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October 25, 2013


Submitted October 15, 2013 Decided


Before Judges Parrillo, Harris, and Guadagno.


On appeal from the Superior Court of New Jersey, Law Division, Mercer County, Docket No. L-45-11.


Brach Eichler, L.L.C., attorneys for appellant/cross-respondent (Anthony M. Gruppuso, of counsel and on the brief).


Sweet Pasquarelli, P.C., attorneys for respondent/cross-appellant (Anthony P. Pasquarelli and Matthew G. Minor, on the brief).


This is a declaratory judgment action between an insurer and its insured. Plaintiff North Fullerton Surgery Center (the Center) appeals from the Law Division's July 19, 2012 grant of summary judgment to defendant Franklin Mutual Insurance Company (FMI) declaring that, with respect to FMI's Businessowners Policy that was issued to the Center, the policy's coverage for employee dishonesty was limited to $10,000. FMI cross-appeals from a June 30, 2011 order dismissing its counterclaim, which sought a declaration that FMI's coverage is excess over the coverage provided to the Center by non-party Westchester Fire Insurance Company (Westchester). We affirm.1


The Center operates a surgery center in Montclair. For several years prior to February 2009, the Center employed Heidi Facchini as a nurse administrator, tasked to serve as the facility's bookkeeper and office manager. Facchini was authorized to buy supplies, had check-signing authority, and controlled the use of the Center's credit card.

The Center alleges that over a five-to-seven-year span, on approximately 300 different occasions, Facchini stole, embezzled, and defrauded it of over one million dollars.2 For example, the Center claims that from August 2005 through February 2009 Facchini made forty-six unauthorized transfers from the Center's checking account to her private bank account, totaling $516,473.95. Furthermore, Facchini is accused of using the Center's credit card to charge personal items, paying for those charges with the Center's funds on fifty-four separate occasions between September 2004 and February 2009. Over this period, Facchini supposedly converted $432,361.49 of the Center's money. Facchini's dishonesty, however, is alleged to go even further. The Center claims that Facchini also stole the Center's cash, totaling $62,236.91, at least thirty-two times. Additionally, she is believed to have used $59,554 of the Center's money to pay her family health care benefits and $1,919 for her personal use of a limousine service.

The Center was insured under the FMI Businessowners Policy from 2003 through the date the Center discovered Facchini's actions. As such, the Center alleges that FMI is liable to the Center under the policy for the losses caused by Facchini.

In addition to the FMI policy, the Center's losses resulting from Facchini's actions also were covered by a Business and Management Indemnity Policy issued by Westchester. After a dispute revolving around the scope of the Business and Management Indemnity Policy, Westchester settled with the Center, ultimately paying $832,000 in satisfaction of its loss coverage caused by Facchini.3

The FMI Businessowners Policy provided for several levels and types of coverage. "Coverage B," a component of Part IA of the FMI Businessowners Policy, insured the Center's business personal property against loss resulting from a variety of causes. "Coverage D" covered loss to money and securities used in the Center's business. Under the Declarations, the policy insured the Center's business personal property with a limit of $1,000,000. The same Declarations provided for a $10,000 limit for losses to money and securities.

The FMI Businessowners Policy was expressly subject to the following exclusions:





We do not cover the following property except to the extent otherwise specifically provided for here.


A. Accounts, bills, deeds, evidence of debt, money or securities, notes, and gold, silver, or other precious metals. Valuable papers and records.


. . . .




We do not insure loss consisting of, or directly or indirectly caused by, one or more of the following, except to the extent otherwise specifically provided for here. Such loss is not insured whether or not an otherwise covered cause of loss contributes concurrently or otherwise to the loss.


. . . .




The unexplained or mysterious disappearance of property including money and securities, or shortages disclosed on taking inventory. Acts of appropriation or pilferage. Criminal, dishonest, or fraudulent acts by, or instigated by, you or your directors, employees, officers, partners, or trustees or other insureds, or by anyone given possession of property, (including because of false pretense, trick, or similar act by person) other than a bailee for hire.


Notwithstanding the foregoing, the FMI Businessowners Policy expressly included supplemental coverage pursuant to Endorsement BU02820893, titled, "Employee Dishonesty Coverage Part I." This endorsement obligated FMI to indemnify the Center for specific losses due to employee dishonesty up to the limit shown in the Declarations, which was $10,000:

When made part of this insurance contract, the following applies to Part I.


