Owens, Schine & Nicola, P.C. v. Travelers Casualty and Surety Company of America
MEMORANDUM OF DECISION RE MOTION FOR SUMMARY JUDGMENT
This case involves a claim by the plaintiff for indemnity under a “crime” insurance policy issued to the plaintiff by the defendant, Travelers Casualty and Surety Company (“Travelers”). The plaintiff Owens, Schine & Nicola, P.C. (“Owens”) is a Connecticut law firm that purchased a crime insurance policy (“Crime Policy”), from Travelers with an effective policy period of June 1, 2008 to June 1, 2011.1 The Crime policy includes coverage for computer fraud. The plaintiff alleges it was the victim of a computer fraud during September 2008, and Travelers has refused to pay the claim for the loss alleged to have been sustained by the plaintiff.
The defendant, Travelers Casualty and Surety Company, has filed a motion for summary judgment claiming that the Computer Fraud Insuring Agreement contained in the Crime Policy issued to Owens, Schine & Nicola, P.C. does not provide coverage for the claim alleged in the plaintiff's complaint. Travelers argues that the claim alleged does not constitute a computer fraud under the policy, and the plaintiff's alleged loss was not directly caused by a computer fraud.
According to the plaintiff, the alleged fraud began on September 5, 2008, when Owens was contacted via an e-mail message by an individual claiming to be an attorney in North Carolina named Donna B. Stepp.2 The e-mail requested Owens' assistance in a collection matter for a purported client of Attorney Stepp located in China. On September 9, 2008, Owens was contacted by e-mail by an individual named Chen Wu, stating that he was referred to Owens by Attorney Stepp. Chen Wu claimed to be the director of the Shenzhen Shan Magnetism Industry Company, Ltd. (“Shenzhen”). Wu stated that his company was owed money from a Connecticut company named Dynalock Corporation (“Dynalock”).3 On September 17, 2008, Wu scanned and e-mailed Owens an executed retainer agreement, agreeing to Owens' representation of Shenzhen for the collection of the alleged debt owed by Dynalock.
By way of an e-mail communication dated September 22, 2008, Wu notified Owens that Dynalock had sent funds to pay the debt owed to Shenzhen, directly to Owens' office, and the funds should arrive at Owens' office on September 23, 2008. On September 23, 2008, Owens received what was purported to be a Wachovia Bank “Official Check” in the amount of $198,610.00. Owens deposited the check in its IOLTA trustee account at the Chase Bank. On September 24, 2008, as directed by another e-mail from Wu, Owens instructed the Chase Bank to electronically wire the amount of $197,110.00 from its IOLTA account to an account in South Korea designated in Wu's e-mail. The Chase Bank acted on Owens' instruction and wired the funds. Wu sent four e-mails to Owens to ensure completion of the electronic wire transfer. In total, approximately seventeen e-mails were exchanged between Owens and Wu from September 9, 2008 through the wiring of the funds on September 24, 2008.
It was later determined that the Wachovia Bank “Official Check” purportedly sent to Owens by Dynalock was fraudulent and was not honored by Wachovia.4 Chase Bank then debited Owens' IOLTA account for the $197,110.00. Owens, on or about October 6, 2008 and October 7, 2008, submitted documentation to the Travelers regarding a claim of computer crime under the Crime Policy that had been issued to Owens by Travelers. By letter dated October 7, 2008, Travelers acknowledged receipt of the plaintiff's correspondence and requested the plaintiff to submit a Proof of Loss and supporting documentation. The plaintiff then submitted a Proof of Loss to Travelers along with various documents. Travelers acknowledged receipt of these items and advised the plaintiff it would contact the plaintiff after Travelers conducted its investigation into the plaintiff's claim. On or about November 11, 2008, Travelers, by telephone, informed the plaintiff that it did not believe that the plaintiff's claim was covered under the Crime Policy. By letter dated November 19, 2008, the plaintiff responded, setting forth its position that the its claim was, in fact covered by the terms of the policy. Travelers then reviewed the plaintiff's correspondence regarding the plaintiff's claim and determined there was no coverage. Travelers disclaimed coverage by a letter dated November 25, 2008. By letter dated January 26, 2009, legal counsel for the plaintiff disputed the denial of coverage. Travelers reviewed the plaintiff's letter dated January 26, 2009 and again disclaimed coverage by its letter, which is dated February 9, 2009.
The plaintiff then brought the instant action by way of a complaint dated April 24, 2009, for breach of Travelers' duty under the crime policy to pay Owens for the loss and a breach of the covenant of good faith and fair dealing, which requires Travelers to deal honestly and in good faith with Owens regarding its claim.5 Travelers, thereafter filed this motion for summary judgment, dated November 12, 2009.
