ABCO Premium Finance, Inc. v. American International Group, Inc. et al
Filing
134
ORDER denying 47 Plaintiff's Motion for Summary Judgment; granting 70 Defendant U.S. Fire's Cross-Motion for Summary Judgment (see also 66 ); denying 88 Defendants' Motion to Strike ; denying 89 Defendants' Motion to Strike. Signed by Judge Robert N. Scola, Jr on 8/9/2012. (mmz)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 11-23020-CIV-SCOLA/BANDSTRA
ABCO PREMIUM FINANCE LLC
Plaintiff,
vs.
AMERICAN INTERNATIONAL
GROUP, INC., UNITED STATES
FIRE INSURANCE COMPANY,
and NATIONAL UNION FIRE
INSURANCE COMPANY OF
PITTSBURGH, PA,
Defendants.
_____________________________________/
ORDER DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
GRANTING U.S. FIRE’S CROSS-MOTION FOR SUMMARY JUDGMENT
THIS MATTER is before the Court on Plaintiff’s Motion for Summary Judgment
Against Defendant United States Fire Insurance Company (ECF No. 47) and Defendant United
States Fire Insurance Company’s (“U.S. Fire”) Cross-Motion for Summary Judgment (ECF No.
66). National Union Fire Insurance Company of Pittsburgh, PA (“National Union”) has also
filed a Response to Plaintiff’s Motion for Summary Judgment (ECF No. 64).
I. BACKGROUND
This action involves a coverage dispute arising out of a financial institution bond
(hereinafter, the “bond”) issued by Defendant U.S. Fire to Plaintiff ABCO Premium Finance
LLC (“ABCO”) and an Excess Insurance Policy (hereinafter, the “excess policy”) issued by
Defendants National Union Fire Insurance Company of Pittsburgh, Pa. (“National Union”) and
American Insurance Group (“AIG”) to ABCO.
“A financial institution bond is a type of fidelity bond that is designed to insure financial
institutions against fraudulent or unfaithful dealings by employees and certain outside parties
which could damage the institution. Insofar as the law applicable to [interpreting a financial
institution bond] is concerned, the bond is just another insurance policy.” Am. Cas. Co. of
1
Reading, Pa. v. Etowah Bank, 288 F.3d 1282, 1284 (11th Cir. 2002). “A financial institution
bond is essentially an insurance policy that indemnifies a bank for losses caused by dishonest
acts.” Hudson United Bank v. Progressive Cas. Ins. Co., 284 F. Supp. 2d 249, 252 (E.D. Pa.
2003).
The bond in the instant case provided ABCO up to $2 million in coverage for crime and
fidelity losses during the effective policy period of April 24, 2009 to April 24, 2010. The excess
policy followed the form of the bond and provided additional coverage up to $3 million
throughout the same period of time. The bond and excess policy were purchased by ABCO in
contemplation of a purchase agreement in which ownership of ABCO was transferred from Hub
International U.S. Holdings Inc. (“HUB”) to Fortun Holdings, Inc. (“Fortun”).
ABCO is an insurance premium financing company. The Seventh Circuit has provided a
digestible explanation of the mechanics of this industry in a case involving another insurance
premium financing company:
“In this role, [ABCO] provides loans to businesses that seek to finance the payment of their
annual insurance premiums. Typically, these businesses obtain financing from [ABCO]
through an independent insurance broker. More precisely, a business seeking insurance
coverage hires an independent insurance broker for a dual purpose; the broker not only
procures insurance coverage for the business but also obtains the necessary financing for this
purchase from an insurance premium finance company such as [ABCO].
If the broker and its business client select [ABCO] to finance the transaction, the parties
document the loan through a standardized finance agreement. To expedite the loan application
process, [ABCO] provides brokers with blank premium finance agreements as well as related
computer software. Using this material, the broker assists its business client in filling out the
loan agreement. Once the broker and client complete and sign the finance agreement, they
forward the document to [ABCO] which then must review and approve the application. Once
[ABCO] approves the loan, it disburses the loan amount to the broker who, in turn, pays the
insurance premium on behalf of its client.”
First Ins. Funding Corp. v. Fed. Ins. Co., 284 F.3d 799, 802 (7th Cir. 2002).
Around July 24, 2009, ABCO discovered that it had been a victim of a fraud scheme
perpetrated by an individual named Jose Vicente Peris (“Peris”) who was working for ABCO
under a Producer Agreement between ABCO and Insurance Force Corporation (“Insurance
Force”). Peris was the owner of Insurance Force. A central disagreement between the parties is
whether Peris can be considered an employee of ABCO or whether instead he was an insurance
broker for Insurance Force. Regardless of Peris’ classification, he had sufficient access to
2
ABCO’s blank premium finance agreements and its computer software to perpetuate a multimillion dollar fraud scheme.
