Morris James LLP v. Continental Casualty Company

Filing 32

MEMORANDUM OPINION. Signed by Judge Sue L. Robinson on 3/12/2013. (nmfn)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

MORRIS JAMES LLP,
Plaintiff,

v.
CONTINENTAL CASUALTY
COMPANY,
Defendant.

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) Civ. No. 11-19-SLR
)
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Edward M. McNally, Esquire, Mary B. Matterer, Esquire, and Corinne Elise Amato,
Esquire of Morris James LLP, Wilmington, Delaware. Counsel for Plaintiff.
Paul Cottrell, Esquire, and Melissa L. Rhoads, Esquire of Tighe & Cottrell, Wilmington,
Delaware. Counsel for Defendant. Of Counsel: Edward M. Napierkowski, Esquire of
Colliau Elenius Murphy Carluccio Keener & Morrow.

MEMORANDUM OPINION

Dated: March IJ- , 2013
Wilmington, Delaware

~.

istrict Judge

I. INTRODUCTION

This case features a law firm as the unfortunate victim of a scam in which it lost
$176,750. The law firm, Morris James LLP ("plaintiff'), now seeks to recover the money
under the provisions of an insurance policy ("the Policy") issued to it by Continental
Casualty Company ("defendant"). Plaintiff originally filed its complaint against
defendant on November 30, 2010 in the Superior Court of the State of Delaware in and
for Kent County. (D.I. 21, ex. A) On January 6, 2011, defendant filed a notice of
removal pursuant to 28 U.S.C. §§ 1441 and 1446, bringing the case before this court.
(D.I. 1) Defendant filed its answer on January 11, 2011. (D.I. 5) On April 11, 2012,
following an initial status conference, the court stayed discovery and set a briefing
schedule for summary judgment. (D. I. 17) Currently before the court are the parties'
cross-motions for summary judgment. (D.I. 20, 22) The court has jurisdiction over this
matter pursuant to 28 U.S.C. § 1332(a)(1 ).
II. BACKGROUND
A. The Parties

Plaintiff is a limited partnership organized in Delaware with a principal place of
business in Delaware. (D. I. 1 at~ 6) Defendant is a corporation organized in Illinois,
with a principal place of business in Illinois. (/d.

at~

$176,750, which the plaintiff lost in the scam. (/d.

5) The amount in controversy is

at~

3)

B. The Scam

In June 2010, plaintiff was approached by a foreign company calling itself Esa
Corporation Group Oyj ("Esa") for assistance with collecting a debt allegedly owed by a

Delaware entity, 8&8 Industries ("8&8"), under a sales agreement. (D.I. 21, ex. A at 1f
4; D.l. 24, ex. 2 at CCC149) Plaintiff believed both entities to be involved in the steel
industry. (D.I. 24, ex. 2 at CCC149) Esa signed an engagement letter with plaintiff and
also provided plaintiff with a copy of the purported sales agreement regarding the
products sold and the outstanding debt. (D. I. 21, ex. A at 1f 5; D. I. 24, ex. 2 at CCC149)
On July 7, 2010, Esa informed plaintiff that 8&8 had agreed to a settlement of
the debt in order to avoid litigation. (D.I. 21, ex. A at 1f 6; D.l. 24, ex. 2 at CCC149) On
July 13, 201 0, Esa notified plaintiff that 8&8 had made a partial payment toward the
settlement. (D.I. 24, ex. 2 at CCC149) Plaintiff then received what appeared to be a
cashier's check drawn on Citibank in the amount of $195,495 ("the purported check").
(D.I. 21, ex. A at 1f 6) The purported check included all of the identifying marks of a
valid Citibank cashier's check, including an "Official Check" notation and branch and
teller numbers. (D.I. 24, ex. 2 at CCC149 & ex. 3) On July 20, 2010, plaintiff deposited
the purported check to its account. (D.I. 21, ex. A at 1f 7) Of the $195,495, Esa
instructed plaintiff to keep certain funds as compensation for legal services and to
transfer $176,750 to an account in Japan to pay a Japanese company for products sold
to Esa. (/d., ex. A at 1f 6; D.l. 24, ex. 2 at CCC149) On July 20, 2010, finding no issues
with the purported check, plaintiff followed Esa's instructions and authorized a wire
transfer of $176,750 to the Japanese account. (D.I. 21, ex. A at 1f 8) The money was
released to the holder of the Japanese account on July 21, 2010. (/d., ex. C) On July
22, 2010, the purported check was returned by Citibank to plaintiff's bank as
"altered/fictitious" and "counterfeit." (D.I. 24, ex. 4; D.l. 27, ex. K) Plaintiff received the
voided purported check by mail on July 26, 2010. (D.I. 24, ex. 2 at CCC149) Although