The provisions of this endorsement apply only when the endorsement number is listed in the Declarations.


Except as provided below, all other provisions in this policy are unchanged.


. . . .


A. [FMI] will pay up to the limit of liability shown above, your loss of money, securities and other business personal property because of dishonest or fraudulent acts involving your employees (whether acting alone or in collusion with others). A series of similar or related acts is one occurrence.


B. The limit is not cumulative from year to year even if the acts take place over a period of years. We cover loss discovered during the policy year, or within one year from the end of the policy period or the expiration date of a prior bond covering the loss (but only if recovery cannot be made under the prior bond).


The endorsement recognizes that acts of employee dishonesty are a covered cause of loss. However, because a blank space appears in the policy next to the words, "Limit of Liability," the endorsement did not, on its face, set forth a maximum limit for FMI's obligation to indemnify the Center for losses caused by employee dishonesty. The Declarations, however, contain the following notation:





Notwithstanding the Declarations, the Center believed it had secured from FMI at least $1,000,000 in coverage for losses caused by employee dishonesty.

FMI did not deny coverage for the Center's claim. Rather, it took the position that Facchini's thefts over five years constituted one occurrence, specifically relying upon the employee dishonesty endorsement's provisions that "[a] series of similar or related acts is one occurrence" and "[t]he limit is not cumulative from year to year even if the acts take place over a period of years."

In the ensuing litigation between the Center and FMI, the Law Division agreed with FMI's position. The court granted summary judgment in favor of FMI, concluding that the language of the FMI Businessowners Policy clearly indicated Facchini's acts over five years constituted one occurrence and thus the Center's recoverable loss was capped at $10,000. Its July 19, 2012 order memorialized this conclusion, and this appeal followed.


"An appellate court reviews a grant of summary judgment de novo, applying the same standard governing the trial court under Rule 4:46." Chance v. McCann, 405 N.J. Super. 547, 563 (App. Div. 2009) (citing Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007)). In such review, "'[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference[.]'" Estate of Hanges v. Metro. Prop. & Cas. Ins. Co., 202 N.J. 369, 382 (2010) (quoting Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995)).

In like vein, as a general principle, an interpretation of an insurance contract is a legal question and thus subject to de novo review. Ohio Cas. Ins. Co. v. Island Pool & Spa, Inc., 418 N.J. Super. 162, 168 (App. Div. 2011). While contract interpretation is a question of law, de novo review of a contract is predicated on the absence of a factual dispute at issue. Kieffer v. Best Buy, 205 N.J. 213, 223, n.5 (2011) (citing Jennings v. Pinto, 5 N.J. 562, 569-70 (1950)).

Because there is no material factual dispute in this case, we therefore owe no special deference to the motion court's interpretation of the insurance policy or "the legal consequences that flow from the established facts." Zabilowicz v. Kelsey, 200 N.J. 507, 513 (2009) (quoting Manalapan Realty, 140 N.J. at 378). Accordingly, we review the Law Division's analysis of the insurance policies de novo and "look at the contract with fresh eyes." Kieffer, supra, 205 N.J. at 223; see also Homesite Ins. Co. v. Hindman, 413 N.J. Super. 41, 46 (App. Div. 2010).

Our analysis is further channeled by certain general principles guiding us to the proper interpretation of the policy language at issue: "coverage provisions are to be read broadly, exclusions are to be read narrowly, potential ambiguities must be resolved in favor of the insured, and the policy is to be read in a manner that fulfills the insured's reasonable expectations." Selective Ins. Co. of Am. v. Hudson E. Pain Mgmt. Osteopathic Med., 210 N.J. 597, 605 (2012).