As early as March 2007, Peris began submitting thousands of fraudulent premium
financing contracts to ABCO, each of which triggered a draft on ABCO’s account and into Peris’
own bank account at Bank of America. Peris handwrote his Bank of America account number
on each draft, which were then returned to ABCO. For each fraudulent contract Peris submitted,
he also made multiple, monthly loan re-payments to ABCO, ostensibly to give ABCO the
impression that the contracts were issued to real customers. All of these re-payments were drawn
from Peris’ Bank of America bank account. By the time the scheme was discovered in July 2009
by Hector Fortun, the managing member of ABCO, Peris had submitted over 3,000 fraudulent
contracts to ABCO totaling almost $7 million in losses.
As a result of Peris’ fraud, ABCO filed claims with Defendants seeking indemnification
under the bond and excess policy. When Defendants’ denied the claims, ABCO filed this suit
alleging claims for breach of contract and attorney’s fees. ABCO has now moved for summary
judgment against Defendant U.S. Fire, seeking summary judgment on its two claims and on U.S.
Fire’s eighteen affirmative defenses. U.S. Fire has opposed ABCO’s motion and moved for
cross-summary judgment. Defendant National Union has also filed its opposition to ABCO’s
motion for summary judgment (ECF No. 64).
II. LEGAL STANDARD – SUMMARY JUDGMENT
Summary judgment “shall be rendered forthwith if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to a judgment as a
matter of law.” Fed. R. Civ. P. 56(c). “[T]he plain language of Rule 56(c) mandates the entry of
summary judgment, after adequate time for discovery and upon motion, 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.” Celotex Corp. v. Catrett,
477 U.S. 317, 322 (1986).
“The moving party bears the initial burden to show the district court, by reference to
materials on file, that there are no genuine issues of material fact that should be decided at trial.
Only when that burden has been met does the burden shift to the non-moving party to
3
demonstrate that there is indeed a material issue of fact that precludes summary judgment.”
Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir. 1991). Rule 56(e) “requires the
nonmoving party to go beyond the pleadings and by her own affidavits, or by the ‘depositions,
answers to interrogatories, and admissions on file,’ designate ‘specific facts showing that there is
a genuine issue for trial.’” Celotex, 477 U.S. at 324. Thus, the nonmoving party “may not rest
upon the mere allegations or denials of his pleadings, but . . . must set forth specific facts
showing that there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248 (1986). The inferences drawn from the underlying facts must be viewed in the light most
favorable to the nonmoving party. Scott v. Harris, 550 U.S. 372, 378 (2007).
“By its very terms, this standard provides that the mere existence of some alleged factual
dispute between the parties will not defeat an otherwise properly supported motion for summary
judgment; the requirement is that there be no genuine issue of material fact.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 247-48 (1986). “A dispute about a material fact is a ‘genuine’ issue ‘if
the evidence is such that a reasonable jury could return a verdict for the nonmoving party.’”
Vozzcom, Inc. v. Great Am. Ins. Co. of N.Y., 666 F. Supp. 2d 1332, 1336 (S.D. Fla.
2009)(quoting Anderson, 477 U.S. at 248).
“Under Florida law, an insurance policy is treated like a contract, and therefore ordinary
contract principles govern the interpretation and construction of such a policy. As with all
contracts, the interpretation of an insurance contract is a question of law to be determined by the
court.” Fabricant v. Kemper Independence Ins. Co., 474 F. Supp. 2d 1328, 1330 (S.D. Fla.
2007)(citing Graber v. Clarendon Nat'l Ins. Co., 819 So. 2d 840, 842 (Fla. 4th DCA 2002)).
“Where . . . a contract is clear and unambiguous and does not involve any absurdities or
contradictions, it is the best evidence of the intent of the parties, and its meaning and legal effect
are questions of law for determination by the court alone.” Am. Medical Intern., Inc. v. Scheller,
462 So. 2d 1, 7 (Fla. 4th DCA 1984). “Florida law provides that insurance contracts are
construed in accordance with the plain language of the policies as bargained for by the parties.”
Auto-Owners Ins. Co. v. Anderson, 756 So.2d 29, 34 (Fla. 2000). Only in cases of “genuine
inconsistency, uncertainty, or ambiguity” may a court interpret a policy against the insurer and in
favor of coverage. Excelsior Ins. Co. v. Pomona Park Bar & Package Store, 369 So. 2d 938, 942
(Fla. 1979). “The fact that analysis is required for one fully to comprehend [a contract] does not
4
mean the contracts are ambiguous.” Hess v. Liberty Mut. Ins. Co., 458 So. 2d 71, 72 (Fla. 3rd
DCA 1984).
III. ANALYSIS AND CONTROLLING AUTHORITY
ABCO and Defendant U.S. Fire have filed cross-motions for summary judgment on five
issues. First, whether ABCO has ownership over the claims in its complaint or whether its
assignment of these claims to another entity is still in effect. Second, whether Peris was an
“employee” of ABCO as that term is defined in the bond. Third, when ABCO actually
discovered or should have discovered the Peris fraud and thus whether ABCO provided U.S. Fire
with timely notice of the loss. Fourth, whether ABCO’s claim for losses caused by the Peris
fraud is barred by the retroactive date rider provisions. Fifth, whether ABCO can recover
attorney’s fees against U.S. Fire and National Union.