2

plaintiff has attempted to recover its lost funds through various means, those attempts
have thus far proven fruitless. (D. I. 21, ex. A at 1l11; D.l. 24, ex. 2 at CCC149-50)
C. Plaintiff's Insurance Claim
The Policy was in effect at the time of plaintiff's loss. (0.1. 24, ex. 1 at CCC5)
On August 16, 2010, plaintiff submitted a property loss notice to defendant, describing
the loss as a "fraudulent check scheme" and attaching a letter describing the facts
surrounding the loss. 1 (D. I. 21, exs. B & C) On September 29, 2010, defendant notified
plaintiff of its position that the Policy did not provide coverage for the loss. (D.I. 24, ex.
5) Plaintiff then filed this suit against defendant on November 30, 2010. (D.I. 21, ex. A)
D. The Policy
The main portion of the Policy ("the main Policy") is titled "Businessowners
Special Property Coverage Form." (D.I. 24, ex. 1 at CCC13) Section A of the main
Policy provides the scope of coverage, which reads in relevant part:
A. COVERAGE
We will pay for direct physical loss of or damage to Covered Property at
the premises described in the Declarations caused by or resulting from a
Covered Cause of Loss.
1 . Covered Property
Covered Property includes ... Business Personal Property as
described under b. below ... .
b. Business Personal Property located in or on the
buildings at the described premises or in the open (or in a
vehicle) within 1,000 feet of the described premises,
including:
(6) Your "money and securities"

1

The parties do not dispute the contents of the Policy or that plaintiff paid the
premiums. (D.I. 23 at 5)

3

5. Additional Coverages
Additional coverages may be attached to this Policy (designation
would appear in the attached form(s)). Unless otherwise stated,
payments made under these Additional Coverages are in addition
to the applicable Limits of Insurance.
(/d., ex. 1 at CCC13-15) Pursuant to paragraph A.5, the Policy includes additional

coverages in the form of attached endorsements. (See id., ex. 1 at CCC35-51) One
such endorsement is entitled "FORGERY AND ALTERATION" (the "Forgery and
Alteration Endorsement"). (/d., ex. 1 at CCC43) This endorsement is listed in the
Forms and Endorsements Schedule as being part of the Policy. (/d., ex. 1 at CCC1) It
provides, in relevant part:
1. We will pay for loss resulting directly from "forgery" or alteration of checks,
drafts, promissory notes, or similar written promises, orders or directions to pay a
sum certain in money that are made or drawn by one acting as an agent or
purported to have been so made or drawn.
(/d., ex. 1 at CCC43) The Forgery and Alteration Endorsement has a limit of $250,000
in addition to the applicable limits of coverage provided elsewhere by the Policy. (/d.,
ex. 1 at CCC6)
The Policy also states, in paragraph A.3, that the covered causes of loss are
"risks of direct physical loss" unless a loss is, inter alia, "excluded in section B.
EXCLUSIONS." Relevant to the instance case is an exclusion under section B for
losses caused by false pretenses ("the False Pretense Exclusion"), which provides:
2. We will not pay for loss or damage caused by or resulting from any of
the following:
j. False Pretense
Voluntary parting with any property by you or anyone else to whom
you have entrusted the property if induced to do so by any
fraudulent scheme, trick, device or false pretense.

