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U.S. Estates, Inc. v. American Safety Casualty Insurance Company

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


June 28, 2010

U.S. ESTATES, INC., PLAINTIFF-RESPONDENT/ CROSS-APPELLANT,
v.
AMERICAN SAFETY CASUALTY INSURANCE COMPANY, INC.,*FN1 DEFENDANT/THIRD-PARTY PLAINTIFF-RESPONDENT, AND COMMERCE INSURANCE SERVICES, INC., DEFENDANT/THIRD-PARTY PLAINTIFF-RESPONDENT/ CROSS-APPELLANT,
v.
ATLANTIC UNDERWRITING GROUP, INC., THIRD-PARTY DEFENDANT, AND
BOGEY'S TRUCKING & PAVING, INC., PLAINTIFF/INTERVENOR -APPELLANT,
v.
RAY PERSIA, U.S. ESTATES, INC., PERSIA HOMES, AND U.S. ESTATES, LLC, DEFENDANTS-RESPONDENTS/CROSS-APPELLANTS.

On appeal from Superior Court of New Jersey, Law Division, Camden County, Docket No. L-1339-06.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Submitted October 1, 2009

Before Judges Fisher and Espinosa.

Plaintiff U.S. Estates, Inc. (U.S. Estates) was required by the planning board of the Township of Gloucester (the Township) to post a performance bond for the public improvements portion of a residential development. However, the escrow agent approved by the surety misappropriated the escrowed funds and this litigation followed. The appeal and cross-appeals here concern three summary judgment orders. U.S. Estates appeals from a December 13, 2007 order that dismissed its complaint against American Safety Casualty Insurance Company, Inc. (American Safety), the surety that approved the escrow agent, and a February 29, 2008 order that dismissed its complaint against Commerce Insurance Services, Inc. (Commerce), the broker that procured the performance bond. Commerce cross-appeals from that portion of the court's February 29, 2008 decision holding that it owed a duty to U.S. Estates. The subcontractor, plaintiff Bogey's Trucking and Paving, Inc. (Bogey's), appeals from an order dated June 20, 2008 that denied summary judgment to Bogey's on its claim for the unpaid amount due and granted summary judgment to U.S. Estates, dismissing Bogey's complaint. We affirm in part and reverse in part.

Defendant Ray Persia is a part owner in U.S. Estates, a general contractor. In 2003, Persia acquired land on behalf of U.S. Estates, that he intended to subdivide into a residential development in Gloucester Township. Before he began the site approval process, Persia executed a contract, dated November 28, 2003, that identified the parties as "Ray Persha [sic] as Contractor and Bogey's Trucking & Paving, Inc. as Subcontractor" for Bogey's to perform nine phases of specified work, totaling $350,903 for the project, and specifying discrete payment amounts for each phase of work. The contract required "Contractor [to] pay Subcontractor for its satisfactory performance within 5 days after completion of each Project Phase." Bogey's sent invoices to Ray Persia from January 29, 2004 through June 19, 2006 totaling $370,168.50 and received payments of $166,300 directly from U.S. Estates and Persia Homes in the following amounts on the following dates:

1/19/04$4,000 2/24/0437,300 3/9/0420,000 4/13/0485,000 3/6/0610,000 6/15/0610,000

Bogey's claims that it is owed $203,868.50 for its work. At his deposition, Persia testified that because Bogey's did not complete the project, the balance owed to Bogey's was only $80,000.

Bogey's did not require Persia or U.S. Estates to post a performance bond or escrow any funds to guarantee payment of the contract amounts. In fact, Donald Bogey testified that he never had a conversation with Persia about the requirement imposed by American Safety for him to place the contract money in escrow to obtain a bond. Bogey's commenced work on the project before any bond was secured.