The Court finds that ABCO is entitled to summary judgment that it owns the claims, but
that genuine issues of material fact exist with regards to whether Peris was an employee of
ABCO and whether ABCO provided U.S. fire with timely notice of the loss. The Court further
finds that U.S. fire is entitled to summary judgment that the retroactive date rider provision
precludes ABCO’s claim for losses caused by the Peris fraud. Therefore, ABCO cannot recover
attorney’s fees from U.S. Fire.
ABCO has moved for summary judgment against National Union only on the issue of
attorney’s fees. ABCO will be entitled to attorney’s fees from National Union only in the event
that ABCO secures a judgment against that Defendant. Therefore, this issue is not ripe for ruling.
A. Defendants’ Motion to Strike Evidence Submitted in Plaintiff’s Replies
Before addressing the motions for summary judgment, the Court addresses the collateral
motions to strike pending before the Court. In the Plaintiff’s Replies to the Defendants’
Responses to Plaintiff’s Motion for Summary Judgment, the Plaintiff submitted additional
evidence to support its arguments for summary judgment. [ECF Nos. 79 and 80]. The Plaintiff
filed a Supplemental Declaration of Hector Fortun, Exhibits to Mr. Fortun’s Supplemental
Declaration, the Declaration of Diane L. Fitzgerald, and the Declaration of Jose Suarez. The
Defendants moved to strike these four additional pieces of evidence on the grounds that they
5
represent new evidence in violation of S.D. Fla. Local Rule 7.1(c) which provides that replies
“shall be strictly limited to rebuttal of matters raised in the memorandum in opposition.”
While the “raising of new issues and submission of new facts in reply brief is improper,”
a court has the discretion to consider the additional exhibits despite this “procedural
shortcoming.” Fisher v. Ciba Specialty Chem. Corp., 238 F.R.D. 273, 311 n.82 (S.D. Ala. 2006).
Additionally, the Local Rules permit affidavits and declarations to be filed with replies. S.D. Fla.
Local Rule 7.1(c). Finally, Defendants’ Motions to Strike are futile because the Plaintiff properly
submitted the same four exhibits in its Response to U.S. Fire’s Cross-Motion for Summary
Judgment [ECF No. 91]. “In fulfilling its duty to review each cross-motion separately, the court
must review the evidence submitted in support of each cross-motion.” Fair Hous. Council of
Riverside Cnty., Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001). Accordingly, the
Court will consider these four exhibits that Plaintiff submitted as evidence in relation to its
opposition to Defendant U.S. Fire’s Cross-Motion for Summary Judgment and deny the motions
to strike.
B. Whether ABCO has ownership over the claims against Defendants
In its cross-motion for summary judgment, U.S. Fire argues that there is a question of
material fact regarding whether ABCO owns the claims it has asserted against Defendants. The
question arises because ABCO had previously assigned all claims against third parties related to
the Peris fraud to Hub International Holdings Inc. (“Hub”), the previous owner of ABCO. This
assignment was done on September 17, 2009, after ABCO had filed its notice of claim with U.S.
Fire but before it had filed any proof of loss. As the new owner of the claims, HUB submitted a
proof of loss to U.S. Fire on January 14, 2010. Then on March 16, 2011, Hub and ABCO entered
an agreement to terminate the assignment of the claims to Hub, and reassign ownership to three
entities: ABCO, Fortun Holdings, LLC, and Hector Fortun. U.S. Fire contends that ABCO has
not proved its ownership of the claims at issue because ABCO had not produced a copy of the
March 2011 agreement in which HUB transferred back the claims to ABCO. ABCO has
produced a copy of this agreement, rendering this argument moot.
U.S. Fire has not supported its allegation that ABCO does not own the claim with any
evidence of its own, but argued in its cross-motion for summary judgment that it has not had the
opportunity to conduct sufficient discovery on this issue to justify its opposition. U.S. Fire has
moved for this court to deny ABCO’s motion for summary judgment on this issue pursuant to
6
Fed. R. Civ. P. 56(d) on the grounds that it has been unable to depose Fortun or Peris and has not
received ABCO’s responses to U.S. Fire’s requests for production of documents. These
discovery requests were the subject of U.S. Fire’s Motion to Compel (ECF No. 50) filed on
February 10, 2012 which was granted in part on March 13, 2012 (ECF No. 73). U.S. Fire filed its
Reply in support of its cross-motion for summary judgment (ECF No. 105) on April 12, 2012
and in that reply did not argue that it was still missing discovery evidence and again did not
provide evidence supporting its contention that ABCO was not the owner of the claims.
Accordingly, there appears to be no material facts in dispute regarding ABCO’s ownership of the
claims and ABCO’s motion for summary judgment is granted on this issue.
C. Whether Peris was an “employee” of ABCO as that term is defined in the bond
In its motion for summary judgment, the Plaintiff argues that Peris’ fraud triggered
coverage under Insuring Agreement (A) of the bond which provides coverage for losses
sustained as a result of certain fraudulent acts committed by an ABCO employee. In its crossmotion for summary judgment, Defendant U.S. Fire argues that the Peris fraud is not covered by
this provision because Peris was not an ABCO employee. Defendant National Union has
subscribed to this argument in opposing the Plaintiff’s motion for summary judgment.
