Sun Ins. Co. of New York v. Hercules Securities Unlimited, Inc.

• Decision Date: 27 December 1993
• Citation: 605 N.Y.S.2d 767,195 A.D.2d 24
• Parties: SUN INSURANCE COMPANY OF NEW YORK, et al., Respondents-Appellants, v. HERCULES SECURITIES UNLIMITED, INC., et al., Respondents; Macy's Northeast, Inc., et al., Appellants-Respondents.
• Court: New York Supreme Court — Appellate Division

Page 767

605 N.Y.S.2d 767

195 A.D.2d 24

SUN INSURANCE COMPANY OF NEW YORK, et al., Respondents-Appellants, v. HERCULES SECURITIES UNLIMITED, INC., et al., Respondents Macy's Northeast, Inc., et al., Appellants-Respondents.

Supreme Court, Appellate Division Second Department.

Dec. 27, 1993.

Lambert & Weiss, New York City (Monroe Weiss, Susan E. Jaffee, Mitchell J. Winn and Arthur N. Lambert, of counsel), for appellants-respondents.

Mound Cotton & Wollan, New York City (Frederic R. Mindlin, Andrew C. Jacobson, and Jay D. Kenigsberg, of counsel), for respondents-appellants.

Before BRACKEN, J.P., and LAWRENCE, EIBER and O'BRIEN, JJ.

BRACKEN, Justice Presiding.

In June 1989 three thieves conceived of a scheme to steal a large sum of money from an armored car company. Theirs was to be the ultimate "inside job" in that the three conspirators did not plan to accomplish the actual theft until after their "front man", Ronnie Bryser, had acquired control of the very armored car company from which they planned to steal. This criminal project went forward as planned, at least until November 12, 1989, when approximately $3,700,000 was stolen from the vault of the defendant Hercules Securities Unlimited, Inc. (hereinafter Hercules), the armored car company which Mr. Bryser had acquired pursuant to this scheme. The question which we must resolve on this appeal is whether the plaintiff Sun Insurance Company of New York (hereinafter Sun), which had issued an insurance policy to Hercules at the behest of Mr. Bryser, must reimburse various defendants who, as customers of Hercules, had the misfortune to have had their money on deposit with Hercules at the time of the theft. We conclude that because Sun's policy had been obtained by the conspirators after they had already entered into the conspiracy to commit the theft from Hercules, the theft coverage contained in that policy, as well as the coverage contained in an excess policy, was void ab initio. We therefore reverse and grant summary judgment to the plaintiffs.

The primary insurance policy at issue in this case had originally been issued to Titan Armored Car, Titan Courier Service, Inc., and Titan Security Systems, Inc. (hereinafter Titan). This policy was later amended so as to provide coverage to Hercules by virtue of an endorsement dated October 11, 1989, and made effective retroactively to August 17, 1989. The terms of the policy stated that it was intended to cover "the liability of [Hercules] * * * for loss of or damage to property * * * arising from any cause whatsoever, in transit or otherwise, including any act or omission of the Assured or any of its employees, or anyone acting in its service". Such loss was "payable to the assured and/or its customers as their respective interest may appear". The limit of Sun's policy was $1,000,000. A "cover note" issued by certain underwriters at Lloyd's, London (hereinafter Lloyds), provided an additional $3,000,000 in excess coverage.

Sun and Lloyds commenced the instant action for declaratory judgment in 1990. The plaintiffs requested a judgment declaring "the Sun Policy and Lloyds Cover Notes 1 and 2 are void from the inception of coverage". The amended complaint named as defendants several parties who allegedly suffered property loss as the result of the theft from Hercules's vault. These parties, hereinafter referred to collectively as Hercules's "customers", included The Great Atlantic and Pacific Tea Company, Inc.; Gateway Cable; United Airlines, Inc.; Apcoa, Inc.; Acme Markets, Inc.; Sears, Roebuck and Co., Inc.; First Fidelity Bank, N.A., New Jersey; Kings Supermarket, Inc.; Charles Freihofer Baking Company, Inc.; Union State Bank; Toys "R" Us, Inc.; Liberty Lines Transit, Inc.; Macy's Northeast, Inc.; United Jersey Bank; Grand Union Company, Inc.; Armored Car Company, Inc.; Investor's Savings & Loan; and Berkley Federal Savings and Loan.

