On Appeal from Superior Court of New Jersey, Law Division, Cape May County, L-430-98.
Before Judges Wefing, Wecker and Fuentes.
The opinion of the court was delivered by: Fuentes, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Third-party defendants, Ohio Casualty Group of Insurance Companies, American West Fire and Casualty Company and West American Insurance Company, (Ohio Casualty Group) appeal a judgment in favor of defendant/third-party plaintiff, Gentilini Ford, in the amount of $191,206.83, representing damages suffered as a result of the dishonest acts of its former employee, Randy Carpenter. The loss originates from a fraudulent credit scheme conceived and carried out by Carpenter.
As a salesperson for Gentilini, Carpenter submitted fraudulent applications to Auto Lenders Acceptance Corp. (Auto Lenders) to induce it to finance car purchases to high risk customers. After several of those customers defaulted on their loans, Auto Lenders discovered the fraud and brought suit against Gentilini for participating in the fraud. Carpenter, who was Gentilini's Finance Manager, provided customers with fictitious pay stubs and completed credit applications with knowingly false information intended to improperly bolster the customer's creditworthiness. Gentilini settled that action for $215,000.
Gentilini brought a third-party action against its insurers under the "employee dishonesty extension" of the property insurance section of its commercial coverage insurance policy, seeking a defense to Auto Lenders' suit and indemnification. The insurers declined coverage. On cross-motions for summary judgment, the motion judge granted Gentilini's motion and denied the insurers' motion. We conclude that the Law Division erred in construing the policy of insurance as providing indemnity coverage to Gentilini and reverse.
Gentilini is an automobile dealership. Pursuant to a written agreement, PNC Bank provided financing for motor vehicle installment sales contracts that Gentilini would execute with its customers. Auto Lenders agreed to finance those installment sales contracts rejected by PNC. For each approved contract, Gentilini retained the cash deposit paid by its customer and collected the financed portion of the sales price from PNC or Auto Lenders. Gentilini assigned to PNC or Auto Lenders its rights under the customer's installment contract, including any security interest and related insurance. In the event of default by the customer, Auto Lenders was entitled to require Gentilini to repurchase, without recourse, all outstanding contracts purchased by Auto Lenders from Gentilini for the amount of the aggregate unpaid balance due.
In June 1997, Gentilini and the Ohio Casualty Group entered into an insurance contract. The relevant policy language is as follows:
(1) You [Gentilini] may extend the insurance provided by this Coverage Form to apply to direct loss of or damage to Business Personal Property and "money" and securities" resulting from dishonest acts committed by any of your employees acting alone or in collusion with other persons (except you or your partner) with the manifest intent to: (a) Cause you to sustain loss or damage; and also (b) Obtain financial benefit (other than salaries, commissions, fees, bonuses, promotions, awards, profit sharing, pensions or other employee benefits earned in the normal course of employment) for: (i) Any employee; or (ii) Any other person or organization. * * * * (3) The most we will pay under this Extension for loss or damage in any one occurrence is $5,000.
(4) All loss or damage: (1) Caused by one or more persons; or (2) Involving a single act or series of related acts; is considered one occurrence. The policy defines "money" as: currency, coins, bank notes in current use and having a face value, travelers checks, register checks and money orders held for sale to the public.
The term "securities" is defined as: all negotiable and non-negotiable instruments or contracts representing either "money" or other property. "Securities" includes revenue and other stamps (whether represented by actual stamps or unused value in a meter) in current use, tokens and tickets, and evidence of debt issued in connection with credit or charge cards, which cards are not issued by you, but does not include money.
The motion judge decided in favor of coverage and made the following findings:
It is undisputed that Mr. Carpenter was an employee of Gentilini Ford. This court finds that the fraudulent acts that Mr. Carpenter committed in order to obtain loans for prospective automobile purchasers were dishonest. Ohio Casualty contends that the policy was intended to protect against embezzlement or theft but the policy states "dishonest acts." The policy does not define "dishonest acts." This court holds that if Ohio Casualty intended "dishonest acts" to mean embezzlement and theft then either "dishonest acts" would have been defined as such or the policy would have stated embezzlement and theft rather than "dishonest acts." For these reasons and the fact that the frauds undertaken by Mr. Carpenter were dishonest, this court finds that the fraud fall within the meaning of "dishonest acts."
The motion judge further held that the loss sustained by Gentilini, as a result of the law suit brought by Auto Lenders was a "direct loss" within the meaning of the policy based on the so- called Appleman's Rule which provides that:
Where a peril specifically insured against sets other causes in motion which, in an unbroken sequence and connection between the act and final loss, produced the result for which recovery is sought, the insured peril is regarded as the proximate cause of the entire loss. It is not necessarily the last act in a chain of events which is, therefore, regarded as the proximate cause, but the efficient or predominant cause which sets into motion the chain of events producing the loss. An incidental peril outside the policy, contributing to the risk insured against, will not defeat recovery. . . . In other words, it has been held that recovery may be allowed where the insured risk was the last step in the chain of causation set in motion by an uninsured peril, or where the insured risk itself set into operation a chain of causation in which the last step may have been an excepted risk. [Franklin Packaging Co., v. California Union Ins. Co., 171 N.J. Super. 188, 191 (App. Div. 1979), (citing 5 Appleman, Insurance Law and Practice § 3083 at 309-311 (1970).]
Under this reasoning, the motion judge found "an unbroken sequence" of events all leading to a recoverable loss: Carpenter's fraud against Auto Lenders precipitating in Auto Lenders' suit against Gentilini, which in turn resulted in a loss to Gentilini.
On appeal from a grant of summary judgment, we use the same standard as the motion judge: first we decide whether there is a genuine issue of material fact, and if none, we then decide whether the Law Division's ruling on the law is correct. Brill v. Guardian Life Ins. Co., 142 N.J. 520, 523 (1995); Southern Jersey Family Med. Ctrs., Inc., v. City of Pleasantville, 351 N.J. Super. 262, 279 (App. Div.), certif. granted, 174 N.J. 545 (2002); Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div. 1998); R. 4:46-2.
Our analysis will be guided by well-established principles of insurance law.
When examining an insurance contract, the first step is to determine whether the policy is ambiguous. If a court determines that the policy is clear and unambiguous the policy must be enforced as written. However, if the policy clause is found to be ambiguous, any ambiguities must be resolved against the insurance carrier and in accordance with the objectively reasonable expectations of the insured. A policy provision is considered ambiguous if the phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage. If the policy is considered ambiguous, the reviewing court should determine whether more precise language by the insurer, had such language been included in the policy, would have put the matter beyond reasonable question. [U.S. Mineral Prods. Co., v. American Ins. Co., 348 N.J. Super. 526, 538 (App. Div. 2002) (citations omitted)].
However, the insured bears the burden of establishing that a claim is within the policy terms. Cobra Prods., Inc. v. Federal Ins. Co., 317 N.J. Super. 392, 401 (App. Div. 1998), certif. denied, 160 N.J. 89 (1999). Here, the policy language unambiguously describes the type of coverage to be limited to direct loss from an act of ...