The relevant provisions in the Insuring Agreement state in part:
INSURING AGREEMENTS
FIDELITY
(A) Loss resulting directly from dishonest or fraudulent acts committed by an Employee
acting alone or in collusion with others.
Such dishonest or fraudulent acts must be committed by the Employee with the
manifest intent:
(a) To cause the insured to sustain such loss; and
(b) To obtain financial benefit for the Employee or another person or entity.
Bond at p.1.
The bond defines an employee to mean:
(4) Each natural person, partnership or corporation authorized by the insured to
perform services as data processor of checks or other accounting records of the
insured (not including preparation or modification of computer software or
programs) herein called Processor
7
Bond at p.5 under Definitions Section.
Non-employees are explicitly excluded from coverage under the terms of the bond in exclusion
(r) which precludes coverage for:
(r) loss resulting directly or indirectly from any dishonest or fraudulent act or acts
committed by any non-Employee who is a securities, commodities, money,
mortgage, real estate, loan, insurance, property management, investment banking
broker, agent, or other representative of the same general character
“Where the intention of the parties as to who are employees is expressed in a fidelity
policy, that intention will be given effect.” Bird v. Centennial Ins. Co., 11 F.3d 228, 232 (1st Cir.
1993)(citing 13 Ronald A. Anderson and Mark S. Rhodes, Couch on Insurance 2d, § 46:25 at 33
(1982)). The unambiguous interpretation of these provisions is that if ABCO authorized Peris to
perform data processing services, then Peris was an “employee” under the terms bond. But if
Peris was a non-employee, then the fraud he perpetrated would be excluded from coverage under
the bond. “The bond places squarely on [ABCO] the risk associated with dishonest or fraudulent
conduct perpetrated against it by a certain class of entities.” First Ins. Funding Corp. v. Fed. Ins.
Co., 284 F.3d 799, 806 (7th Cir. 2002). The Court notes that proof that Peris was an insurance
agent or broker is not sufficient to exclude his fraud from coverage because the capitalization of
“non-Employee” in exclusion (r) references and incorporates the definition of “employee” as
defined earlier in the bond. Therefore, coverage depends, in part, on whether Peris was
authorized to perform data processing services, regardless of whether he was an agent or broker
as well.
The Plaintiff argues that Peris was authorized by ABCO to perform services as a data
processor of checks and therefore qualifies as an employee as that term is defined by the bond.
ABCO supports this classification of Peris with the affidavits of Peris and Hector Fortun, the
Managing Member of ABCO. Peris’ affidavit states that he is a “producer/processor with
ABCO,” and that to fulfill his fraud scheme he “logged onto ABCO’s computer system . . . and
processed an ABCO draft or check on ABCO’s account.” Peris Aff. ¶¶ 3, 7. Fortun’s affidavit
states that Peris performed the following services for ABCO: Peris quoted the finance agreement
from ABCO’s accounting system, Peris prepared and processed the financing agreements; Peris
signed and authenticated the financing agreements; Peris used ABCO’s computer system to
8
process drafts drawn on ABCO’s account; Peris received payments from customers and
processed checks received from customers. Fortun Aff. ¶ 8.
Defendants argue that Peris does not qualify as an employee because his classification
and scope of duties is defined wholly by the Producer Agreement entered into between Peris’
company, Insurance Force, and ABCO. According to Defendants, the Producer Agreement
clearly states that there is no employment relationship between ABCO and Insurance Force and
defines Insurance Force to be an insurance agent or broker. The Agreement states in part: “This
Agreement or the relationship between the parties and their officers and employees is not
intended, and shall not be construed, to create a partnership, joint venture or employment
relationship between [ABCO and Insurance Force]. [Insurance Force] is for all purposes an
independent contractor.” Producer Agreement ¶ 7. The Agreement also contains language which
describes Insurance Force as an “agent or broker” or as a “managing general agent.” Id. at ¶ 2, 3,
12. Moreover, Defendants’ argue the Producer Agreement does not grant Peris any authority to
conduct any data processing.
Defendants further argue that Fortun’s affidavit is insufficient evidence of any
authorization by ABCO to Peris. The Defendants argue that the Plaintiff has failed to establish
that Fortun is competent to testify on whether Peris worked as a data processor for ABCO
because Fortun did not own ABCO for most of the time that the fraud occurred and there is no
evidence that he had personal knowledge of Peris’ specific duties. Defendants contend that Peris’
authorization could only have derived from the Producer Agreement between ABCO and
Insurance Force, not the duties described in Fortun’s affidavit.
There are two federal cases which have interpreted virtually identical provisions as the
one at issue in the instant case. In Hudson United Bank v. Progressive Cas. Ins. Co., 152 F.