4

(/d., ex. 1 at CCC18-19)

Ill. STANDARD OF REVIEW
"The court shall grant summary judgment if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law." Fed. R. Civ. P. 56( a). The moving party bears the burden of
demonstrating the absence of a genuine issue of material fact. Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 415 U.S. 574, 586 n.10 (1986). A party asserting that a fact
cannot be- or, alternatively, is - genuinely disputed must demonstrate such, either by
citing to "particular parts of materials in the record, including depositions, documents,
electronically stored information, affidavits or declarations, stipulations (including those
made for the purposes of the motions only), admissions, interrogatory answers, or other
materials," or by "showing that the materials cited do not establish the absence or
presence of a genuine dispute, or that an adverse party cannot produce admissible
evidence to support the fact." Fed. R. Civ. P. 56(c)(1 )(A) & (B). If the moving party has
carried its burden, the nonmovant must then "come forward with specific facts showing
that there is a genuine issue for trial." Matsushita, 415 U.S. at 587 (internal quotation
marks omitted). The court will "draw all reasonable inferences in favor of the
nonmoving party, and it may not make credibility determinations or weigh the evidence."
Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000).
To defeat a motion for summary judgment, the non-moving party must "do more
than simply show that there is some metaphysical doubt as to the material facts."

Matsushita, 475 U.S. at 586-87; see a/so Podohnik v. U.S. Postal Serv., 409 F.3d 584,

5

594 (3d Cir. 2005) (stating party opposing summary judgment "must present more than
just bare assertions, conclusory allegations or suspicions to show the existence of a
genuine issue") (internal quotation marks omitted). Although the "mere existence of
some alleged factual dispute between the parties will not defeat an otherwise properly
supported motion for summary judgment," a factual dispute is genuine where "the
evidence is such that a reasonable jury could return a verdict for the nonmoving party."
Anderson v. Liberty Lobby, Inc., 411 U.S. 242,247-48 (1986). "If the evidence is
merely colorable, or is not significantly probative, summary judgment may be granted."
/d. at 249-50 (internal citations omitted); see a/so Celotex Corp. v. Catrett, 411 U.S.
317, 322 (1986) (stating entry of summary judgment is mandated "against a party who
fails to make a showing sufficient to establish the existence of an element essential to
that party's case, and on which that party will bear the burden of proof at trial").

IV. DISCUSSION
The material facts surrounding plaintiff's loss are undisputed, and the parties
agree that Delaware law applies. (D.I. 23 at 8; D.l. 29 at 2-3) Delaware law treats the
construction of an insurance contract as a question of law. Travelers lndem. Co. v.
Lake, 594 A.2d 38, 40 (Del. 1991 ). "Because an insurance policy is an adhesion
contract and is not generally the result of arms-length negotiation, courts have
developed rules of construction which differ from those applied to most other contracts."
Hallowell v. State Farm Mut. Auto. Ins. Co., 443 A.2d 925, 926 (Del. 1982). The court
must read the insurance contract as a whole, give effect to all provisions therein, and
interpret the terms in a common sense manner. See JFE Steel Corp. v. /CI Americas,

