928 F. Supp. 2d 816
D. Del.2013Background
- Morris James LLP, a Delaware law firm, suffered a $176,750 loss from a scam involving a fake cashier’s check and a foreign debt-collection scheme.
- Continental Casualty Company issued the policy to Morris James.
- Plaintiff filed suit in Delaware Superior Court (Nov. 30, 2010); defendant removed to federal court (Jan. 2011); case is governed by 28 U.S.C. §1332(a)(1).
- The scam involved Esa Corporation Group Oyj, a forged instrument and misrepresentations about a debt owed by B&B Industries; funds were wired to a Japanese account and the check was later deemed counterfeit/altered by Citibank.
- Plaintiff submitted an insurance claim on Aug. 16, 2010; defendant denied coverage on Sep. 29, 2010; cross-motions for summary judgment followed, with the court applying Delaware law.
- The policy includes a Forgery and Alteration Endorsement (limit $250,000) and a False Pretense Exclusion; the dispute centers on interpreting these provisions when read together.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Forgery and Alteration Endorsement covers the loss. | Morris James contends the forged instrument fits the endorsement’s scope. | Continental argues the check was counterfeit, not a forgery/alteration of a valid instrument. | Yes; the forged/check endorsement covers the loss. |
| Whether False Pretense Exclusion precludes coverage. | Morris James argues exclusion should not trump coverage where instrument is forged. | Continental argues the exclusion applies to fraud-induced parting of property. | Exclusion applies, but ambiguity exists when read with the endorsement in tandem, favoring insured. |
| Whether the Forgery Endorsement and False Pretense Exclusion are ambiguous when read together and how that affects coverage. | Endorsement should trump exclusion to provide coverage for forged/altered instruments. | Exclusion should trump endorsement where both apply. | The provisions are ambiguous in tandem; ambiguity favors coverage for the insured; summary judgment for plaintiff. |
Key Cases Cited
- Axis Reinsurance Co. v. HLTH Corp., 993 A.2d 1057 (Del. 2010) (ambiguity resolved in insured’s favor when endorsements and body conflict)
- Oglesby v. State Farm Mut. Auto. Ins. Co., 695 A.2d 1146 (Del. 1997) (ambiguity resolved in insured’s favor; adhesion contract interpretation)
- Travelers Indem. Co. v. Lake, 594 A.2d 38 (Del. 1991) (insurance contract construction favors the insured when ambiguous)
- State Farm Fire & Cas. Co. v. Hackendorn, 605 A.2d 3 (Del. Super. 1991) (burden on insured to show coverage; then insurer must prove exclusion applies)
- Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133 (2000) (summary judgment standard; courts draw inferences in nonmovant’s favor)