Supp. 2d 751 (E.D. Pa. 2001), a district court held that a corporation that provided “processing,
servicing, marketing and consulting services” to an insurance premium finance company could
be classified as an “employee” under that bond which defined an employee as “each natural
person, partnership or corporation authorized to perform services as data processor of checks or
other accounting records.” Hudson United Bank, 152 F. Supp. 2d at 753, 755. The court found
the complaint’s allegations that the corporation’s duties included entering and transmitting
accounting data provided sufficient factual support to survive a motion to dismiss. Id. at 754-55.
9
The Hudson court’s decision has only limited applicability to the instant case because
that court stopped short of ruling whether the evidence presented on the individual’s duties
actually made him an employee as defined by the bond in that case. Ruling on a motion to
dismiss, the Hudson court held that the complaint’s allegations made it possible that the
corporation could be considered an employee, but did not establish whether this classification
could be decided as a matter of law. The Hudson court only had to consider whether the
complaint’s allegations supported the plaintiff’s claim, not whether the plaintiff had put forth
sufficient evidence to prove its claim.
In F.D.I.C. v. St. Paul Co., the insured had entered into a Marketing, Processing, and
Consulting Agreement with Century Financial Services (“Century”) to offer the insured’s credit
card to Century’s customers. F.D.I.C. v. St. Paul Co., 634 F. Supp. 2d 1213, 1217 (D. Colo.
2008). Century’s owners eventually operated a fraud scheme against the insured that created
losses worth approximately $40 million. Id. At issue in the St. Paul Companies action was a
bond provision that also defined an employee as “each natural person, partnership or corporation
authorized by the Insured to perform services as data processor of checks or other accounting
records of the Insured . . . .” Id. at 1220.
In St. Paul Co., the court found that the insured had failed to establish Century was the
insured’s employee under the bond’s definition for two reasons. First, the terms of the agreement
between the insured and Century refuted the allegation that the company was an employee of the
insured. The court noted that “[w]hile the word ‘processing’ is used, Article IV of the MPCA,
titled ‘Processing of Transactions; Handling of Funds,’ states that ‘Bank shall select an
independent processing operation (“IPO”) to process Card transactions.’” Id. at 1220. Because
the agreement “specifically addresse[d] the selection of a third-party processor for handling
payments,” the agreement refuted the allegation that the company was a processor for the
insured. Id. Second, the court found that the insured failed to establish that the company was
authorized to perform as a processor or that it, in fact, did so. Id. The evidence presented by the
insured actually suggested that the insured believed the processing, including the processing
related to the fraud, was being done elsewhere, not by Century. Id.
The St. Paul Co. case is instructive in so far as it supports Defendants’ contention that the
terms of the Purchaser Agreement provide evidence of what duties Peris was authorized to
perform by ABCO. However, unlike the agreement in St. Paul Co., the Purchaser Agreement in
10
the instant case makes no mention of ABCO retaining an independent processor, and there is at
least some evidence provided in Fortun and Peris’s affidavits that Peris performed processing
services for ABCO as part of his authorized duties. The Defendants’ arguments that the Producer
Agreement defines Peris as an independent contractor does not address the critical question of
whether he was authorized to perform data processing by ABCO. The bond’s definition of
employee does not turn on whether Peris was described to be an agent or broker in the Purchaser
Agreement, but rather on whether he was authorized to perform data processing for ABCO or not
by that Agreement. The Purchaser Agreement can be evidence of what duties Peris was
authorized to perform, but its use of the terms insurance agent or broker does not refute the
contention that Peris may have been authorized to perform data processing.
The Plaintiff has submitted declarations and affidavits in support of its position that Peris
was so authorized, but the Defendants have objected to it. In its Objections to ABCO’s
Undisputed Facts and U.S. Fire’s Statement of Additional Undisputed Facts (ECF No. 67),
Defendant U.S. Fire states that “a genuine issue of fact exists preluding summary judgment in
favor of ABCO as to whether Peris was so authorized.” (ECF No. 67) at ¶ 7. Likewise, in its
cross-motion for summary judgment, U.S. Fire has submitted the Purchaser Agreement as
evidence that Peris’ duties did not include data processing, and the Plaintiff has objected to
Defendants’ interpretation of that Agreement. Accordingly, there are genuine issues of material
fact that preclude summary judgment on the issue of whether Peris was authorized to perform
services as data processor of checks or other account records.
D. Whether ABCO provided timely notice of the loss
Plaintiff argues in its motion for summary judgment that it performed all of its
obligations under the bond, including providing timely notice of its loss. The Defendants argue
that genuine issues of material fact exist as to when ABCO discovered the fraud, and thus
whether its notice and proof of loss were timely under the bond terms. The following provisions
govern the notice procedures of the bond:
DISCOVERY
Section 3, This bond applies to loss discovered by the Insured during the Bond Period. Discovery
of loss occurs when the insured first becomes aware of facts which would cause a reasonable
person to assume that a loss of the type covered by this bond/policy has been or will be incurred,
regardless of when the act or acts causing or contributing to such loss occurred, even though the
exact amount or details of loss may not then be known.
11
NOTICE/PROOF – LEGAL PROCEEDINGS AGAINST UNDERWRITER
Section 5.
(a) At the earliest practicable moment, not to exceed thirty days, after discovery of loss, the
Insured shall give the Underwriter notice thereof.