Travelers argues that summary judgment should be granted as to Count One because the policy does not provide coverage for the claim alleged in the plaintiff's complaint. Travelers position is that the claim does not constitute Computer Fraud under the terms of the policy, and the plaintiff's alleged loss was not directly caused by a Computer Fraud. Travelers maintains that the plaintiff's loss falls within the exclusion for loss resulting directly or indirectly from the plaintiff's acceptance of “money orders” or “Counterfeit Money,” as well as, the policy exclusion for losses resulting directly or indirectly from the giving or surrendering of Money, Securities or Other Property in an exchange or purchase. It is Travelers' position that in order for there to be a Computer Fraud, the transfer must occur by way of a computer “hacking” incident, such as the manipulation of numbers or events through the use of a computer and in the instant case, no such computer hacking incident occurred. Furthermore, if there had been a computer hacking incident, there must also be a showing of a direct loss caused by that intrusion or incident.
Travelers also argues that summary judgment should be granted as to Count Two because there is no genuine issue of fact that Travelers did not breach the covenant of good faith and fair dealing, as its denial of the plaintiff's claim was correct as a matter of law. In the alternative, even if its denial was not correct as a matter of law, Travelers maintains that its investigation and denial of the plaintiff's claim was not made in bad faith.
The plaintiff has filed a timely objection to summary judgment disputing the denial of coverage for its claim. The parties have each filed a memorandum of law and several replies. The parties have also submitted copies of documents and sworn statements for the court's review.
Standard of Law: Summary Judgment
“Practice Book § 17-49 provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party ․ The party moving for summary judgment has the burden of showing the absence of any genuine issue of material fact and that the party is, therefore, entitled to judgment as a matter of law.” (Internal quotation marks omitted; citations omitted.) Byrne v. Burke, 112 Conn.App. 262, 267, 962 A.2d 825 (2009). “A material fact is a fact that will make a difference in the outcome of the case ․ Once the moving party has presented evidence in support of the motion for summary judgment, the opposing party must present evidence that demonstrates the existence of some disputed factual issue ․ It is not enough, however, for the opposing party merely to assert the existence of such a disputed issue. Mere assertions of fact ․ are insufficient to establish the existence of a material fact and, therefore, cannot refute evidence properly presented to the court ․” Id., 268, quoting Campbell v. Plymouth, 74 Conn.App. 67, 80-81, 811 A.2d 243 (2002).
“[I]ssue-finding, rather than issue-determination, is the key to the procedure ․ [T]he trial court does not sit as the trier of fact when ruling on a motion for summary judgment ․ [Its] function is not to decide issues of material fact, but rather to determine whether any such issues exist.” (Internal quotation marks omitted.) Id. “The test is whether a party would be entitled to a directed verdict on the same facts ․ A motion for summary judgment is properly granted if it raises at least one legally sufficient defense that would bar the plaintiff's claim and involves no triable issue of fact.” (Emphasis added; internal quotation marks omitted.) Id.; Weiner v. Clinton, 106 Conn.App. 379, 383, 942 A.2d 469 (2008).
The scope of coverage provided by an insurance policy is appropriate for resolution through a motion for summary judgment. “[C]onstruction of a contract of insurance presents a question of law for the court ․” (Internal quotation marks omitted.) Moore v. Continental Casualty Co., 252 Conn. 405, 409 (2000) 746 A.2d 1252 (2000); Pacific Indemnity Ins. Co. v. Aetna Casualty & Surety Co., 240 Conn. 26, 30, 688 A.2d 319 (1997). “Although ordinarily the question of contract interpretation, being a question of the parties' intent, is a question of fact ․ [w]here there is definitive contract language, the determination of what the parties intended by their contractual commitments is a question of law.” (Internal quotation marks omitted.) Goldberg v. Hartford Fire Insurance Company, 269 Conn. 550, 559-60, 849 A.2d 368 (2004); Southeastern Connecticut Regional Resources Recovery Authority v. Dept. of Public Utility Control, 244 Conn. 280, 290, 709 A.2d 549 (1998).
The Crime Policy Provisions
Travelers issued a “Crime Policy” to Owens for the policy period from June 1, 2008 through June 1, 2011. The Computer Fraud Insuring Agreement contained in the policy provides: “We will pay you for your direct loss of, or your direct loss from damage to, Money, Securities and Other Property directly caused by Computer Fraud.” The policy further provides:
“Computer Fraud” means: The use of any computer to fraudulently cause a transfer of Money, Securities or Other Property from inside the Premises or Banking Premises:
1. to a person (other than a Messenger) outside the Premises or Banking Premises; or
2. to a place outside the Premises or Banking Premises.