"An insurance policy is a contract that will be enforced as written when its terms are clear in order that the expectations of the parties . . . be fulfilled." Flomerfelt v. Cardiello, 202 N.J. 432, 441 (2010). "When interpreting language in an insurance policy, the words used should be given their ordinary meaning." Ohio Cas. Ins. Co., supra, 418 N.J. Super. at 168-69 (citing Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 175 (1992)). "If the language of a particular provision is clear and unambiguous, the inquiry is concluded." Id. at 169. (citing Progressive Cas. Ins. Co. v. Hurley, 166 N.J. 260, 272-73 (2001)). Courts "will not search for ambiguities [in insurance policy exclusions] where there are none." Ibid. (quoting Villa v. Short, 195 N.J. 15, 26 (2008)). See also President v. Jenkins, 180 N.J. 550, 562 (2004) ("If the policy terms are clear, courts should interpret the policy as written and avoid writing a better insurance policy than the one purchased."). As the Supreme Court observed:

The language in the policy underscores the basic notion that the premium paid by the insured does not buy coverage for all . . . damage but only for that type of damage provided for in the policy. Thus, limitations on coverage in an insurance policy are designed to restrict and shape coverage otherwise afforded.


[Hardy v. Abdul-Matin, 198 N.J. 95, 102 (2009) (internal quotation marks and citations omitted).]

Therefore, exclusionary clauses in an insurance policy must be enforced as long as they are unambiguous and not contrary to public policy. Ibid.

The Center argues that the FMI Businessowners Policy fails to define "occurrence" and the employee dishonesty endorsement can only be construed as an additional amount of insurance and not an aggregate limit or per-occurrence limit. This argument does not withstand scrutiny because of the unambiguous provision that "[a] series of similar or related acts is one occurrence." There is nothing unclear about this description or its reference in and application to Part I (the property coverages) of the FMI Businessowners Policy. As the Court concluded:

an insurance contract is not per se ambiguous because its declarations sheet, definition section, and exclusion provisions are separately presented. A rule of construction forcing insurers to avoid all cross-referencing in policies would require them to reprint the entire definition section on each page of the policy, or to define each term every time it is used. That proliferation of fine print would itself demand strenuous study and run the risk of making insurance policies more difficult for the average insured to understand.


[Zacarias v. Allstate Ins. Co., 168 N.J. 590, 603 (2001).]

The endorsement cannot be read in isolation, and, as the endorsement is the only provision that provides for the very coverage that the Center seeks, its terms control.

The Center's reliance upon the general language in the business personal property section in asserting its claim for loss also is unavailing. Coverages B and D, while covering property losses connected with personal property usual to the Center's business, as well as money and securities, is plainly tempered by language in Part IE that excludes "[c]riminal, dishonest, or fraudulent acts by . . . employees." Indeed, the Center's procurement of crime coverage in the Westchester policy filled this gap without unnecessary (and costly) duplication of coverage.

The Center also is foreclosed from claiming that the language of the endorsement renders the exclusion inapplicable. The Declarations clearly state the coverage for "Employee Dishonesty" is limited to $10,000. New Jersey courts place particular emphasis on an insurance policy's declaration page when determining the reasonable expectations of the insured. President, supra, 180 N.J. at 565. Notably, the Court regards the declaration page of an insurance policy as having "signal importance":

"[I]t is the declaration page, the one page of the policy tailored to the particular insured and not merely boilerplate, which must be deemed to define coverage and the insured's expectation of coverage. And we are also convinced that reasonable expectations of coverage raised by the declaration page cannot be contradicted by the policy's boilerplate unless the declaration page itself so warns the insured."


[Zacarias, supra, 168 N.J. at 602 (quoting Lehrhoff v. Aetna Cas. & Sur. Co., 271 N.J. Super. 340, 347 (App. Div. 1994)).]


Here, the Declarations clearly identified and informed the Center of the nature of the Center's purchased insurance, the scope of that coverage, the policy's coverage limits, and premium charges. We concur in the motion court's determination that the FMI Businessowners Policy unequivocally provided only a maximum of $10,000 for losses caused by Facchini.

Without conceding its interpretation of the policy, the Center posits an alternate notion to undermine the decision of the motion court. This theory asserts that if the endorsement does not, as the motion court concluded, provide coverage for each of the myriad defalcations of Facchini, the Center is nonetheless entitled to separate coverage up to $10,000 per incident for each of Facchini's thefts under Auto Lenders Acceptance Corp. v. Gentilini Ford, Inc., 181 N.J. 245 (2004). We disagree.

In Auto Lenders, the Court determined whether losses sustained because of an employee's fraudulent acts were covered under an insurance policy's employee dishonesty provision, and whether that employee's conduct constituted a single occurrence under the policy, thereby entitling the plaintiffs to recover up to the $5,000 limit on each separate occurrence. Id. at 250. The case involved an automobile dealership employee who, over an eleven-month span, was involved in twenty-seven automobile financing frauds whereby he approved credit applications for non-credit worthy borrowers that contained false information. Id. at 251.