(b) Within 6 months after such discovery, the Insured shall furnish to the Underwriter proof
of loss . . .
The Plaintiff alleges that on or around July 24, 2009, it discovered Peris’ fraud through
its own investigation. Defendants’ have not accepted this date and contend further discovery is
necessary to establish the date of discovery with certainty. Regardless of when the fraud was
discovered, it is undisputed that on July 30, 2009, ABCO sent U.S. Fire notice of its claim.
Before ABCO submitted its proof of loss to U.S. Fire, ABCO assigned all claims against third
parties to HUB. On January 14, 2010, HUB, as the assignor of these claims, filed a proof of loss
to U.S. Fire. Subsequently, HUB’s assignment of rights terminated and reverted back to ABCO.
ABCO then filed an amended Proof of Loss. U.S. Fire subsequently denied ABCO’s claim
utilizing the amended Proof of Loss.
As a preliminary matter, ABCO argues that U.S. Fire waived its right to object to
coverage on the basis of untimely notice because U.S. Fire possessed enough information to
permit it to deny the claim on other grounds. Plaintiff quotes dicta from Keenan Hopkins Schmidt
& Stowell Contractors, Inc. v. Cont’l Cas. Co., 653 F. Supp. 2d 1255, 1262 (M.D. Fla. 2009) for
the proposition that “Florida courts have uniformly held that where an insured possesses enough
information to permit it to deny the claim on other grounds (and it actually did deny the claim on
other grounds), it waives its right to object to coverage on the basis that the insured failed to
provide timely notice of the claim.” ABCO is correct that Florida law requires insurers of certain
types of insurance policies to affirmatively prove that they were prejudiced by the insured’s
untimely notice in order to deny the claim on that ground. See Hartford Accident and Indemn.
Co. v. Phelps, 294 So. 2d 362, 365 (1974). However, the Florida Supreme Court has held that the
prejudicial finding is not applicable to a claims-made or discovery policy such as the financial
bond that was issued to ABCO. “Occurrence policies cover acts which occur in the life of the
policy, irrespective of when the claims are asserted against the insured. In comparison, a claimsmade policy only protects the insured against claims made and reported during the policy
period.” Pantropic Power Prod., Inc. v. Fireman's Fund Ins. Co., 141 F. Supp. 2d 1366,
1369 (S.D. Fla. 2001). “In essence, coverage is ‘triggered’ by the insured's discovery of a claim
12
and the provision of notice to the insurer within the policy term.” Id. “[T]he [Florida] supreme
court has rejected applicability of the [notice-prejudice] rule to claims-made policies, observing
that any extension of the reporting period would ‘negate[ ] the inherent difference between the
two contract types.’” Id. (citing Gulf Ins. Co. v. Dolan, Fertig & Curtis, 433 So. 2d 512,
515 (Fla. 1983)). Therefore, U.S. Fire has not waived its right to object to coverage on the basis
of untimely notice.
The Court must now address the Defendants’ arguments that material facts are in dispute
regarding when ABCO discovered the Peris fraud and whether its notice to U.S. Fire was timely.
Under Florida law generally, “anything short of actual discovery on the part of the insured . . .
will not defeat recovery under a fidelity bond.” Dixie Nat. Bank of Dade Cnty. v. Emp’r Comm.
Union Ins. Co. of Am., 463 So. 2d 1147, 1152 (Fla. 1985). However, parties are free to
contractually agree to a narrower liability provision. In Royal Trust Bank, N.C. v. Nat. Union
Fire Ins. Co. of Pittsburgh, PA., 788 F.2d 719, 720 (11th Cir. 1986), the parties’ fidelity bond
included a virtually identical provision as the bond in the instant case: “Discovery occurs when
the Insured becomes aware of facts which would cause a reasonable person to assume that a loss
covered by the bond has been or will be incurred.” At trial in that case, the insurer put forth
evidence that the bank could have discovered the fraud in that action “if officers had paid closer
attention to computer records and reports that were reviewed regularly.” Id. The district court
then instructed the jury that “the law will charge a person with notice and knowledge of whatever
he would have learned, upon making such inquiry as it would have been reasonable to expect
him to make under the circumstances.” Id. at 721. The Eleventh Circuit affirmed the district
court’s jury instructions and held that “negligence or inattention on the part of the bank
precluded recovery” under the specific terms of the bond. Id. Accordingly, coverage could be
precluded based not only on when ABCO discovered the claim but also on when it could have
first discovered it.
The Plaintiff has provided July 2009 as the date on which it allegedly discovered the
Peris fraud, but has not addressed whether this was the earliest date on which the fraud could
have been discovered. The Defendants challenge ABCO’s discovery date and argue that
evidence exists from which a jury could conclude that ABCO actually discovered or should have
discovered the Peris fraud before July 2009. This evidence includes: that signs of the fraud
existed in ABOC’s business records for a substantial period of time; that ABCO had regular
13
opportunities to observe these signs; and that the signs were such that a reasonable person would
have investigated the records and learned of the fraud. Additionally, ABCO has admitted that
over eighteen ABCO employees had knowledge of the facts concerning the underlying claims,
and in his affidavit, Fortun stated that his discovery of irregularities in ABCO’s business records
was what led him to confront Peris about the fraud.