The policy includes an Exclusion for loss resulting directly or indirectly from the acceptance of money orders or counterfeit money. Exclusion F provides, in pertinent part:
This crime policy does not cover ․:
F. Loss resulting directly or indirectly from your acceptance of money orders or Counterfeit Money, unless covered under Insuring Agreements A.1, A.2, A.3, or E.6
The policy contains definitions for Counterfeit Money and Money. Counterfeit money is defined, in pertinent part, as: “an imitation of money that is intended to deceive and to be taken as genuine.”
The policy defines money, in pertinent part, as: “a medium of exchange in current use and authorized or adopted by a domestic or foreign government, including currency, coins, bank notes, bullion, travelers checks, registered checks and money orders held for sale to the public.”
The policy also contains an exclusion for loss directly or indirectly from the giving or surrendering of Money in an exchange or purchase. Exclusion R provides, in pertinent part:
This Crime Policy does not cover:
R. Loss resulting directly or indirectly from the giving or surrendering of Money, Securities or Other Property in exchange or purchase, whether or not fraudulent, with any party not in collusion with an Employee, except when covered under Insuring Agreement E.
DiscussionA.Use of Computer and Causation
The construction of an insurance policy presents a question of law. Wentland v. American Equity Ins. Co., 267 Conn. 592, 600 (2004). “Under our law, the terms of an insurance policy are to be construed according to the general rules of contract construction ․ The determinative question is the intent of the parties, that is, what coverage the ․ [insured] expected to receive and what the [insurer] was to provide, as disclosed by the provisions of the policy ․ If the terms of the policy are clear and unambiguous, then the language, from which the intention of the parties is to be deduced, must be accorded its natural and ordinary meaning ․ However, [w]hen the words of an insurance contract are, without violence, susceptible of two [equally reasonable] interpretations, that which will sustain the claim and cover the loss must, in preference, be adopted ․ [T]his rule of construction favorable to the insured extends to exclusion clauses.” (Internal quotation marks omitted.) Liberty Mutual Insurance v. Lone Star Indus., Inc., 290 Conn. 767, 795-96, 967 A.2d 1 (2009); Allstate Ins. Co. v. Barron, 269 Conn. 394, 406, 848 A.2d 1165 (2004).
“Put differently, although policy exclusions are strictly construed in favor of the insured ․ the mere fact that the parties advance different interpretations of the language in question does not necessitate a conclusion that the language is ambiguous ․ The interpretation of an insurance policy is based on the intent of the parties, that is, the coverage that the insured expected to receive coupled with the coverage that the insurer expected to provide, as expressed by the language of the entire policy ․ The words of the policy are given their natural and ordinary meaning, and any ambiguity is resolved in favor of the insured.” (Citations omitted; internal quotation marks omitted.) Id., 596; Wentland v. American Equity Ins. Co., supra, 267 Conn. 600-01. “The court must conclude that the language should be construed in favor of the insured unless it has ‘a high degree of certainty’ that the policy language clearly and unambiguously excludes the claim.” Id.; Kelly v. Figueiredo, 223 Conn. 31, 37, 610 A.2d 1296 (1992).
Travelers argues that for a computer fraud to exist, the transfer must occur by way of a “computer hacking” incident, such as the manipulation of numbers or events through the use of a computer. Travelers chiefly relies upon a federal district court decision in Brightpoint, Inc. v. Zurich American Insurance Company, No. 1:04-CV-2085-SEB-JPG. (S.D.Ind. Mar. 10, 2006). Travelers argues in Brightpoint the court considered issues similar to the present case, in that the insured claimed that the use of a facsimile (fax) constituted use of a computer under a crime policy. For the purposes of its analysis of the motion for summary judgment, the Brightpoint court assumed arguendo that this was correct. A review of the court's decision in Brightpoint, Inc. v. Zurich American Insurance Company, supra, also reveals that the court never uses or discusses the term “computer hacking incident;” nor did it impose such a requirement.
Brightpoint, involved an insured that was a distributor of prepaid mobile phone cards in the Phillipines, and which regularly sold large volumes of these cards to one of its dealers. Id. Customarily, the dealer would fax copies of post-dated checks, bank guaranties and purchase orders to the distributor to prove it had sufficient resources to pay for the cards before the distributor would purchase the phone cards from the supplier. Id. Only after receiving the original checks, bank guaranties and purchase orders would the distributor provide the cards to the dealer. Id. In the instance considered in Brightpoint, which involved a fraud perpetrated on the distributor resulting in the loss of a significant amount of phone cards, the distributor had been faxed copies of a check, guarantee and purchase order per the usual mode of dealing between the parties. The distributor then purchased the phone cards and after receiving the original check and guarantee in person, the distributor turned the cards over to someone it thought to be a representative of the dealer. Id. Thereafter, the distributor never received payment for the phone cards. Id.
