ST. FRANCIS DE SALES CU v. SUN INS. OF NY

• Decision Date: 02 August 2002
• Court: Maine Supreme Court
• Parties: ST. FRANCIS DE SALES FEDERAL CREDIT UNION et al. v. SUN INSURANCE COMPANY OF NEW YORK et al.

818 A.2d 995

2002 ME 127

ST. FRANCIS DE SALES FEDERAL CREDIT UNION et al. v. SUN INSURANCE COMPANY OF NEW YORK et al.

Supreme Judicial Court of Maine.

Argued: January 10, 2002.

Decided: August 2, 2002.

Reargued: November 13, 2002.

Opinion withdrawn and revised opinion issued: April 2, 2003.

Richard H. Broderick, Jr. (orally), Lincoln, for the plaintiffs.

Robert W. Harrington (orally), Boston, MA, for the defendants.

Panel: SAUFLEY, C.J., and CLIFFORD, RUDMAN, DANA, ALEXANDER, and LEVY, JJ.

CLIFFORD, J.

[¶ 1] Sun Insurance Company of New York¹ (n/k/a Chubb Indemnity Insurance Company) appeals from the denial of its motion for judgments as a matter of law following the entry in the Superior Court (Kennebec County, Marden, J.) of judgments against it in favor of the plaintiffs, St. Francis De Sales Federal Credit Union, Winslow Community Federal Credit Union, Taconnet Federal Credit Union, Notre Dame Federal Credit Union, and Keyes Fibre Federal Credit Union (collectively, the "Credit Unions"). The judgments are for compensatory damages awarded by a jury to the Credit Unions for fraud and misrepresentation flowing from certificates of insurance issued by Sun. Sun contends that: (1) the Credit Unions failed to establish the elements of fraud by clear and convincing evidence; (2) the court erred in refusing to admit evidence of the existence of other insurance covering the losses suffered by the Credit Unions; and (3) the court improperly restricted evidence proffered by Sun to challenge the claims by the Credit Unions that they relied on the certificates of insurance issued by Sun.

[¶ 2] The Credit Unions have also appealed from the court's entry of M.R. Civ. P. 50(b) judgments as a matter of law in favor of Sun, vacating jury awards of punitive damages to the Credit Unions arising out of the fraud and misrepresentation. The Credit Unions contend that the evidence fully supports the jury's finding that Sun's conduct was sufficiently egregious to warrant the imposition of punitive damages. We discern no error in the entry of judgments as a matter of law in favor of Sun on the punitive damages claims, but because the Superior Court improperly restricted evidence proffered by Sun on the issue of whether the Credit Unions reasonably relied on Sun's certificates of insurance, we vacate the compensatory damages judgments and remand to the Superior Court.

[¶ 3] The evidence admitted at trial established the following facts: As part of their daily business operations, each Credit Union collected restrictively endorsed checks. The Credit Unions contracted with Maine Armored Car to transport those checks to Lewiston for processing. Pursuant to that agreement, Maine Armored Car installed and maintained a locked metal box that was bolted to an exterior wall of the St. Francis De Sales Federal Credit Union building. At the end of each business day, the Credit Unions deposited the checks into the metal box, and Maine Armored Car picked up the checks and delivered them in Lewiston.

[¶ 4] The agreement required Maine Armored Car to carry insurance against the loss of Credit Union property. To meet this requirement, Maine Armored Car purchased an armored-car-transportation-insurance policy through Sun. The policy contained the following provision:

9. Where the Assured [Maine Armored Car] makes contracts providing that this Assured will call at the premises of a customer and open a safe/ATM thereon, either alone or in cooperation with the customer or his representative, it is understood and agreed that any liability of this Assured for any loss of Property which may occur under any such contract shall be covered by the Policy of Insurance but only from the moment that this Assured actually enters the premises and/or ATM location of the customer for the purpose of opening any such safe/ATM.

It is further understood and agreed that the liability of this Assured for Property awaiting transportation by the Assured or otherwise and contained in a safe or safes or ATMs located on the premises and/or ATM location of a customer or customers for which safe or safes or ATMs this Assured has agreed to carry a master key, dial rim lock key, guard key or combination shall be insured hereunder but only in the event such loss is caused by a person or persons gaining unlawful access to such safe or safes or ATMs through use of a master key, dial rim lock key, guard key or combination and for an amount not exceeding $50,000 from any one safe/ATM.

(Emphasis added.)