Accordingly, material factual disputes preclude summary judgment on when ABCO
discovered or should have discovered the Peris fraud and therefore whether ABCO’s notice and
proof of loss were timely.
E. Whether ABCO’s claim is barred by the “Single Loss” and retroactive rider provisions
The parties agree that the bond applies prospectively only and that any fraudulent or
dishonest acts occurring prior to April 24, 2009 are specifically excluded from coverage by the
retroactive date rider provision. However, the parties disagree on the proper interpretation of the
term “Single Loss” as it is used within the retroactive date rider provision.
The bond provisions regarding these entwined issues are as follows:
RETROACTIVE DATE RIDER
It is agreed that:
2. The attached Policy is further amended by inserting the following as Section 3:
Section 3.
RETRO ACTIVE DATE – APRIL 24,
month day
2009
year
This bond/policy applies only to a Single Loss, as defined in section 4, which was sustained in its
entirety after the Retroactive Date set forth above. All acts or omissions causing or contributing
to such Single Loss . . . must occur after the Retroactive Date for coverage under this
bond/policy to apply. Such Single Loss must be discovered by the Insured during the
Bond/Policy period.
LIMIT OF LIABILITY
Single Loss Defined
Single Loss means all covered loss, including court costs and attorneys’ fees . . . resulting from
(a) any one act or series of related acts of burglary, robbery or attempted threat, in which
no Employee is implicated, or
(b) any one act or series of related unintentional or negligent acts or omissions on the part
of any person (whether an Employee or not) resulting in damage to or destruction or
misplacement of Property, or
14
(c) all acts or omissions other than those specified in (a) or (b) preceding, caused by any
person (whether an Employee or not) or in which such person is implicated . . .
While the parties agree that the retroactive date rider on restricts coverage to events after
that date, they disagree on the correct interpretation of the “Single loss” term as it’s used in the
retroactive date rider. In its motion for cross-summary judgment, Defendant U.S. Fire argues that
Peris’ fraud constituted a “Single loss” that began as early as 2007, and therefore is not covered
by the policy because it was not sustained in its entirety after April 24, 2009, the retroactive rider
date. ABCO does not dispute that Peris’ fraud began in 2007, but responds that it only seeks to
recover losses incurred after the retroactive date and that a portion of the losses caused by the
Peris fraud qualify as a “Single loss” because that term includes all “covered losses” that
occurred after the retroactive date. Defendant National Union has joined U.S. Fire’s arguments in
opposing the Plaintiff’s motion for summary judgment on this issue.
ABCO makes a two-step argument in support of its position. First, the term “Single Loss”
is indisputably defined in the bond as “all covered loss.” Second, the retroactive date
indisputably excludes from coverage any losses that were sustained before the retroactive date.
Therefore, the term “Single loss” presupposes that the loss occurred after the retroactive date
because otherwise it would not be considered a “covered loss.” In other words, there can never
be a “Single loss” that would be precluded from coverage by the retroactive date because the
term “Single loss” is defined as “all covered loss.” Applied to the facts of this case, as long as the
Peris fraud qualifies as a “covered loss,” then ABCO is entitled to coverage for losses it incurred
from that fraud after the retroactive date, but not before that date. The retroactive date provision
would not affect whether the fraud was covered, but only set the date after which the losses can
be recovered. Although ABCO initially filed a claim for losses both before and after the
retroactive date, it amended the claim to losses incurred after the retroactive date when U.S. Fire
denied the original claim on the basis of the retroactive date provision. This amendment is a
harbinger for the fallacy of ABCO’s interpretation of the bond’s terms.
The purpose of specifying a retroactive date in an insurance policy is to limit coverage to
occurrences after a certain date. “Insurers issuing claims-made policies ‘protect themselves
against liability for old occurrences by including a ‘retroactive date’ specifying the earliest
occurrence to be covered, no matter when the claim is made.’” Med. Protective Co. v. Kim, 507
F.3d 1076, 1082-83 (7th Cir. 2007)(quoting Nat'l Cycle, Inc. v. Savoy Reins. Co., Ltd., 938 F.2d
15
61, 62 (7th Cir.1991)). “A very restrictive type of claims-made insurance will require ‘not only
that the claim be both made and reported to the insurer during the policy period, but also that the
claim arise out of wrongful acts that take place after the inception of the policy and during the
policy period.’” Id. at 1083 (quoting BARRY R. OSTRAGER & THOMAS R. NEWMAN,
HANDBOOK ON INSURANCE COVERAGE DISPUTES (Aspen Publishers 13th ed. 2006),
Vol. 1, § 4.02[b], p.130).