The coverage provision which Brightpoint sought to invoke is referred to by the Zurich insurance policy on the declarations page as “Form F-Computer Fraud/Wire Transfer.” The relevant provisions of Form F are set out below:
We will pay for loss of, and loss from damage to, Covered Property RESULTING DIRECTLY FROM THE Covered Cause of Loss.
1. Covered Property: Money, “Securities” and “Property Other Than Money and Securities.”
2. Covered Cause of Loss: “Computer Fraud.”
D. ADDITIONAL EXCLUSIONS, CONDITIONS AND DEFINITIONS
In addition to the provisions in the Crime General Provisions, this Coverage Form is subject to the following:
3. Additional Definitions
a. “Banking Premises” means the interior of that portion of any building occupied by a banking institution or similar safe depository.
b. “Computer Fraud” means “theft” of property following and directly related to the use of any computer to fraudulently cause a transfer of that property from inside the ․ premises or “banking premises” to a person (other than a “messenger”) outside those “premises” or to a place outside those “premises.” The means by which a fraudulent transfer is initiated includes: written, telephonic, telegraphic, telefacsimile, electronic, cable, or teletype instructions.
d. “Occurrence” means an:
(1) Act or series of related acts or events not involving any person; or
(2) Act or event, or a series of related acts or events not involving any person.
e. “Premises” means the interior of that portion of any building you occupy in conducting your business.
f. “Theft” means any act of stealing.
The Brightpoint court found that the faxed check, guarantee and purchase order caused the distributor to purchase the cards from the supplier, but it was the “in-person” receipt of the original check and guarantee that caused the distributor to provide the dealer with the cards. Therefore, the fax transmission did not fraudulently cause the transfer of the cards. Id. The court did not determine that this was not a computer hacking incident. What the court did determine was that while the fax transmission caused Brightpoint to purchase the cards from its supplier, it did not cause it to transfer the cards, and therefore, did not directly or proximately cause the theft. Id. The Brightpoint court held that intervening events became the direct, predominate and immediate cause of the loss. Id.
We do not view the faxed post-dated checks and bank guaranties to have ‘fraudulently cause[d] a transfer’ of the phone cards, as required under the policy definition of ‘Computer Fraud.’ By Brightpoint's own admission, the facsimile simply alerted the company to the fact that Genato, or perhaps in this case some other person mimicking his methods, wished to place an order. Only after Brightpoint received the physical documents would they release the phone cards and, based on established practices of Brightpoint, the cards would not have been turned over simply on the basis of the facsimile. The fraud in this instance occurred through the use of the unauthorized checks and guaranties, not the manipulation of numbers or events through the use of a computer, facsimile machine or other similar device. The facsimile transmission caused Brightpoint to purchase the cards from its supplier, not to transfer them to its purchaser, and the use of the fax thus cannot be viewed as having directly or proximately caused the theft.
Brightpoint argues that the policy only requires that the theft follow and be directly related to the use of a computer. It maintains that the policy language does not contain a modifier such as ‘proximate cause,’ ‘predominate cause’ or the like. In addition, according to Brightpoint, all that is required in terms of coverage is the use of a computer followed by a theft that is in some way connected to the use of the computer. We think Brightpoint's expansive interpretation of the term ‘directly related’ represents a distortion of the policy terms. Returning to Black's Law Dictionary, ‘directly’ is defined as: ‘[I]n a straight line or course’ and ‘immediately.’ Blacks Law Dictionary 492 (8th ed.2004). The loss to Brightpoint that occurred here did not flow immediately from the use of the facsimile. Brightpoint's focus on individual words in the policy at the expense of the common and ordinary meaning of the policy language as a whole leaves us unconvinced.
Travelers argues that like the claim in Brightpoint, the plaintiff, Owens, seeks coverage under a Computer Fraud provision of the subject insurance policy for a loss that did not involve computer fraud and was not directly caused by a computer fraud. It is Travelers' position that despite the fact the Chinese business communicated with Owens exclusively by an e-mail and the fraudulent check may have been created by the use of a computer, this does not constitute computer fraud under the policy. This is because a computer must be used to cause the transfer of money and must be the direct cause of the loss. Rather, in the present case, the transfer of the money occurred when Owens contacted Chase Bank in person, by telephone and in writing to direct the transfer of the money to a bank account in South Korea.