In April 1990, the defendants Macy's Northeast, Inc., and Investor's Savings & Loan moved to dismiss the plaintiffs' amended complaint and for partial summary judgment with respect to certain counterclaims. Following the denial of this motion in an order dated August 15, 1990, these same defendants moved for "renewal and/or reargument", and Grand Union Company, Inc., Toys "R" Us, Inc., Kings Supermarket, Inc., and the Great Atlantic & Pacific Tea Company, Inc., joined in the motion for summary judgment. That motion was likewise denied in an order dated January 28, 1991. These motions were premised on the argument that the plaintiffs had a duty to reimburse Hercules's customers because the subject policies of insurance were untainted by any actual misrepresentation and because, even if there had been an actual misrepresentation so as to vitiate Hercules's right to recover, Sun and Lloyds would still have an independent duty to pay the loss suffered by Hercules's customers.

In April 1991 the plaintiffs moved for summary judgment. This motion was based on the proposition that Sun's policy had been procured as the result of deliberate fraud and that it was therefore void ab initio. According to Sun's attorney, the question of whether the insured (Hercules, through its principal, Mr. Bryser) committed fraud in obtaining the policy was no longer the valid subject of litigation because this question of fact had been conclusively resolved against Hercules in a Federal criminal prosecution which had successfully been brought against Mr. Bryser and his coconspirators. Because of this fraud in the procurement of Sun's primary policy, it was argued that Sun's policy and Lloyds's excess policy are void.

The facts upon which Sun relied in demonstrating its entitlement to summary judgment were to a large extent established during the course of the Federal criminal prosecution. The essential allegations contained in the indictment which served as the basis for that prosecution, for the reasons stated below, must be taken as having been conclusively proved.

The first count of the Federal indictment charged that beginning on or about June 1, 1989, Ronnie Bryser, Gerald DeGerolamo, and Vincent DeGerolamo engaged in a conspiracy, the object of which was to "obtain the property of others, to wit, cash and other items of value, by means of a scheme and artifice to defraud". This count specified that Bryser acted as the " 'front man' " in a scheme, to purchase an armored car company, and that in August 1989 the three men agreed to purchase Titan (later renamed Hercules) in furtherance of their scheme. One of the "overt acts" charged in this count was that on August 17, 1989, Gerald DeGerolamo delivered $100,000 in currency, in a plastic bag, to Mr. Bryser for the purpose of making this purchase.

Counts 3 through 9 of the Federal indictment charged that the three conspirators "placed in the care and custody of the United States Postal Service * * * various mail matter" as part of their execution of a scheme to defraud seven different victims (one for each of these seven counts) of stated sums of money. Count 3 relates to Sun and charged that the conspirators had used the mails in furtherance of a scheme to defraud Sun of $1,000,000. The fourth count related to Lloyds and charged that the conspirators had used the mails to defraud Lloyds of $9,000,000. Counts 10 through 17 of the indictment charged that the three conspirators "transmitted by means of wire communications in interstate commerce" for the purpose of executing a scheme to defraud seven victims. Count 10 charged that the conspirators had used wire communications in order to defraud Sun. Count 11 charged that the conspirators had used wire communications in order to defraud Lloyds. The three conspirators were later convicted on all counts contained in the indictment. Their convictions were later affirmed on appeal (see, United States v. Bryser, 2d Cir., 954 F.2d 79).

The plaintiffs' motion for summary judgment was also supported by the affidavit of Anthony H. Ippolito, an Assistant Vice President of Wm. H. McGee & Co., Inc., which serves as Sun's underwriting manager. Mr. Ippolito was personally familiar with the insurance policy in question, Sun policy number S-ITF-804137, which had been originally issued to Titan, and which was later endorsed so as to cover Hercules.

According to Mr. Ippolito, the endorsement which changed the identity of the named insured to Hercules was issued in October 1989 and made effective August 17, 1989. Mr. Ippolito had previously been contacted by a specialist in obtaining insurance coverage and had learned that Titan had been sold and that its new owner "was making substantial costly modifications to the business". The endorsement changing the identity of the named insured was not issued until after a representative of the insurance "specialist" had personally met with Mr. Bryser, one of the conspirators, in October 1989.

Attorneys for the various customers of Hercules whose property was stolen submitted affidavits in opposition to Sun's motion. These attorneys advanced arguments similar to those advanced in the earlier motions of Macy's and Investors. They argued that there was no proof of Bryser's having made misrepresentations to Sun. The attorneys also argued that Hercules's customers, the real victims of the theft, did not "stand in Hercules's shoes", and could thus not be bound by the findings of fact made to Hercules's detriment in the Federal criminal case.

In an order dated August 27, 1991, the Supreme Court denied the plaintiffs' motion. The court stated that "[t]he recent criminal convictions of Ronnie Bryser, Vincent DeGerolamo and Gerald DeGerolamo * * * do not establish that the customers stand in Hercules's shoes". In other words, the court concluded that the customers were not precluded from relitigating the issue of the conspirators' guilt or innocence of fraud, so that an issue of fact remained as to whether Sun's policy was or was not void ab initio.

The plaintiffs...