However, when U.S. Estates went to the Township planning board for site approval hearings in 2004, the Township required U.S. Estates to post a performance bond for the public improvements portion of the development before site work could begin. The purpose of the bond was to ensure that if U.S. Estates defaulted, the bonding company would pay for the work to be completed. Because U.S. Estates was a new company with a limited financial history and inexperienced with subdivision development, it encountered significant difficulties in obtaining the performance bond. At some point, the Township issued a stop work order, requiring U.S. Estates to cease construction until it obtained the required bond.

U.S. Estates approached a broker, Commerce, to procure the bond. At Commerce's recommendation, U.S. Estates deposited $280,000 at Commerce Bank*fn2 to cover payments to Bogey's. Still, Commerce experienced difficulty as well and approached another broker, Atlantic Underwriting Group, Inc. (Atlantic) for additional help in obtaining the bond.

In April 2004, after more than four months of attempts to obtain a bond, the performance bond was successfully placed with a surety, American Safety, with certain conditions. In the underwriting process, American Safety was concerned that U.S. Estates did not have formal financial statements that provided bank statement documentation. Matthew Semeraro, an underwriter with American Safety, explained, "We felt that in order for the improvements to be completed, there needed to be an administrator over those funds to disburse them as work was completed and verified, so that's the reason why we chose to go with the funds control." So, although U.S. Estates had deposited $280,000 at a commercial bank, American Safety required that the funds be placed in escrow with an administrator that it approved. In addition, U.S. Estates was required to execute a General Agreement of Indemnity in which it agreed to indemnify American Safety from any loss arising out of the issuance of the bond.

The parties to the performance bond were American Safety, U.S. Estates and the Township. The performance bond provided that, in the event that the Township declared U.S. Estates to be in default in completing the site improvements for the development, American Safety was obliged to complete the project. The bond also states, "No right of action shall accrue on this bond to or for the use of any person or corporation other than" the Township.

The funds administrator approved by American Safety was Funds Administration Services, Inc. (FAS), an established company in the business of acting as a funds control administrator for commercial sureties. No negative information about FAS was known at the time.

A Funds Administration Agreement (the FAS Agreement), dated May 20, 2004, stated that it was an agreement among Bogey's, the "Subcontractor", U.S. Estates, the "General Contractor", and FAS, the "Funds Administrator". Although not a party to the FAS Agreement, American Safety was identified as the "Surety." Commerce was not a party to the FAS Agreement and had no rights or obligations pursuant to its terms.

Donald Bogey, the sole shareholder and President of Bogey's did not execute the FAS Agreement. He testified that he did not authorize anyone to sign the FAS Agreement on Bogey's behalf and that he saw it for the first time at his deposition. Jim DeLorenzo executed the FAS Agreement, purportedly on behalf of Bogey's. However, Donald Bogey testified that DeLorenzo was a pipe foreman who was not authorized to sign contracts on behalf of Bogey's; that DeLorenzo never told Bogey about the FAS Agreement; and that he was discharged in 2005 because he was taking material out of the yard.

The FAS agreement provided a mechanism for the payment of funds due to Bogey's under its contract from funds deposited by U.S. Estates with FAS and granted certain rights to American Safety. U.S. Estates was required to forward all funds due under the subcontract with Bogey's to FAS for deposit in a commercial checking account at the Bank of America (the Funds Administration Account). FAS was the sole signatory for the Funds Administration Account and was authorized to disburse funds to Bogey's upon receipt of properly submitted documentation. In the event of a default by Bogey's or conflicting demands regarding the contract funds, ¶ 6.2.0 provided that "all funds... shall be disbursed only with the written consent of Surety." FAS was required by ¶ 8.2.0 to maintain adequate records of contract funds received and disbursed and to permit inspection by U.S. Estates, Bogey's or American Safety. ¶ 8.4.0 identified FAS's obligations regarding insurance:

Funds Administrator agrees to maintain a policy of insurance protecting Subcontractor, General Contractor and Surety from errors and omissions on its part in performing obligations pursuant to this Agreement; further, Funds Administrator agrees to obtain fidelity type insurance protecting itself from acts of dishonesty, intentional fraud and criminal or malicious acts relating to its performance of its obligations pursuant to this Agreement. Funds Administrator will provide evidence of said coverage to both Contractor and Surety upon request.