Owens argues that the only required level of computer usage to constitute Computer Fraud under the subject insurance policy is “the use of any computer” and the word “use” is not further defined or described under the policy. According to Owens this presents an ambiguity to be resolved in favor of the plaintiff. Liberty Mutual Insurance v. Lone Star Indus., Inc., supra, 290 Conn. 795-96. Additionally, Owens argues that the decision in Brightpoint stands for the proposition that a “computer hacking incident” is not required for coverage to apply. The court agrees that the policy is ambiguous as to the amount of computer usage necessary to constitute computer fraud. This ambiguity is resolved in favor of the plaintiff. A “computer hacking incident” is not required, and the court in Brightpoint, Inc. v. Zurich American Insurance Company, did not impose such a requirement.
Travelers also argues that even assuming Owens can establish that the Computer Fraud definition is implicated, there is no evidence of direct causation. A direct causation requirement in a crime policy or fidelity bond requires more than “but for” or factual causation alone, but requires a “direct” causation. See, Continental Corp. v. Aetna Cas. & Sur. Co., 892 F.2d 540, 548 (7th Cir.1989). Travelers states that in the present matter Owens' loss was not directly caused by the computer, but rather, was caused by its own initiative to wire funds to South Korea after Owens received the purported Wachovia bank check. Further, Owens' receipt of the check constitutes an intervening cause between the e-mails and the transfer of the money, since Owens only directed the transfer after receiving the Wachovia check. See, Brightpoint, Inc. v. Zurich American Insurance Company, supra. In summary, Travelers argues that to find that computer fraud directly caused the alleged loss because Owens and the Chinese company communicated by e-mail, would be to distort the terms of the policy. Likewise, the possibility that a computer was used to create a fraudulent Wachovia bank check does not mean the transfer of the money was directly caused by the use of a computer.
Owens argues that Connecticut law has spoken directly on the issue of direct causation, specifically in the context of insurance policies. “It is well settled that the words ‘direct cause’ ordinarily are synonymous in legal intendment with ‘proximate cause,’ a rule applicable to causes involving the construction of an insurance policy.” (Citations omitted) Steiner v. Middlesex Mutual Assurance Co., 44 Conn.App. 415, 434, 689 A.2d 1154 (1997). “In an insurance policy that stated that it insured against [l]oss ․ directly caused by, the court held that directly caused was fairly synonymous with proximately caused.” (Internal quotation marks omitted) Id. “[W]hat is meant by proximate cause is not that which is last in time or place, not merely that which was in activity at the consummation of the injury, but that which is the procuring, efficient, and predominant cause.” Frontis v. Milwaukee Ins. Co., 156 Conn. 492, 497-98, 242 A.2d 749 (1968).
In the determination of what caused the loss or damage, the cause or agency which is nearest in time or place to the result is not necessarily to be chosen. The active efficient cause that sets in motion a train of events which brings about a result without the intervention of any force started and working actively from a new and independent source is the proximate cause ․ In the determination whether a loss is within an exception in a policy, where there is a concurrence of two causes, the efficient cause-the one that sets the other in motion-is the cause to which the loss is to be attributed, though the other cause may follow it and operate more immediately in producing the disaster.
Owens argues that it fell victim to a fraud which was committed by the use of e-mails to induce Owens to wire the monetary funds from its IOLTA account to a bank in South Korea. The e-mails were the proximate cause and “efficient cause” of Owens' loss because the e-mails set the chain of events in motion that led to the entire loss. “[T]he issue of causation generally is a question reserved for the trier of fact ․ the issue becomes one of law when the mind of a fair and reasonable person could reach only one conclusion, and summary judgment may be granted based on a failure to establish causation.” Abrahams v. Young & Rubicam, Inc., 240 Conn. 300, 307, 692 A.2d 709 (1997). The direct causation requirement in a crime policy in Connecticut is synonymous with proximate cause. The court denies summary judgment as the proper interpretation of the policy requires that the use of the computer, in this case, for e-mails “proximately caused” the plaintiff's loss.
Policy Exclusion F.