6

Inc., 797 F. Supp. 2d 452, 469 (D. Del. 2011); Penn Mut. Life Ins. Co. v. Oglesby, 695
A.2d 1146, 1149, 1151 (Del. 1997). When the language of an insurance contract is
ambiguous, the court should construe the contract in favor of the insured because the
"insurer or the issuer, as the case may be, is the entity in control of the process of
articulating the terms." Oglesby, 695 A.2d at 1149-50; see a/so Axis Reinsurance Co.
v. HLTH Corp., 993 A.2d 1057, 1062 (Del. 2010); Hallowell, 443 A.2d at 926. "An
insurance contract is ambiguous when the provisions in controversy are reasonably or
fairly susceptible to two different interpretations or may have two or more different
meanings." O'Brien v. Progressive N. Ins. Co., 784 A.2d 281, 288 (Del. 2001 ).
However, when the language is clear and unequivocal, the parties are bound by its
plain meaning. Hallowell, 443 A.2d at 926 ("[l]f the language is clear and unambiguous
a Delaware court will not destroy or twist the words under the guise of construing
them."); Laird v. Emp'rs Liab. Assur. Corp., 18 A.2d 861, 862 (Del. Super. 1941) ("[T]he
courts cannot change or ignore the language of a contract merely to avoid hardships or
to meet special circumstances against which the parties have not protected
themselves.").
The insured carries the burden of proving that a claim is covered by its insurance
policy. If the insured can show that its claim is covered, the burden then shifts to the
insurer to prove that the claim is not covered by the policy. State Farm Fire & Cas. Co.
v. Hackendorn, 605 A.3d 3, 7 (Del. Super. 1991) (citations omitted). Here, the
resolution of the cross-motions for summary judgment requires the court to construe, as
a matter of law, the language of the Policy's Forgery and Alteration Endorsement and

7

the False Pretense Exclusion ("the provisions"). The court finds that, while the terms of
each provision are clear and unambiguous, the Policy is ambiguous when the
provisions are read together.
A. Forgery and Alteration Endorsement

The Forgery and Alteration Endorsement covers (1) losses resulting directly from
(2) the forgery or alteration of (3) "checks, drafts, promissory notes, or similar written
promises, orders or directions" ("covered instruments") (4) to pay a sum certain (5) that
are "made or drawn by one acting as an agent or purported to have been so made or
drawn." (D. I. 24, ex. 1 at CCC43) Plaintiff contends that its loss of $176,750 satisfies
all of these criteria. 2 (0.1. 23 at 10-11) Defendant does not dispute that the loss was a
direct result of the scam. Nor does defendant dispute that the purported check was for
a sum certain and made or drawn by a scammer purporting to be an agent of Citibank.
However, defendant offers two arguments for why the Forgery and Alteration
Endorsement should not cover the loss. First, defendant contends that plaintiff "does
not know and thus cannot represent whether the signature on the counterfeit of the
check was forged." (0.1. 27 at 3) Second, defendant contends that the purported
check was not a covered instrument because it was a counterfeit check, not a forgery
or alteration of a valid check. (/d. at 2-3) There is no genuine dispute regarding the
facts underlying these arguments - plaintiff does not know the identify of the individual
who signed the purported check, and the purported check was a counterfeit. As such,
defendant's arguments regarding the nature of the purported check relate to
2

Piaintiff is not claiming as part of its loss any amount retained for its services or
any expenses incurred before the scam was discovered. (0.1. 23 at 11 n.4)

8

interpreting the contract to determine whether the terms of the Forgery and Alteration
Endorsement apply to plaintiff's loss.
The term "forgery" is defined in the Policy as "the signing of the name of another
person or organization with intent to deceive." (0.1. 24, ex. 1 at CCC30) (emphasis
added) This definition precludes coverage for an otherwise covered instrument that an
individual signs in his or her own name. (/d.) Central to the scam in the instant case
was the purported check's ability to deceive the victim and the banks involved long
enough for the victim to believe that the check had cleared and, under that impression,
to transfer money to the perpetrator. Because the identity of the scam mer is not
known, it is unclear whether the signature was a reproduction of the actual signature of
an agent authorized by Citibank to make bank checks or whether it was the signature of
a fictional individual. In any case, the court agrees with plaintiff that it is a virtual
certainty that whoever signed the purported check did not sign his or her own name. 3
Thus, the term "forgery" in the Forgery and Alteration Endorsement encompasses the
signature on the purported check. 4
Contrary to defendant's assertion, the purported check is a covered instrument