Therefore, only American Safety and U.S. Estates - and not Bogey's - had the right to request evidence of insurance coverage from FAS. The record is silent as to whether any request for such evidence was ever made or whether the insurance was secured.

Bogey's alleged consent to the terms of the FAS Agreement is memorialized in the following paragraphs:

4.0.0 Subcontractor desires that Funds Administrator receive and disburse all funds paid by General Contractor to Subcontractor for or on account of Project under the Contract, including all progress payments, retainage, bonuses, change orders, claims, equitable or other adjustments, or any other sums payable in connection with the Project ("Contract Funds").

4.1.0 Subcontractor hereby specifically requests that Funds Administrator provide the services contemplated in this Funds Administration Agreement ("Agreement"), and acknowledges that Subcontractor will receive benefit therefrom and that Funds Administrator, by virtue of its performance of the Funds Administration Agreement, shall in no way be construed to interfere with Subcontractor's business, any agreement, written or oral, Subcontractor may enter into in connection with the Contract, the Project or Subcontractor's performance of the work contemplated by the Contract documents, that Funds Administrator is not acting in any way to exercise dominion and/or control of Subcontractor and Subcontractor's operations.

4.20 Subcontractor acknowledges and agrees that it is receiving valuable consideration, sufficient in every respect, to render this Agreement fully enforceable and fully effectuate its terms and conditions, which consideration, may include, but is not limited to, the Subcontractor obtaining Surety Bonds and or the Subcontractor's fulfillment of any conditions precedent to its performance under the Subcontract.

After the agreement was executed, U.S. Estates wired $280,000 from its commercial bank account to a checking account at Bank of America pursuant to the terms of the FAS Agreement. American Safety executed a Subdivision Performance Bond in the penal sum amount of $372,401.40, whereby American Safety and U.S. Estates were bonded, jointly and severally, to the Township for performance of "Site Improvements for Lucerne Estates," the subdivision being developed by U.S. Estates. However, FAS did not hold the deposited funds in escrow, but rather used the funds, without the knowledge of any of the parties in this action, for purposes other than those authorized by the FAS Agreement. Ultimately, FAS lost the funds, filed for bankruptcy in December 2005, and was liquidated.

There is no evidence in the record that any funds were disbursed to Bogey's pursuant to the terms of the FAS Agreement. However, two of the payments Bogey's received directly from U.S. Estates and Persia Homes were made after the FAS Agreement was executed on May 20, 2004 and after FAS filed for bankruptcy protection in December 2005.

In February 2006, U.S. Estates filed this action to recover the monies it deposited with FAS. The relevant procedural history can be summarized as follows:

In its First Amended Complaint, U.S. Estates alleged the following causes of action against its broker, Commerce: breach of contract, negligence, breach of fiduciary duty, and unconscionable business practices. U.S. Estates asserted a breach of contract claim against American Safety, based upon an alleged failure "to obtain performance coverage that included the performance of the escrow manager, Fund Administration Services." In June 2006, Commerce filed a third-party complaint against Atlantic for indemnification and contribution.*fn3 Bogey's was granted leave to intervene as a plaintiff and filed its complaint in April 2007 against U.S. Estates, Ray Persia, Persia Homes, and U.S. Estates, LLC (collectively, the "U.S. Estates defendants"), seeking payment for the work it had performed.

American Safety and Commerce filed motions for summary judgment, seeking the dismissal of U.S. Estates' claims against them, which were granted by the trial court. U.S. Estates filed a motion for summary judgment, seeking the dismissal of Bogey's claims against it, which was also granted. Bogey's filed a motion for summary judgment, which was denied. The appeal and cross-appeals followed.