The defendant, Travelers, next argues that the alleged loss falls within policy exclusion F. for a loss resulting directly or indirectly from the plaintiff's acceptance of money orders or counterfeit money. Exclusion F provides in pertinent part: “This crime policy does not cover ․ F. Loss resulting directly or indirectly from your acceptance of money orders or Counterfeit Money, unless covered under Insuring Agreements A.1, A.2, A.3, or E.7
The policy defines “Counterfeit Money” as “an imitation of money that is intended to deceive and to be taken as genuine.” The policy defines “Money” as a “medium of exchange in current use and authorized or adopted by a domestic or foreign government, including currency, coins, bank notes, bullion, travelers checks, registered checks and money orders held for sale to the public.” Travelers argues that the plaintiff's loss is excluded by Exclusion F because the fraudulent Wachovia bank check constitutes both a money order and “Counterfeit Money.” See. Black's Law Dictionary, Seventh Edition (West 2000) (defining money order as “a negotiable draft issued by an authorized entity to a purchaser, in lieu of a check to be used to pay a debt or otherwise transmit funds upon the credit of the issuer.”).
Owens argues that the term money order is not defined in the policy, and Travelers' position that all checks issued by a bank are money orders contradicts the terms and definitions of its own policy. Under the Crime Policy, “Covered Instrument,” means “checks, drafts, promissory notes or similar written promises, orders or directions to pay a sum certain in Money.” Owens maintains that the Wachovia check fits this definition of a “Covered Instrument” and is not excluded under Exclusion F. At the least, Owens argues, the term “money order is ambiguous and should be strictly construed against Travelers. See, Harrah's Entertainment, Inc. v. ACE American Insurance Co., 100 Fed. Appx. 387, 391 (6th Cir.2004) (holding that a cashier's check is not a money order).
Travelers also argues the bank check falls within the definition of “money” as it is a medium of exchange in current use. Therefore, the fraudulent Wachovia check is counterfeit money. The court disagrees as the bank check does not fall within the recognized definition of money as listed in the policy or in the recognized definitions of money in its usual and ordinary meanings.8
The court agrees with Owens that the Wachovia check does not constitute a “money order” or “counterfeit money” as provided in Exclusion F. Exclusion F. is at best very ambiguous and is not applicable to the plaintiff's claim.9 The phrase “money order” does not naturally encompass a bank check issued by a private banking institution and ambiguity clouds the meaning of the phrase in the subject policy. Summary judgment is denied as to Exclusion F.
Policy Exclusion R.
Travelers next argues that the plaintiff's alleged loss falls within Exclusion R of the policy, for a loss resulting directly or indirectly from the giving or surrendering of money, securities or other property in an exchange or purchase. Exclusion R provides in relevant part:
This Crime Policy does not cover:
R. Loss resulting directly or indirectly from the giving or surrendering of Money, Securities or Other Property in exchange or purchase, whether or not fraudulent, with any party not in collusion with an Employee, except when covered under Insuring Agreement E.
Travelers argues that the plaintiff's loss resulted from the plaintiff's giving or surrendering money in an exchange with a party not in collusion with an employee. The wiring of the money to South Korea constitutes the giving or surrendering of the money. Second, the giving or surrendering of the money was in exchange for the plaintiff collecting a $1,500.00 fee for its services. Third, that exchange was with a party not in collusion with an employee, as the perpetrator was the purported Chinese business. See, Harrah's Entertainment, Inc. v. ACE American Insurance Co., supra, 100 Fed. Appx. 387.
Owens argues that Travelers' presentation of the facts is incorrect as Owens did not wire funds in exchange for a $1,500.00 fee for its services. Owens states that the $1,500.00 was the satisfaction of the retainer fee agreement that had earlier been agreed upon by Owens and the Chinese business. It was not a fee for the wiring of the funds. Accordingly, Owens was not exchanging the funds for a fee. The $1,500.00 retainer fee was to be a security for fees which Owens would incur in the future. Owens does not represent clients on a fixed fee basis. A purported invoice which accompanied the Wachovia check indicated that Dynalock still owed an alleged balance to the Chinese business in an amount of $452,090.00.
In Harrah's, supra, upon which Travelers relies, the policy excluded coverage for any loss: “(1) due to the giving or surrendering of Money or Securities in any exchange or purchase: (2) due to accounting or arithmetical errors or omissions; or (3) of manuscripts, books of account or records.” Id., 389. The Harrah's court found the exclusion language ambiguous as to the phrase “giving or surrendering of Money or Securities in exchange in any exchange or purchase,” finding it to be a “loosely worded exclusion.” Id., 391. The court concluded that the ambiguity must be construed against the drafter, which in an unusual circumstance, was Harrah's, the insured, rather than the defendant insurance company. Id. Exclusion R. in the subject Travelers policy is ambiguous and must be construed against Travelers. Summary judgment based upon Exclusion R is denied.
Breach of the Duty of Good Faith and Fair Dealing
In Count Two of its Complaint, the plaintiff asserts a claim for breach of the covenant of good faith and fair dealing. The plaintiff alleges that Travelers intentionally and/or recklessly denied its claim when it knew or should have known that the claim was legitimate. Additionally, the plaintiff alleges that Travelers intentionally and repeatedly asserted new reasons as its basis for denying the claim, and Travelers failed to conduct a reasonable and/or adequate investigation of the claim.