3

The scam mer would have every reason to avoid signing his or her real name on
the purported check. This is especially true in light of the sophisticated nature of the
scam. (See, e.g., 0.1. 21, ex. C) (noting that "[t]he FBI indicated that this appeared to
be a really ingenious scam, unlike any others in the area").
4

There is also no ambiguity in the term "alteration." In context, an alteration is an
unauthorized change or addition to a valid or incomplete instrument that purports to
modify in any respect the obligation of a party. See U.C.C. § 3-407. However, the facts
are insufficient for the court to determine whether the purported check was also an
"alteration" of a covered instrument. There is no indication of whether the purported
check was modified from an underlying valid or incomplete instrument.

9

under the terms of the Forgery and Alteration Endorsement. The language of the
provision covers, among other instruments, a forged check or written promise. The
general rule of negotiable instruments is that the validity of a check is dependent on the
genuineness of its signature, not the paper it is written on; therefore, a counterfeit check
-as defendant labels it- is equivalent to a forged check. See, e.g., Dorchester Fin.

Sec. v. Banco BRJ, S.A., No. 02 Civ. 7504, 2009 WL 5033954, at *3 (S.D.N.Y. Dec. 23,
2009) ("A counterfeit check is the equivalent of a forged check, i.e. a forgery of the
signature of the purported drawer." (citing RICHARD HAGEDORN & HENRY BAILEY, BRADY
ON BANK CHECKS: THE LAW OF BANK CHECKS~ 28.03 (rev. ed. 2012))); MBTA Emps.

Credit Union v. Emp'rs Mut. Liab. Ins. Co. of Wisconsin, 374 F. Supp. 1299, 1302 (D.
Mass. 1974) ("'Counterfeit' has no meaning in this context other than forged.").
Moreover, the purported check is a "written promiseD ... to pay a sum certain"
under the plain meaning of that phrase. It was signed by the scammer and, thus,
despite being unauthorized, there was an order to pay money signed by the person
giving the instruction. See U.C.C. § 3-403 ("Unless otherwise provided in this Article or
Article 4, an unauthorized signature is ineffective except as the signature of the
unauthorized signer in favor of a person who in good faith pays the instrument or takes
it for value."); see a/so Firstar Bank, N.A. v. Wells Fargo Bank, N.A., No. 02-C-186,
2004 WL 1323942, at *6 (N.D. Ill. June 14, 2004) ("The court sees no reason to draw a
distinction on grounds that the purported drawer was fictitious. The Check itself was a
written instruction to pay money."). Therefore, plaintiff's loss was the result of a forged
instrument within the clear and unambiguous meaning of the Forgery and Alteration