In its appeal, Bogey's presents the following issues:

POINT I

RESPONDENTS, PERSIA HOMES, ARE NOT ENTITLED TO SUMMARY JUDGMENT AS THERE ARE GENUINE ISSUES OF MATERIAL FACT AND THE LOWER COURT'S DECISION MUST BE REVERSED.

POINT II

THE LOWER COURT'S RELIANCE ON THE CASES OF AMELCO AND INSULATION CONTRACTING AND SUPPLY*fn4 IS MISPLACED, THUS SUMMARY JUDGMENT WAS INAPPROPRIATE.

In its cross-appeal, U.S. Estates presents the following issues:

A. THE TRIAL COURT ERRED IN FINDING THAT FAS WAS NOT THE AGENT OF AMERICAN SAFETY AND THEREFORE LIABLE FOR ITS DEFAULT.

B. THE TRIAL COURT ERRED IN GRANTING SUMMARY JUDGMENT IN FAVOR OF COMMERCE INSURANCE DESPITE FINDING A DUTY TO US ESTATES.

C. SUMMARY JUDGMENT IN FAVOR OF US ESTATES, INC., US ESTATES, LLC, RAY PERSIA AND PERSIA HOMES, INC. AGAINST BOGEY'S PAVING BELOW SHOULD BE AFFIRMED AS NO GENUINE ISSUES OF MATERIAL FACT EXIST AS TO THE LACK OF LIABILITY OF THESE PARTIES TO BOGEY'S PAVING.

In its cross-appeal, Commerce argues the following:

POINT I

THE TRIAL COURT ERRED BY CONCLUDING THAT, AS A MATTER OF LAW, CIS OWED A COMMON LAW DUTY TO PLAINTIFF TO INVESTIGATE FAS AS A THIRD-PARTY ADMINISTRATOR OF FUNDS.

A. CIS FULFILLED ITS DUTY AS A SURETY BOND BROKER BY OBTAINING AN APPROPRIATE BOND THAT PROTECTED THE OBLIGEE IN THE EVENT OF A DEFAULT BY THE PRINCIPAL, US ESTATES.

B. CIS OWED NO DUTY TO INVESTIGATE, APPROVE OR SELECT THE FUNDS ADMINISTRATOR TO HANDLE THE ESCROW FUNDS.

C. CIS OWED NO DUTY TO ENSURE THAT THE SURETY-APPROVED FUNDS ADMINISTRATOR PROPERLY HANDLED THE ESCROW.

POINT II

THE TRIAL COURT PROPERLY CONCLUDED THAT CIS NEITHER BREACHED ITS DUTY NOR WAS THE PROXIMATE CAUSE OF ANY ALLEGED HARM.

When reviewing a grant of summary judgment, we employ the same standards used by the trial court, which grants summary judgment if the record shows that "there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c). Burnett v. Gloucester County Bd. of Chosen Freeholders, 409 N.J. Super. 219, 228 (App. Div. 2009); Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). First, we determine whether the moving party has demonstrated that there are no genuine disputes as to material facts, and then we decide whether the motion judge's application of the law was correct. Atl. Mut. Ins. Co. v. Hillside Bottling Co., 387 N.J. Super. 224, 230-31, (App. Div.), certif. denied, 189 N.J. 104 (2006). In so doing, we view the evidence in a light most favorable to the non-moving party. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523 (1995). We review issues of law de novo and accord no deference to the motion judge's conclusions on issues of law. Zabilowicz v. Kelsey, 200 N.J. 507, 512-13 (2009).

I.

We turn first to the summary judgment order that denied summary judgment to Bogey's and dismissed Bogey's complaint against the U.S. Estates defendants with prejudice.