“[I]t is axiomatic that the ․ duty of good faith and fair dealing is a covenant implied into a contract or a contractual relationship. In other words, every contract carries an implied duty requiring that neither party do anything that will injure the right of the other to receive the benefits of the agreement. The covenant of good faith and fair dealing presupposes that the terms and purpose of the contract are agreed upon by the parties and that what is in dispute is a party's discretionary application or interpretation of a contract term.” (Internal quotation marks omitted.) (Internal citations and quotation marks omitted.) De La Concha of Hartford v. Aetna Life Ins., 269 Conn. 424, 442-43, 849 A.2d 382 (2004) “To constitute a breach of [the implied covenant of good faith and fair dealing], the acts by which a defendant allegedly impedes the plaintiff's right to receive benefits that he or she reasonably expected to receive under the contract must have been taken in bad faith.” Id.; Alexandru v. Strong, 81 Conn.App. 68, 80-81, 837 A.2d 875, cert. denied, 268 Conn. 906, 845 A.2d 406 (2004), citing Gupta v. New Britain General Hospital, 239 Conn. 574, 598, 687 A.2d 111 (1996). “Bad faith in general implies both actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive ․ Bad faith means more than mere negligence; it involves a dishonest purpose.” (Citation omitted.) 19 Perry Street, LLC v. Unionville Water Company, 294 Conn. 611, 637, 987 A.2d 1009 (2010).
“Though the weight of authority seems to be on the side of recognizing a duty of good faith, there is no consensus about what that duty requires.” PSE Consulting, Inc., v. Frank Mercede and Sons, Inc., 267 Conn. 279, 302, 838 A.2d 135 (2004). “The majority of courts agree that the principal must establish something more than mere negligence to prove bad faith.” Id., 302-03. “[W]e join those jurisdictions that define bad faith as requiring an “improper motive” or “dishonest purpose ․” Id., 304-05.
Travelers was under an obligation to conduct a proper investigation. However, a deficient investigation is not, by itself, sufficient to support a finding of bad faith. Id. 308. The thoroughness of Travelers' investigation is just one factor to be considering in determining whether it acted in good faith. Id., 309. “[T]he failure to investigate, standing alone and not accompanied by other evidence of an improper motive, is not enough to constitute bad faith ․” Id., Nevertheless, “[a]lthough mere negligence or failure to make the inquiries which a reasonably prudent person would make does not of itself amount to bad faith, if a party fails to make an inquiry for the purpose of remaining ignorant of facts which he believes or fears would disclose a defect in the transaction, he may be found to have acted in bad faith.” (Internal quotation marks omitted.) Id., 310-11; Funding Consultants, Inc. v. Aetna Casualty & Surety Co., 187 Conn. 637, 644, 447 A.2d 1163 (1982).
Earlier herein, the court recited the chronological sequence of events that ultimately led the Travelers to deny the plaintiff's claim. Owens initially submitted to Travelers, documentation regarding its claim in early October 2008. Thereafter, the parties communicated by telephone and in writing with Travelers maintaining an initial position that the plaintiff's claim was not covered under the policy. Travelers allegedly conducted its investigation and determined there was no coverage. Travelers disclaimed coverage in writing on November 25, 2008, less than two months after being notified of the plaintiff's claim. By letter dated January 26, 2009, legal counsel for the plaintiff disputed the denial of coverage. Travelers reviewed the plaintiff's letter dated January 26, 2009 and again disclaimed coverage by its letter, which is dated February 9, 2009.
The plaintiff argues that Travelers, first, advised it that the claim was going to be denied because the loss was caused solely by the fraudulent check and a computer was not used in connection with the check, even though according to the plaintiff, Travelers made no attempt to verify whether a computer was used in connection with the check. Next, according to the plaintiff, Travelers denied coverage based upon Exclusion R. of the policy. After the plaintiff disputed the application of Exclusion R., Travelers then asserted Exclusion G. of the policy and later, Exclusion F. The plaintiff maintains that it has raised genuine issues of material fact regarding whether Travelers has breached the implied covenant of good faith and fair dealing.
