April 20, 2012
BLEZNAK BLACK, LLC, PLAINTIFF-APPELLANT/ CROSS-RESPONDENT,
ALLIED WORLD NATIONAL ASSURANCE COMPANY, WESTCHESTER SURPLUS LINES INSURANCE COMPANY, UNITED STATES FIRE INSURANCE COMPANY, AND AXIS SURPLUS INSURANCE COMPANY, DEFENDANTS-RESPONDENTS/ CROSS-APPELLANTS.
On appeal from the Superior Court of New Jersey, Law Division, Camden County, Docket No. L-3663-09.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued November 7, 2011
Before Judges Parrillo, Alvarez and Skillman.
Plaintiff Bleznak Black (BB), an estate planning investment entity formed in Delaware as a Limited Liability Company, filed suit against certain insurers seeking to compel coverage for losses incurred as a result of Bernie Madoff's investment fraud.*fn1
Madoff's plea of guilt to fraud was made on March 12, 2009, and requires no further explanation here. Plaintiff's complaint demanded compensation for Madoff's crimes "in an amount exceeding [f]ifteen [m]illion [d]ollars . . . ." Defendants Allied World National Assurance Company (Allied), Westchester Surplus Lines Insurance Company (Westchester), United States Fire Insurance Company (U.S. Fire), and Axis Surplus Insurance Company (Axis) were granted summary judgment dismissing plaintiff's complaint on July 23, 2010. Plaintiff appeals and defendants cross-appeal. We affirm the grant of summary judgment.
The Bleznak Organization, with which BB is associated, participates in the Western Consolidated Premium Properties I (WCPPI) Insurance Program. WCPPI "is a licensed risk-purchasing group for primarily habitational and commercial real property locations." It purchased property insurance from defendants for the June 30, 2008 to June 30, 2009 policy period.*fn2 This is the time frame in which plaintiff alleges Madoff engaged in his thefts of BB's account.
Allied extended coverage up to the first $5,000,000 in claims. U.S. Fire provided $5,000,000 of excess insurance over that available through the Allied policy. Westchester and Axis extended portions of an additional $25,000,000 in additional excess coverage. The Westchester and Axis policies followed the form of the Allied and U.S. Fire policies, in other words, they "expressly limit[ed] the reinsurance to the terms and conditions of the underlying policy and provide[d] that the reinsurance certificate will cover only the kinds of liability covered in the original policy . . . . [A] 'follow the form' [provision] emphasizes ab initio that the scope of the reinsurer's undertaking is not broader (or narrower) than that of the ceding insurer." 14 Eric Mills Holmes & L. Anthony Sutin, Holmes' Appleman on Insurance § 106.2 (2d ed. 2000) (internal quotation omitted).
The Allied policy "insures against all risk of direct physical loss of or damage to property described herein . . . except as hereinafter excluded." It excludes the loss of money or securities; it does not define "money." Securities are defined as: "[A]ll negotiable and nonnegotiable instruments or contracts representing either money or other property, and includes revenue and other stamps in current use, tokens, and tickets but does not include money."
The U.S. Fire policy limits coverage to claims in which "the [p]rimary and/or [u]nderlying [p]olicies [i.e. the Allied policy] shall have admitted liability for the [p]rimary and/or
[u]nderlying [p]olicy [l]imit or [l]imits." Additionally, in a section titled "Fidelity Exclusion[,]" the U.S. Fire policy excludes losses incurred as a result of conduct falling within a fidelity exclusion quoted later in this opinion.
BB's complaint alleges breach of contract and demands a declaratory judgment compelling coverage on the part of all the named defendants. BB contends that Madoff did not steal money or securities as defined in the policies, but rather merely an "account" valued at $16,308,936.
In their motion for summary judgment, defendants asserted that BB was not an insured on the policies, did not sustain a loss, and did not sustain a loss to covered property. U.S. Fire also argued that the fidelity exclusion in its policy barred BB's claim.
In defending the motion, BB contended that the definition of money is limited to literal "cash and coin[,]" which does not include an investment account. BB also argued that the securities exclusion did not apply because Madoff never actually purchased any securities. Additionally, it argued that "account" should be understood as "represent[ing] a promise by the bank that it will give you the fund[s] . . . ."
The Law Division judge granted defendants' motion for summary judgment on separate grounds. On U.S. Fire's application, summary judgment was granted based on the fidelity loss exclusion. As to the remaining defendants, the application was granted because "accounts are nothing other than the money therein, and it's excluded."