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Endorsement.
B. False Pretense Exclusion
Defendant points to the False Pretense Exclusion to argue that coverage of the
loss is excluded. The language of the False Pretense Exclusion is clear and
unambiguous. The plain meaning requires a "[v]oluntary parting" of property, induced
by "any fraudulent scheme, trick, device, or false pretense" ("fraud"). Plaintiff argues
that defendant attempts to read the False Pretense Exclusion in a vacuum or, in any
case, fails to establish that the exclusion applies to preclude coverage under the
Forgery and Alteration Endorsement. (D.I. 26 at 8-13) However, plaintiff does not
contest the meaning of the language in the False Pretense Exclusion itself. Therefore,
there is no serious dispute that, in addition to resulting from a forged instrument, the
scam was a fraud which induced plaintiff to voluntarily part with $176,750, within the
language of the False Pretense Exclusion.
C. The Effect of the Forgery and Alteration Endorsement on the Main
Policy
Because plaintiff's loss was the result of both a forged instrument and a
voluntary parting induced by fraud - two contributory causes - it falls within the plain
meaning of both the Forgery and Alteration Endorsement and the False Pretense
Exclusion. Thus, whether the loss is covered or excluded by the Policy hinges on which
provision is interpreted to prevail, or "trump," the other when the Policy is interpreted as
a whole. In attempting to give effect to both provisions, the parties submit different
constructions of the contract. Plaintiff avers that the proper interpretation of the
provisions together is to give effect to the False Pretense Exclusion, but not in the case
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of forged or altered instruments. (D.I. 23 at 13-14) In other words, plaintiff views the
Forgery and Alteration Endorsement as trumping the False Pretense Exclusion to the
extent they conflict: a loss attributable to a forged or altered instrument would be
covered, even if it would otherwise be excluded by the False Pretense Exclusion.
Defendant submits the opposite, such that a loss under the Forgery and Alteration
Endorsement is covered, but not when it is also due to a voluntary parting of money
induced by fraud. (D.I. 27 at 8) Put another way, defendant views the False Pretense
Exclusion as trumping the Forgery and Alteration Endorsement to the extent they
conflict: a loss due to a forged or altered instrument would not be covered if it also falls
under the False Pretense Exclusion. 5 In sum, the provisions themselves are clear and
unambiguous, as discussed supra, but the parties disagree as to how they should be
read in tandem.
"An insurance contract is not ambiguous simply because the parties do not agree
on its proper construction. Rather, a contract is ambiguous only when the provisions in
controversy are reasonably or fairly susceptible to different reasonable interpretations."
Axis Reinsurance, 993 A.2d at 1062 (footnote omitted). For the reasons below, the
provisions are ambiguous, or susceptible to different reasonable interpretations, when
read in tandem. In light of the purposes of the provisions, the language in the rest of
the contract, and the terms of other endorsements attached to the Policy, it is possible
that reasonable persons could differ as to the effect of the Forgery and Alteration

5

Defendant's motion for summary judgment only addresses the False Pretense
Exclusion and ignores the import of the Forgery and Alteration Endorsement. (D.I. 21)
Defendant offers its interpretation of the provisions together in its answering brief to
plaintiff's motion for summary judgment. (D.I. 27)
12

Endorsement on the main Policy. 6
The Delaware Supreme Court has found that, where an endorsement provision
and an exclusion provision "each have a distinct and independent purpose and
function," the provisions are not ambiguous when read together. Axis Reinsurance, 993
A.2d at 1062. Here, however, the Forgery and Alteration Endorsement and the False
Pretense Exclusion function to define the scope of coverage and, thus, serve the same
purpose and function. Section 8, delineating the Policy's exclusions, splits the
exclusions into two groups. There are twelve exclusions under the first group,
introduced by paragraph 8.1:
We will not pay for loss or damage caused directly or indirectly by any of
the following. Such loss or damage is excluded regardless of any other
cause or event that contributes concurrently or in any sequence to the
loss.
(D. I. 24, ex. 1 at CCC16) Meanwhile, the second group, consisting of seventeen
exclusions, is introduced by different language in paragraph 8.2:
We will not pay for loss or damage caused by or resulting from any of the
following.
(/d., ex. 1 at CCC18) The False Pretense Exclusion is listed in the second group, under

paragraph 8.2. On one hand, the difference in the language of paragraphs 8.1 and 8.2
may indicate a difference in the scope of the exclusions such that (1) the exclusions in
the first group (under paragraph 8.1) are excluded regardless of any other contributory

6

Contrary to plaintiff's contention, giving effect to the False Pretense Exclusion
would not render the Forgery and Alteration Endorsement to be "surplusage." (See D. I.
23 at 13) The False Pretense Exclusion would still preclude coverage for the voluntary
parting of property induced by fraud, where it was not also caused by a forged or
altered instrument (or other relevant additional coverage).
13