ABCO’s interpretation would be compelling if not for the fact that it completely ignores
the retroactive rider’s further limitation of the term “Single loss” to one which was “sustained in
its entirety after the retroactive date.” To properly interpret the bond, “all of the provisions,
words and parts must be construed together as one entire contract.” TIG Ins. Co. v. Smart School,
401 F. Supp. 2d 1334, 1342 (S.D. Fla. 2005). The language of the retroactive provision is clear
and unambiguous that the bond only covers fraudulent schemes that began entirely after the
retroactive date. It is undisputed that the Peris fraud began in early 2007 and that the majority of
the fraud was committed prior to the retroactive date. Almost 2,000 of the 3,400 fraudulent
contracts that Peris created were submitted to ABCO before the retroactive date, and thus $4
million of the $6.9 million in losses were incurred prior to the retroactive date.
Moreover, ABCO cannot recover losses for just that portion of losses it incurred after the
retroactive date. These losses cannot be covered because the retroactive rider provision states
that “[a]ll acts or omissions causing or contributing to such Single Loss . . . must occur after the
Retroactive Date for coverage under this bond/policy to apply.” U.S. Fire argues that ABCO’s
losses were caused by all of Peris’ fraudulent acts, which began before the retroactive date, and
therefore constitute one “Single loss.” U.S. Fire’s argument finds support in Omega Advisors,
Inc. v. Fed. Ins. Co., 2010 WL 4941457 (D.N.J. Nov. 30, 2010), in which the district court
rejected the insured’s argument that it experienced two separate and independent losses and only
sought coverage for the portion that occurred after the retroactive bond in that case. The insured
in Omega Advisors had discovered a loss caused by an employee’s fraud scheme in 2006, but did
not make a claim on the bond until 2008 when it discovered new information regarding the
fraud. Id. at *1-3. The court found that all the employee’s acts that caused the loss to the insured
“resulted in a single loss” and therefore could not “be a newly discovered loss separate and
distinct from the loss discovered by [the insured] in 2006.” Id. at *8 (citing F.D.I.C. v. Fidelity &
Deposit Co. of Md., 45 F.3d 969, 974 (5th Cir. 1995)(later discovered acts were part of the same
16
loss discovered during bond period if they “arose out of the same pattern of conduct or scheme
that was originally discovered.”)). See also, Citizens Bank of Newburg v. Kansas Bankers Surety
Co., 971 F. Supp. 1301, 1304 (E.D. Mo. 1997)(rejecting the insured’s attempt to split up its
losses because each fraudulent document was part of “one common scheme to defraud” the
insured). Despite ABCO’s attempt to divide the fraud by only filing a claim for losses incurred
after the retroactive date, Peris’ affidavit establishes that he engaged in the same scheme each
time he submitted a fraudulent contract to ABCO. ABCO cannot contend that Peris’ fraud was
committed in two distinct and separate acts; the fraud was indisputably one continuous act.
Accordingly, there are no genuine issues of material fact on the issue of whether the Peris
fraud was a “Single loss” under the bond term and U.S. Fire’s cross-motion for summary
judgment is granted on this issue. Therefore, ABCO’s claim for losses caused by the Peris fraud
is barred by the retroactive date rider provision.
F. Whether ABCO can recover attorney’s fees
The Plaintiff moved for reimbursement of reasonable attorney’s fees under Fla. Stat. §
627.428(1) which provides, in part:
Upon the rendition of a judgment . . . against an insurer and in favor of any . . .
insured . . . the trial court . . . shall adjudge or decree against the insurer and in favor
of the insured . . . a reasonable sum as fees or compensation for the insured's . . .
attorney prosecuting the suit in which the recovery is had.
However, no judgment has been issued against the insurer which would trigger attorney’s fees
under this statute. An insured’s “right to attorney’s fees does not accrue until the ‘rendition of a
judgment.’” Evanston Ins. Co. v. Lauris Boulanger, Inc., 2010 WL 556522, *2 (S.D. Fla. Feb.
11, 2010). The Court has not issued a final judgment for the Plaintiff, and in fact has granted
Defendant U.S. Fire’s cross-motion for summary judgment. Accordingly, the Plaintiff’s request
for attorney’s fees is denied as moot with respect to U.S. Fire, and denied with leave to renew
with respect to National Union if a judgment is entered in favor of the Plaintiff.
IV. CONCLUSION
THE COURT has reviewed the arguments, the record, and the relevant legal authorities,
and for reasons set forth more fully below, it is ORDERED and ADJUDGED that
17
(1) U.S. Fire and National Union’s Motions to Strike Evidence (ECF Nos. 88 and 89)
that Plaintiff filed in its Reply to support its Motion for Summary Judgment are
DENIED.
(2) Plaintiff’s Motion for Summary Judgment Against Defendant U.S. Fire (ECF No. 47)
is DENIED.
(3) U.S. Fire’s Cross-Motion for Summary Judgment (ECF No. 66) is GRANTED.
Summary judgment is granted that the retroactive date rider provision precludes
coverage of the Peris fraud.
DONE and ORDERED in chambers, at Miami, Florida, on August 9, 2012.
________________________________
ROBERT N. SCOLA, JR.
UNITED STATES DISTRICT JUDGE
Copies to:
Designated U.S. Magistrate Judge
Counsel of record
18
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?