The court is in receipt of copies of the correspondence between the parties regarding the denial of the plaintiff's claim, as well as various sworn statements of representatives of the parties, setting forth their versions of the facts regarding the denial of the plaintiff's claim. From these documents the court notes that the denial of the claim was processed by Travelers in what appears to be a reasonable time frame. However, the court cannot say that there are no genuine material facts in dispute regarding the denial of the claim for the purposes of summary judgment. The court is cognizant of the law that when a good faith controversy exists, an insurer's withholding of the policy proceeds cannot be found to be in bad faith, even if the insurer's position is ultimately found to be erroneous. See, McCauley Ent. v. New Hampshire Ins., 716 F.Sup. 718, 723 (D.Conn.1989). Nonetheless, what constitutes good faith or a lack thereof, depends on the facts of each case. PSE Consulting, Inc., v. Frank Mercede and Sons, Inc., supra, 267 Conn. 318. “Whether a party has acted in bad faith is a question of fact ․” Renaissance Mgt. Co. v. Connecticut Hous. Fin. Auth., 281 Conn. 227, 240, 915 A.2d 290 (2007). Genuine issues of material fact exist, as to the handling of and investigation of the plaintiff's claim.” [T]he trial court does not sit as the trier of fact when ruling on a motion for summary judgment ․ [Its] function is not to decide issues of material fact, but rather to determine whether any such issues exist.” Byrne v. Burke, supra, 112 Conn.App. 268. Summary judgment is denied as to Count Two of the plaintiff's Complaint.
The defendant's motion for summary judgment is denied as to both Count One and Count Two of the plaintiff's Complaint.
By Judge Richard E. Arnold
FN1. The policy number is 105112182.. FN1. The policy number is 105112182.
FN2. Stepp is, in fact, an attorney in North Carolina. It was later determined that Stepp did not send the email to Owens. Similar fraudulent e-mails have been sent to others around the United States, and these fraudulent e-mails have been reported to law enforcement authorities.. FN2. Stepp is, in fact, an attorney in North Carolina. It was later determined that Stepp did not send the email to Owens. Similar fraudulent e-mails have been sent to others around the United States, and these fraudulent e-mails have been reported to law enforcement authorities.
FN3. According to the plaintiff, Shenzhen and Dynalock are believed to be actual businesses.. FN3. According to the plaintiff, Shenzhen and Dynalock are believed to be actual businesses.
FN4. The plaintiff alleges the fraudulent check was produced through the use of a computer.. FN4. The plaintiff alleges the fraudulent check was produced through the use of a computer.
FN5. The action is dated April 24, 2009 and bears a return date of May 19, 2009.. FN5. The action is dated April 24, 2009 and bears a return date of May 19, 2009.
FN6. Insuring Agreements A.1, A.2 and A.3 relate to certain types of employee theft. The plaintiff has not sought coverage under these Insuring Agreements, and there are no facts suggesting the loss was caused by or involved an employee theft. The plaintiff did not purchase coverage under Insuring Agreement E.. FN6. Insuring Agreements A.1, A.2 and A.3 relate to certain types of employee theft. The plaintiff has not sought coverage under these Insuring Agreements, and there are no facts suggesting the loss was caused by or involved an employee theft. The plaintiff did not purchase coverage under Insuring Agreement E.
FN7. See footnote 6 regarding inapplicability of insuring agreements A.1, A.2, A.3 and E.. FN7. See footnote 6 regarding inapplicability of insuring agreements A.1, A.2, A.3 and E.
FN8. Black's Law Dictionary, Revised 4th Edition (West Publishing Co.1968) defines money as meaning “gold, silver or paper money used as circulating medium of exchange, and does not embrace notes, bonds, or other evidences of debt. Currency; the circulating medium; cash.” Ballentine's Law Dictionary, Third Ed. Lawyers Cooperative Publishing (1969) defines money as “Currency; current funds. Cash, including coin or paper. The medium of exchange recognized by the custom of merchants and the laws of the country.”. FN8. Black's Law Dictionary, Revised 4th Edition (West Publishing Co.1968) defines money as meaning “gold, silver or paper money used as circulating medium of exchange, and does not embrace notes, bonds, or other evidences of debt. Currency; the circulating medium; cash.” Ballentine's Law Dictionary, Third Ed. Lawyers Cooperative Publishing (1969) defines money as “Currency; current funds. Cash, including coin or paper. The medium of exchange recognized by the custom of merchants and the laws of the country.”
FN9. The court in Harrah's Entertainment, Inc., supra, 100 Fed. Appx. 392, acknowledged that some definitions of “money order” encompass cashier's checks. See, Black's Law Dictionary, 1022 (7th Ed.1999).. FN9. The court in Harrah's Entertainment, Inc., supra, 100 Fed. Appx. 392, acknowledged that some definitions of “money order” encompass cashier's checks. See, Black's Law Dictionary, 1022 (7th Ed.1999).
Arnold, Richard E., J.