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NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
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 ...