BB raises the following issues on appeal:
A. The trial court's holding that this was a theft of "money" as opposed to "an account" was error and directly contrary to the express definition of "money" in one of the policies.
1. As long as the insured's interpretation of the Policies is reasonable, the insured's interpretation must be adopted.
2. Plaintiff Sustained a Loss to Covered Property.
a. It is reasonable to interpret the term "personal property" to include intangible property.
b. It is reasonable to interpret the term "physical loss" as encompassing intangible property.
B. This was a Theft of an Account not Barred by Any Policy Exclusions.
1. The Money and Securities Exclusions Do Not Bar Plaintiff's Claim.
2. The Fidelity Exclusion Does Not Bar Plaintiff's Claim.
We conclude these arguments lack merit and affirm essentially for the reasons stated by the trial judge with the following brief comments.
In reviewing a grant of summary judgment, we employ the same standards as the motion court, and ask if "the moving party has demonstrated there were no genuine disputes as to material facts." Whitfield v. Bonanno Real Estate Grp., 419 N.J. Super. 547, 551 (App. Div. 2011). The trial court's conclusions of law, however, are reviewed de novo. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). Summary judgment is appropriate if the evidence presented "show[s] 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).
Furthermore, insurance coverage issues raise questions of law which we interpret de novo, without deference to the trial court's determination. Ohio Cas. Ins. Co. v. Island Pool & Spa, Inc., 418 N.J. Super. 162, 168 (App. Div.), certif. denied, 206 N.J. 329 (2011); see also Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). "The interpretation of an insurance contract is a question of law for the court to determine, and can be resolved on summary judgment." Adron, Inc. v. Home Ins. Co., 292 N.J. Super. 463, 473 (App. Div. 1996).
Ordinarily it is the insured who bears "the burden 'to bring the claim within the basic terms of the policy.'" S.T. Hudson Eng'rs, Inc. v. Pa. Nat'l Mut. Cas. Co., 388 N.J. Super. 592, 603 (App. Div. 2006) (quoting Reliance Ins. Co. v. Armstrong World Indus., Inc., 292 N.J. Super. 365, 377 (App. Div. 1996)), certif. denied, 189 N.J. 647 (2007). Conversely, "[w]here an insurer claims the matter in dispute falls within exclusionary provisions of the policy, it bears the burden of establishing that claim." Ibid.
As BB points out, when the language in an insurance policy supports two reasonable meanings, courts will usually apply the interpretation mandating coverage. Ibid. And policies are read "to find a reasonable meaning in keeping with the express general purposes of the policies." Id. at 604 (quoting Royal Ins. Co. v. Rutgers Cas. Ins. Co., 271 N.J. Super. 409, 416 (App. Div. 1994)). But as the Law Division judge observed, it is not reasonable to suggest that the terms "money" or "securities" do not encompass the accounts Madoff managed.
Because the terms at issue are so unambiguous, it is unnecessary to "engage in a strained construction" of the policy terms. Progressive Cas. Ins. v. Hurley, 166 N.J. 260, 273 (2001). "[T]he rule that contracts of insurance will be construed in favor of the insured and most strongly against the insurer should not be permitted to have the effect of making a plain agreement ambiguous and then construing it in favor of the insured." Petronzio v. Brayda, 138 N.J. Super. 70, 75 (App. Div. 1975) (quoting Rew v. Beneficial Standard Life Ins. Co., 41 Wash. 2d 577, 582 (1952)). The plain language of the policies excludes plaintiff's claim, and we will not create an ambiguity where none exists.
The Law Division judge's interpretation of the fidelity exclusion was also correct. The U.S. Fire policy exempts from coverage: any fraudulent or dishonest act or acts, intended to result in financial gain, committed alone or in collusion with others: regardless of any other cause or event contributing concurrently or in any other sequence to the loss;
2) by any proprietor, partner, director, trustee, or officer of any proprietorship, partnership, corporation or association (other than a common carrier) engaged by the
[i]nsured to render any service or perform any act in connection with property insured under this [p]olicy. [(Emphasis added).]
Madoff had access to BB's funds because he was engaged by BB "to render [a] service or perform [an] act in connection with property insured under this [p]olicy." The fidelity exclusion unambiguously excludes Madoff's fraudulent and dishonest acts. BB engaged BLMIS, a corporation, to render services with regard to the account, and Madoff, the company's chief financial officer, engaged in nothing but fraudulent or dishonest acts in relation to the account.
Defendants cross-appealed on the basis that the Law Division judge erred by not granting summary judgment on additional grounds. Because we have affirmed on the same grounds as the Law Division judge, we do not address these arguments.*fn3