham entity created for the purpose of stealing money from the real BBI Enterprises.
Apparently not satisfied with the proceeds of the fraudulent telephone transfer, Manola returned to the bank a few weeks later and attempted to withdraw the remaining money from the account. He was promptly arrested. However, Private Bank could not recover the funds it had transferred out of the account, so it filed a claim with Progressive under the "on premises" fraud coverage of its Financial Institution Bond. The "on premises" clause of the bond provides:
The Underwriter ... agrees to indemnify the Insured 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 the offices or premises located anywhere.
Progressive denied the bank's claim and this lawsuit ensued. The parties filed cross-motions for summary judgment. The district court granted Progressive's motion, holding that the "on premises" fraud coverage of the insuring agreement required that the person causing the loss be physically present on the insured's premises when the loss occurs. The loss in this case occurred when Manola initiated the $400,200 telephone transfer while off the bank's premises. Citing this court's decision in Alpine State Bank v. Ohio Casualty Insurance Co., 941 F.2d 554 (7th Cir.1991), the district court rejected the bank's argument that Manola's presence on the bank's premises at the time he opened the account was sufficient to trigger the bond's "on premises" fraud coverage. Because Manola was not present in the bank when he made the withdrawal that caused the bank's loss, the court concluded that the "on premises" fraud coverage did not apply.1 Private Bank appeals.
The facts of this case are undisputed. We are presented with a question of insurance policy interpretation, which is a question of law that is reviewed de novo. Alpine, 941 F.2d at 559 (citing First Nat'l Bank Co. v. Ins. Co. of N. Am., 606 F.2d 760, 768 (7th Cir.1979)). Under Illinois law, which governs this case, "an insurance policy that contains no ambiguity is to be construed according to the plain and ordinary meaning of its terms, just as would any other contract." Nat'l Fid. Life Ins. Co. v. Karaganis, 811 F.2d 357, 361 (7th Cir.1987); U.S. Fire Ins. Co. v. Schnackenberg, 88 Ill.2d 1, 57 Ill.Dec. 840, 429 N.E.2d 1203, 1205 (1981). The precise question here is whether the "on premises" fraud coverage in a standard financial institution bond covers a loss that results from an off-premises fraudulent withdrawal that is preceded by fraudulent acts committed on the insured bank's premises.
The bond at issue in this case is a Financial Institution Bond Standard Form No. 24, the descendant of a series of bonds once known as "banker's blanket bonds." First marketed by Lloyd's of London in 1911, the blanket bond combines in a single instrument various types of unrelated coverage that were previously the subject of separate policies. See 9A JOHN ALAN APPELMAN & JEAN APPELMAN, INSURANCE LAW AND PRACTICE § 5701, at 375-76 (1981); Peter I. Broeman, An Overview of the Financial Institution Bond, Standard Form No. 24, 110 BANKING L.J. 439, 442-43 (1993). The first American banker's blanket bond, developed by the Surety Association of America in cooperation with the American Bankers Association in 1916, covered employee dishonesty, loss of property on premises or in transit through robbery or theft, as well as other risks. Broeman, supra at 443. The bond achieved its present general form in 1941 when Standard Form 24 appeared. Id. In 1986 the phrase "banker's blanket bond" was officially dropped in favor of the present name to discourage the erroneous belief that the contract covered any and all losses incurred by banks. Id. at 442. Although generalizations about the purpose of any insurance policy must always be evaluated in light of specific policy language, it has been said that the financial institution bond generally protects against risks of dishonesty, both internal and external, but does not cover losses caused by poor management or insure against risks inherent in banking operations. See APPELMAN, supra, § 5701, at 380.
The "on premises" insuring agreement is one of four basic insuring agreements in Private Bank's bond (additional coverage was purchased through optional insuring agreements and riders). Section (B)(1)(a) of the "on premises" agreement covers losses resulting directly from robbery, burglary, misplacement, and "mysterious unexplainable disappearances." Section (B)(1)(b), the section at issue here, covers losses "resulting directly from ... theft, false pretenses, common-law or statutory larceny committed by a person present in an office or on the premises of the Insured." Before 1980 the "on premises" requirement applied uniformly to losses now classified in both section (B)(1)(a) and section (B)(1)(b) of the bond, but in the revision undertaken in that year, false pretenses, theft, and larceny were split off from the other covered acts. Currently, while robbery, burglary, misplacement, and "mysterious unexplainable disappearances" continue to be covered if the act takes place while the property is on the insured's premises, coverage for losses resulting directly from theft, false pretenses, and larceny requires that the loss result from an act committed by a person present on the insured's premises. See Oritani Sav. & Loan Ass'n v. Fid. & Deposit Co. of Md., 989 F.2d 635, 639 (3d Cir.1993) ( ).
Private Bank contends that its loss of $400,200 in connection with Manola's fraud qualifies as a loss resulting directly from false pretenses committed by a person "present on the premises" of the bank. No one disputes that Manola was on the bank's premises when he opened the checking account and deposited the stolen checks, but there is also no question that he was off the bank's premises when he withdrew most of the money, causing the loss. Private Bank argues that it was the fraudulent deposit, not the subsequent telephonic withdrawal, that "directly caused" the bank's loss.
This view, however, conflicts with this circuit's case law addressing "on premises" fraud coverage in similar bank frauds. Alpine involved a coverage dispute over bank losses stemming from a fraudulent scheme that resembled...
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