Hartford v. American Alternative Insurance Corporation

Filing 32

ORDER denying 27 Motion for Reconsideration of 26 Memorandum and Order denying Defendant's Motion for Summary Judgment on Count I of the Complaint. Plaintiff has thrity days from the date of the entry of this Order to file a motion for partial summary judgment on liability. Defendant shall have thirty days thereafter to object to that motion. So Ordered by Senior Judge Ronald R. Lagueux on 2/16/2016. (Farrell Pletcher, Paula)

UNITED STATES DISTRICT COURT
DISTRICT OF RHODE ISLAND

MARK PFEIFFER, in his capacity
as RECEIVER of the CENTRAL
COVENTRY FIRE DISTRICT,
Plaintiff,
v.

C.A. No. 14-521L

AMERICAN ALTERNATIVE
INSURANCE CORPORATION,
Defendant.
ORDER
Ronald R. Lagueux, Senior United States District Judge.
This matter is before the Court on Defendant American
Alternative Insurance Corporation’s Motion for Reconsideration of
this Court’s Order of November 12, 2015, denying Defendant’s
motion for summary judgment on Count I of the Complaint filed by
Plaintiff Mark Pfeiffer, in his capacity as Receiver of the
Central Coventry Fire District (“the Receiver”).

The Court is

unmoved by Defendant’s arguments, and affirms its earlier ruling.
The Central Coventry Fire District is authorized, and
obligated, to provide fire-fighting and rescue services to
residents in the District.
District’s real property.

It is funded through taxes on the
Each year the District develops a

budget detailing its projected costs.

The budget is presented to

the taxpayers at a public meeting for their approval.

Once the

budget is approved, property tax bills are calculated according
to a formula designed to generate the revenue necessary to fund
the District’s operations.

According to this formula, the

assessed value of property in the District is multiplied by an
annually-set tax rate, which is also approved at a public
meeting.

The accuracy of the property tax assessments is

essential to this process.
To ensure that they were protected from human error, and
malfeasance, in this process, the District purchased a special
endorsement to its insurance policy. This policy was a wideranging one, providing coverage for property, crime, equipment,
vehicles, general liability, management liability and excess
liability.

The total annual premium was $67,906.00 in 2012. The

Public Employee Dishonesty endorsement expressly covered the Tax
Collector and the Treasurer, and an additional Faithful
Performance of Duty endorsement added a covered loss: “Failure of
any ‘employee’ to faithfully perform his or her duties as
prescribed by law, when such failure has as its direct and
immediate result a loss of your covered property.” Covered
property included: “Money,” “securities” and “property other than
money and securities.”
As it happened, the Tax Collector made an egregious error,
overvaluing one property by over $2 million.

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On request from the

property owner, she adjusted the bill downwards by almost
$800,000,which she was not authorized to do.

She then compounded

her mistake by not telling anyone about the incident, and by
failing to correct the tax rolls.

Her failure to correct the tax

rolls caused the error to wreak financial havoc on a second
budgetary year.

The Treasurer, who was required by the

District’s by-laws to monitor and report on its finances on a
monthly basis, noticed the budget shortfall but made no
investigation into its cause, allowing the initial problem to
slide unnoticed into the second year, and eventually sending the
District into receivership.
It is undeniable that this is the risk that the District was
attempting to insure against; this and other similar scenarios of
bungling and malfeasance.

Yet Defendant has denied the

Receiver’s claim, and now argues that the Court misapprehends its
definition of covered property, as well as the general issues of
statutory tax liens, tax rates and tax levies, etc.

It is about

time for Defendant to face reality.
It is well settled that any ambiguity in the interpretation
of an insurance policy must be construed in favor of the insured.
Farrell v. Employers Liab. Assur. Corp., Ltd., 57 R.I. 389, 472
(1937); Mallane v. Holyoke Mut. Ins. Co. in Salem, 658 A.2d 18,
20 (R.I. 1995).

As the dispute between the parties illustrates,

the policy’s definition of “covered property” allows for more

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than one interpretation.
The policy states that covered property is “limited to
property: (a) that you own or hold, or (b) for which you are
legally liable.”

These terms are not defined further.

The

Receiver has argued, and the Court agrees, that the District had
a legal right and a legal obligation to collect the monies
necessary to fund its voter-approved budget.

Those monies should

have been obtained through an accurate tax assessment of the
District’s real property.

The multiple failures of the Treasurer

and the Tax Collector precluded that accurate assessment from
taking place.

Consequently, through their failure to faithfully

perform their specified duties the District lost tax revenue,
property over which it had ownership rights and for which it had
legal liability.

See Scirex Corp. v. Fed. Ins. Co., 313 F.3d

841, 849 (3d. Cir. 2002).
Therefore, Defendant’s Motion for Reconsideration is denied.
Pursuant to Fed. R. Civ. P. 56(f)(1), the Court probably will
grant partial summary judgment in favor of Plaintiff Receiver, on
the issue of Defendant’s liability, on Counts I and IV of the
Complaint.

Why Plaintiff has not filed such a motion to date is

unknown.
Notice is hereby provided to both parties that Plaintiff has
thirty days from the date of the entry of this Order to file a
motion for partial summary judgment on liability.

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Defendant

shall have thirty days thereafter to object to that motion.

Both

sides have claimed a jury trial so, in any event and ultimately,
a jury will decide how much the District lost as a result of the
misfeasance of the Tax Collector and Treasurer, for which the
Defendant is liable.
It is so ordered.
/s/Ronald R. Lagueux
Senior United States District Judge
February 16, 2016

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