[¶ 5] Annually, at Maine Armored Car's request, Sun issued to each Credit Union a certificate of insurance to verify that Sun had issued a policy of insurance to Maine Armored Car for loss of property of its customers from any cause. The first paragraph in each of the certificates of insurance reads, in its entirety:

This certificate is furnished simply as a matter of convenience to its holder(s) and gives information as to the issuance of the below mentioned policy, and sets forth certain features of the coverage as stated in said policy as it stands as of the date of issue hereof. This Certificate confers no rights on the holder(s). Said Policy, which contains the full provisions of the contract and insurance granted thereby is subject to endorsement, alteration, transfer, assignment and cancellation without notice to the holder(s) of this Certificate.

[¶ 6] The certificates then described the coverage in the underlying policy as "[c]overing the liability assumed by [Maine Armored Car] for loss or damage, from any cause whatsoever, to property of customers, consisting of ... Checks, Drafts, Notes ... and all other Commercial Papers, and other Documents and Papers of value." (Emphasis added.) The certificates then listed a number of exclusions not relevant to this case, but did not mention any exclusions for theft. Sun issued Certificates from August 1, 1991 to August 1, 1992.

[¶ 7] On May 22, 1992, an unknown thief forcefully broke into the lock box attached to the St. Francis Credit Union building and stole the checks. Maine Armored Car submitted a claim to Sun in connection with the theft. Because of the circumstances surrounding the theft from the lock box, i.e., access to the lock box was not gained through the "use of a master key, dial rim lock key, guard key or combination," Sun denied coverage for the loss.

[¶ 8] The Credit Unions sued Maine Armored Car over the lost checks and obtained judgments establishing Maine Armored Car's liability for their losses. See St. Francis De Sales Fed. Credit Union v. Maine Armored Car & Maine Armored Car Ser., Inc., CV-93-596 (Me.Super.Ct., Ken.. Cty., Sept. 11, 1996) (Atwood, J.). St. Francis De Sales was awarded $30,351.50 in compensatory damages; Winslow was awarded $27,068.24; Taconnet $418.43; Notre Dame $1378; and, Keyes Fibre $1091.68. Id.

[¶ 9] The Credit Unions have not been able to recover any amount of their judgments against Maine Armored Car. They made demands on Sun to pay them proceeds from the insurance policy described in the certificates of insurance issued to them. After Sun denied coverage, the Credit Unions brought this action seeking to reach and apply the proceeds of the policy issued to Maine Armored Car. The Credit Unions also alleged that the representations made by Sun in the certificates of insurance were fraudulent and were relied on by the Credit Unions and, as a result, the Credit Unions should be awarded compensatory and punitive damages. The Superior Court (Atwood, J.) entered summary judgments in favor of Sun on the "reach and apply" counts,² but denied summary judgments with respect to the fraud claims, which were the subject of the trial in this case.

[¶ 10] Each of the Credit Unions collected from their own insurance companies under policies that covered their losses from the theft of the checks. Relying on the collateral source doctrine, see Werner v. Lane, 393 A.2d 1329 (Me.1978), the Credit Unions moved in limine prior to trial to bar the admission of evidence about those payments and those policies of insurance. In its memorandum filed in opposition to the motion in limine, Sun argued, inter alia, that evidence that the Credit Unions had their own insurance was relevant to impeach the Credit Unions' claims that they relied on the certificates of insurance.³ In particular, Sun requested that the jury be allowed to consider certain statements, signed under oath by each of the Credit Unions, submitted with and as part of proof of loss forms to their own insurers to recover for the stolen checks. These statements explicitly asserted, or clearly reflected, that the Credit Unions had no other insurance covering the loss of the checks from the lock box. The Superior Court conditionally granted the in limine motion to exclude the evidence, reserving the right to reconsider at trial.

[¶ 11] At trial, Sun made an offer of proof that each Credit Union was fully insured against the theft from the lock box, and that each Credit Union had stated to its own insurer that no other insurance covered the loss of the checks. The trial court concluded that the sworn statements in the proof of loss forms were admissible "on the issue of general credibility of the reliance upon the certificate[s] of insurance." The court, however, severely restricted Sun's use of that evidence. Specifically, the court allowed Sun to inquire only about the bare statements on the proof of loss forms, required all other language on the forms to be redacted, and ruled that Sun could not inform the jury that the Credit Unions' statements existed as part of proof of loss submitted to their own insurers.

[¶ 12] Sun attempted to use one of the sworn statements during its cross-examination of the president of St. Francis. The proof of loss form, however, on which the statement had been made, was so thoroughly redacted, and its use so restricted, that the lack of context severely limited its potential effectiveness, and Sun...