In granting summary judgment to the U.S. Estates defendants, the trial court concluded that U.S. Estates and Bogey's entered into and were bound by the FAS Agreement. The court stated "that U.S. Estates paid the full amount in and that [Bogey's] agreed by way of this agreement that he would expect the money and receive it from Funds Administration Services, that they insulate U.S. Estates and in fact they're bound by it." The court rejected Bogey's argument that a factual dispute existed as to whether the person who signed the FAS Agreement was authorized to do so on behalf of Bogey's. In addressing the issue of personal liability regarding Ray Persia, the court stated that U.S. Estates, a corporation, was "the signatory" and "the contractor" as grounds for dismissing the complaint against Ray Persia personally. However, in reaching these conclusions the trial court relied upon erroneous assumptions regarding the evidence and the law.

In deciding U.S. Estates' motion, the trial court was required to view the evidence in a light most favorable to Bogey's. See Brill, supra, 142 N.J. at 523.

As a preliminary matter, Bogey's disputed that it was bound by the terms of the FAS Agreement. Donald Bogey testified that Jim DeLorenzo was a pipe foreman and was not authorized to execute a contract binding Bogey's. This unrefuted testimony would allow a jury to conclude that Bogey's was not a party to the FAS Agreement and not bound by its terms, and therefore created a genuine issue of fact.

Bogey's claim was presented as a book account, based upon its contract with Ray Persia, seeking the contract amount of $280,000. While it is true that U.S. Estates was the signatory to the FAS Agreement, the contract for the work to be performed by Bogey's was executed by Ray Persia. Therefore, U.S. Estates was not a party to the document that created the contractual relationship, rights and obligations between Bogey's and the contractor for the project. The only business entity mentioned on that document is "Persha [sic] Homes," which is not identified in any way as a corporation. This evidence presented a genuine issue of fact as to Persia's exposure to personal liability.

The FAS Agreement does not address the fact that the actual contract for the work performed was between Bogey's and Ray Persia, not U.S. Estates. In fact, to the extent that any language in the FAS Agreement may be considered to affect whether the obligations under the previous contract survived, language in ¶ 4.1.0 suggests that the obligations were unaffected.

Subcontractor... acknowledges that... Funds Administrator... shall in no way be construed to interfere with Subcontractor's business, any agreement, written or oral, Subcontractor may enter into in connection with the Contract....

[(Emphasis added).]

There is also no language in the FAS Agreement that limits Bogey's right to recover for payments due under the contract to the funds deposited in the Funds Administration Account. As noted earlier, the purpose of the performance bond was to guarantee performance to the Township, not payment to any subcontractor. See K. Woodmere Assocs., L.P. v. Menk Corp., 316 N.J. Super. 306, 318 (App. Div. 1998); N.J.S.A. 40:55D-53.

Even putting aside the language of the contract and the FAS Agreement, the conduct of the parties strongly suggests that the obligation to pay Bogey's was not limited to funds disbursed pursuant to the FAS Agreement. There is no evidence that Bogey's received any payments from FAS pursuant to the FAS Agreement. In contrast, as noted earlier, Bogey's received two payments of $10,000 each directly from U.S. Estates and Persia Homes in 2006, long after the FAS Agreement was executed and even after the FAS bankruptcy.

These undisputed facts in the record supported inferences that Bogey's had a right to collect payment on the contract directly from Ray Persia and that the obligations to pay Bogey's were not limited to disbursements made pursuant to the FAS Agreement. These were genuine issues of fact that precluded summary judgment to the U.S. Estates defendants and the dismissal of Bogey's complaint. We agree, however, that summary judgment was properly denied to Bogey's because the evidence reveals a disputed fact as to the amount of money owed to Bogey's.

II.

We next consider the order that granted summary judgment to Commerce.