The insurance policy in Auto Lenders required an interpretation of an employee dishonesty provision that limited coverage based on occurrence specifically stating, in pertinent part, that "(4) [a]ll loss or damage: (1) [c]aused by one or more persons; or (2)[i]nvolving a single act or series of related acts; is considered one occurrence." Id. at 252-53. The Court concluded that a fair reading of the employee dishonesty provision "simply means that for each loss of property covered by the policy there can be only one recovery, regardless of the number of employees that may have caused the loss." Id. at 276. Moreover, while the disloyal employee may have acted in the same manner when perpetrating each fraudulent sale, "for each sale he caused a separate, direct loss of property to [the car dealership] by inducing it to part with an automobile in exchange for a faulty installment sales contract." Ibid. Ultimately, each separate sale resulted in the dealership's relinquishment of possession of twenty-seven automobiles on twenty-seven separate occasions to twenty-seven distinct customers, and each was determined to be a direct loss that triggered a separate occurrence under the insurer's policy. Id. at 277.

The Court directly distinguished the foregoing from "the myriad of embezzlement-type cases where an employee steals cash or checks from an employer as part of an ongoing scheme to defraud."4 Ibid. Moreover, to reach its conclusion, the Court specifically declined to "adhere to the text's literal limitation because to do so here would nearly vitiate the coverage that both parties clearly contemplated." Id. at 276. The Court highlighted that "[w]hen the provisions of the text, read literally, would largely nullify the protections afforded by the policy, [courts] restrict their meaning 'so as to enable fair fulfillment of the stated policy objective.'" Ibid. (quoting Kievit v. Loyal Protective Life Ins. Co., 34 N.J. 475, 483 (1961)).

We view Auto Lenders as inapposite. The case clearly did not intend to globally apply to all insurers' employee dishonestly coverages. Indeed, the Court went out of its way to recognize that conventional, incremental embezzlement losses as in the present case are quite unlike the unique losses of twenty-seven, high value pieces of business inventory caused by the dealership's disloyal employee.

Additionally, as we have already noted, the Declarations in the present case set the contours of the parties' reasonable expectations. The employee dishonesty endorsement here, unlike the provision in Auto Lenders, definitively and unambiguously states, "[a] series of similar or related acts is one occurrence" (emphasis added). Facchini's continuous embezzlement from the Center was not so attenuated or unusual that the insured could have expected those acts to be unrelated. Thus, Facchini's persistent and repetitive thefts are precisely the type of "similar or related acts" contemplated by the endorsement, and thus were properly determined to be one $10,000-compensible occurrence by the Law Division.


1 FMI's appellate brief states, "[s]hould the [c]ourt affirm the trial court's determination, the cross-appeal will be moot." Accordingly, we dismiss the cross-appeal on the ground of mootness.

2 Facchini pled guilty to a two-count accusation charging her with third-degree theft by deception and third-degree filing a false income tax return. She was sentenced to an aggregate term of five years probation, community service, and $280 in fines and penalties.

3 In accepting Westchester's offer of settlement, the Center's attorney wrote a letter summarizing the presumed method of calculating the net amount:

Based on our review of the offer, the "proposed compromise loss" has been calculated by [Westchester] for settlement purposes at $843,025.43. This amount has been reduced by a $1,000[] deductible . . . and a further $10,000, attributable to an anticipated recovery under a crime coverage policy issued by [FMI]. Apparently you have also included an unattributed deduction of $25.43 for a proposed settlement figure of $832,000.

4 The Court cited with approval to Am. Commerce Ins. Brokers, Inc. v. Minn. Mut. Fire & Cas. Co., 551 N.W.2d 224, 229 (Minn. 1996) ("the phrase 'series of related acts' is intended to encompass a continuous embezzlement scheme in which the dishonest employee converts funds from an employer by a common scheme on a constant basis") to distinguish "embezzlement-type cases" from the fraud perpetrated in Auto Lenders, where "each purchaser and the terms of each sale were unique" and separate events. Auto Lenders, supra, 181 N.J. at 277.