cause or event to a loss, while (2) the exclusions in the second group (under paragraph
8.2), including the False Pretense Exclusion, are subject to other contributory causes or
events that might provide coverage. On the other hand, one could just as easily
conclude, reasonably, that paragraph 8.2 uses even broader language to exclude
losses "caused by or resulting from" the listed exclusions or that losses due to the
second group of exclusions are typically not found in conjunction with any other
contributory causes. Thus, the language of paragraphs 8.1 and 8.2 does not provide
clear guidance for resolving the apparent conflict between the provisions.
The other endorsements attached to the Policy also contribute to the ambiguity
regarding the Forgery and Alteration Endorsement and the False Pretense Exclusion.
Some endorsements attached to the Policy explicitly set forth whether they are subject
to, or trumped by, certain exclusions in section B. For example, the endorsement
entitled "FINE ARTS" ("the Fine Arts Endorsement") provides that the exclusions in
paragraphs 8.1.b, 8.1.c, 8.1.d, B.1.f, B.1.g, 8.1.h., and B.2.g apply to the endorsement
but that "[n]o other exclusions in Paragraph B. Exclusions apply to this Additional
Coverage." (/d., ex. 1 at CCC40) Similarly, the endorsement entitled "ORDINANCE
OR LAW" ("the Ordinance or Law Endorsement") explicitly states that "Paragraph 8.1.a
does not apply to this Additional Coverage." 7 (/d., ex. 1 at CCC45) In contrast, the
Forgery and Alteration Endorsement is silent regarding the effect of any of the
Paragraph B exclusions. This silence does not unambiguously indicate whether the

7

Like the Forgery and Alteration Endorsement, the Fine Arts and Ordinance or
Law Endorsements both add coverage "under Paragraph A.5. Additional Coverage."
(0.1. 24, ex. 1 at CCC40, CCC45)
14

Forgery and Alteration Endorsement is subject to the False Pretense Exclusion or vice
versa.
Where the language of an insurance policy is ambiguous, as it is in the context
of the Forgery and Alteration Endorsement and the False Pretense Exclusion being
read in tandem, the contract should be interpreted in favor of the insured because the
insurer is in control of the process of articulating the terms. See Oglesby, 695 A.2d at
1149-50; Axis Reinsurance, 993 A.2d at 1062. Defendant was in a better position to
foresee that plaintiff might fall victim to scams such as the one at hand 8 and could have
used more explicit language to clearly and unequivocally express its intent. As such, it
should not be able to evade responsibility because of the ambiguity.
The Third Circuit, applying "general principles of insurance law as developed by
courts throughout the nation," has held that, where the language of an insurance policy
is ambiguous and the effect of an endorsement unclear, the endorsement "must be
given effect over the ... body of the policy to the extent that the body is in conflict with
the endorsement." 9 Buntin v. Cont'llns. Co., 593 F .2d 1201, 1204 n.3, 1205-07) This

8

Defendant has apparently processed claims similar to plaintiff's in the past. Tim
Hendel, a property claim manager for defendant, wrote in an email in August 2010 that
"[w]e've had many of these type [sic] of claims before with Atty's offices that receive
checks, take out their fees and pays [sic] someone else, only later to find out that the
check was 'fraudulent,' 'fictitious' or otherwise." (D.I. 23, ex. B) Such schemes were
also known about prior to 2010. (See D.l. 21, exs. G, H & I) For example, The Journal
of the Delaware State Bar Association published an article in November 2008, titled
"Are You Really Too Smart to be Scammed?: Internet Scams and Attorney Trust
Accounts," which described known instances of the type of scam perpetrated on
plaintiff. (!d., ex. G)
9

lt is unclear whether Delaware has explicitly adopted this principle for revolving
conflicts between an endorsement and the body of a main policy. Regardless, the rule
that ambiguity should be resolved in favor of the insured is sufficient to render plaintiff's
15

principle is especially true when it is more favorable to coverage. Accordingly, the rules
for construing ambiguous policy language favor coverage of plaintiff's loss.

V. CONCLUSION
For the foregoing reasons, the court denies defendant's motion for summary
judgment and grants plaintiff's motion for summary judgment. An appropriate order
shall issue.

loss covered.

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