In its First Amended Complaint, U.S. Estates alleged the following causes of action against its broker, Commerce: breach of contract, based upon an alleged "escrow contract;" negligence, based upon alleged failures to adequately investigate its escrow arrangement with FAS and/or to adequately investigate the financial condition of FAS; breach of fiduciary duty, based upon the same alleged failures, and unconscionable business practices, based upon Commerce's alleged knowledge that FAS was insolvent. In the expert report he submitted on behalf of U.S. Estates, Armando Castellini opined that Commerce breached a duty to provide U.S. Estates with alternatives to a surety bond; that Commerce "was responsible for and participated in the spiriting away of the monies of U.S. Estates" and the placement of those funds with FAS, the financial condition of which Commerce failed to investigate. In setting forth the factual premise for his opinions, Castellini stated that U.S. Estates had deposited "escrow monies" in Commerce Bank (the bank), which properly held the money and is not a party to this action.

The trial court agreed with U.S. Estates that Commerce owed a duty to investigate the ability of FAS to act as a third-party administrator of the funds, stating that if the jury found that Commerce was "the real escrow agent," its duty would be the same as that of an escrow agent. Nonetheless, the court granted summary judgment to Commerce, finding that, because there was no evidence that FAS's problems would have been revealed by such investigation, the proof of proximate cause was insufficient.

We agree that it was appropriate to grant summary judgment to Commerce, but for different reasons that those articulated by the trial court.

It is undisputed that the account opened by U.S. Estates at the bank was not an escrow account but a business account and that Commerce acted as a broker and not an escrow agent at all times. Therefore, there was no competent, credible evidence to support a finding that Commerce had a duty to U.S. Estates based upon its purported status as the holder of escrowed funds (deposited with the bank).

The only evidence U.S. Estates submitted of a breach of duty by Commerce was Armando Castellini's expert report. However, it is well established that a party may not defeat summary judgment merely by submitting an expert's report in his or her favor that relies on erroneous or nonexistent facts. Brill, supra, 142 N.J. at 540. Indeed, the Supreme Court described such a report as "worthless." Ibid.

Here, Castellini's opinion that Commerce acted negligently in the handling of "escrowed" funds relied upon an erroneous factual assumption. Moreover, although Castellini opined that Commerce breached a duty in failing to seek a means other than surety bonding to satisfy the Planning Board's requirements, he identified no facts in the record to support his conclusory statement that such alternatives, satisfactory to the Planning Board, existed. Without such factual support, Castellini's opinion that U.S. Estates was damaged by Commerce's alleged breach of a duty to investigate alternatives amounts to no more than "mere 'conjecture, surmise or suspicion,'" which is insufficient to create a genuine issue of fact as to proximate cause. 2175 Lemoine Ave. Corp. v. Finco, Inc., 272 N.J. Super. 478, 488 (App. Div.), certif. denied, 137 N.J. 311 (1994). See also Froom v. Perel, 377 N.J. Super. 298, 315 (App. Div.), certif. denied, 185 N.J. 267 (2005).

In short, Castellini's opinion is worthless to create a genuine issue of fact as to duty, breach of that duty and proximate causation. Summary judgment was properly granted to Commerce.

III.

The cause of action alleged by U.S. Estates against American Safety was breach of contract. In granting summary judgment to American Safety, the trial court observed that the purpose of the bond it executed was to guarantee that the project would be completed, not to protect U.S. Estates from financial loss. The court apparently concluded that, because there was no guarantee of payment to subcontractors, American Safety did not breach a contract with U.S. Estates. The court did not address whether FAS was the agent of American Safety, resulting in liability for American Safety.

The court also considered "the issue of negligence." The court found that, although American Safety required an approved funds administrator, it did not require the exclusive use of FAS. The court found that American Safety assumed an obligation to investigate, but not to guarantee, the financial soundness of FAS. Finding no evidence that the exercise of due diligence would have revealed any issues as to FAS's financial unsoundness, the court concluded that there was a failure of proof as to proximate cause.

On appeal, U.S. Estates argues that the court erred in failing to hold American Safety liable for the acts of FAS on agency principles. American Safety denies that FAS was its agent. It argues further that, in any event, FAS acted contrary to American Safety's interests when it used the funds for purposes unrelated to the bond issued by American Safety.

"An agency relationship is created when one party consents to have another act on its behalf, with the principal controlling and directing the acts of the agent." Sears Mortgage Corp. v. Rose, 134 N.J. 326, 337 (1993). Neither a formal principal-agency agreement nor direct control of principal over agent is absolutely necessary for liability to be imposed upon the principal. Id. at 337-38; Mercer v. Weyerhaeuser Co., 324 N.J. Super. 290, 318 (App. Div. 1999). The court must examine the totality of the circumstances, looking to the parties' "conduct and not to their intent or their words as between themselves but to their factual relation" to determine whether an agency relationship existed, even where there is no formal agreement or direct control. Sears, supra, 134 N.J. at 337; see Mercer, supra, 324 N.J. Super. at 318. Liability may be imposed on the principal based upon "apparent authority" when "the principal's actions have misled a third-party into believing that a relationship of authority in fact exists." Mercer, supra, 324 N.J. Super. at 317. Such authority may be "inferred from the nature or extent of the function to be performed, the general course of conducting the business, or from particular circumstances in the case." Sears, supra, 134 N.J. at 338.

To satisfy its burden of establishing the apparent authority and the agency relationship, a party must establish: "(1) that the appearance of authority has been created by the conduct of the alleged principal and it cannot be established 'alone and solely by proof of [conduct by] the supposed agent,' (2) that a third party has relied on the agent's apparent authority to act for a principal, and (3) that the reliance was reasonable under the circumstances." Mercer, supra, 324 N.J. Super. at 318 (citations ommitted). Therefore, the trial court was required to determine whether the evidence, considered with all legitimate inferences in favor of U.S. Estates, presented a genuine issue of fact as to each of these elements.

In Sears, supra, 134 N.J. at 344-45, the Supreme Court found "sufficient indicia of [the title insurer's] control over [the closing attorney] to support an agency relationship," and noted that "the insurer's control over the closing attorney is implicit in the status of that attorney as an approved attorney of the carrier."*fn5 Here, aside from FAS's undisputed status as a funds administrator approved by American Safety, there is additional evidence to support an inference of apparent authority. It is undisputed that, in order to obtain the bond required by the Township from American Safety, U.S. Estates had to forward all funds due under the subcontract with Bogey's to a funds administrator approved by American Safety and to cede all control over such funds and their disbursement to that administrator. Although American Safety was not a party to the FAS Agreement, its interests as "Surety" were protected by the delegation of control over the funds and disbursements to FAS. Moreover, in the event of a default by Bogey's or conflicting demands regarding the contract funds, the authority to control disbursements reverted to American Safety. Pursuant to ¶ 6.2.0, disbursements under such circumstances were to be made "only with the written consent of Surety." American Safety retained the right to inspect FAS records of contract funds received and disbursed, ¶ 8.2.0, and to request evidence from FAS of insurance coverage for errors and omissions and "fidelity type insurance protecting itself from acts of dishonesty, intentional fraud and criminal or malicious acts relating to its performance of its obligations pursuant to [the FAS] Agreement," ¶ 8.4.0. The fact that FAS acted in a manner contrary to American Safety's interests in misappropriating the funds does not necessarily defeat the imposition of liability upon American Safety. See Restatement (Second) of Agency § 216, comment 1 (1958).

When viewed with all legitimate inferences drawn in favor of U.S. Estates, this evidence created a genuine issue of fact as to whether there was apparent authority that FAS acted as American Safety's agent; that U.S. Estates relied upon that authority to act for American Safety; and that it was reasonable for U.S. Estates to do so. We therefore conclude that summary judgment was erroneously granted and reverse the order dismissing the complaint of U.S. Estates against American Safety.

In summary, we affirm the denial of summary judgment to Bogey's and the grant of summary judgment to Commerce and reverse the orders granting summary judgment to the American Safety and U.S. Estates defendants.


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