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July 3, 1984


The opinion of the court was delivered by: WEINFELD


Plaintiff, a federally chartered credit union located at Poughkeepsie, New York, commenced this action against Cumis Insurance Society ("Cumis"), which had issued to plaintiff a "Credit Union Discovery Bond" ("the policy"), indemnifying plaintiff against certain specified losses. Plaintiff seeks by this action to recover a loss it sustained when Penn Square Bank of Oklahoma City, Oklahoma ("Penn Square"), which had issued certificates of deposit to plaintiff, failed. Cumis moves for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure, on the ground that the undisputed facts show that the loss is not covered by the policy.

 Plaintiff invested in the certificates of deposit ("CDs") based upon information received from Professional Asset Management, Inc. ("PAM"), an investment consulting firm located at Woodland Hills, California. The factual underpinnings of the relationship between plaintiff and PAM are not in dispute. PAM, a self-styled money broker, solicits funds for investment in various banks and savings and loan institutions, primarily through certificates of deposit. PAM is paid a fee by the institution which issues the certificate of deposit. PAM employs marketing and public relations techniques such as promotional mailings, reports, newsletters and symposia to inform credit unions about investment opportunities in banks and savings and loans throughout the nation.

 Early in 1981, plaintiff began receiving complimentary copies of PAM's "Capital Adequacy Reports" and its newsletter to "Clients and Friends," which contained PAM's recommendations for investments in various banking institutions. Plaintiff also received a document entitled "The P.A.M. Pledge," which stated that before placing a bank or savings and loan associations on its recommended list, PAM performed a "five-year trend analysis of capital adequacy and performance . . . review[ed] actual annual financials, 10k's, 10Q's . . . and the auditor's opinions of the annual reports . . . [as well as] documents required by Federal regulatory agencies of each institution . . . monitor[ed] widely read business and trade publications . . . [and reviewed the institution's response to PAM's] own carefully designed financial questionnaire."

 In mid-1981, PAM placed Penn Square on its list of recommended investments. Thereafter, in December, 1981, plaintiff invested $500,000 in a sixty-day certificate of deposit from Penn Square. Plaintiff renewed that certificate, and subsequently increased its investments, so that by July 5, 1982, plaintiff had a total of $3,000,000 invested in three certificates of deposit issued by Penn Square. In making its investments, plaintiff dealt directly with Penn Square and did not use PAM as an intermediary.

 On July 5, 1982, Penn Square was closed by the Comptroller of the Currency by reason of its insolvency. To date, plaintiff has recovered only approximately $700,000 of its $3,000,000 investment ($100,000 was insured by the Federal Deposit Insurance Corporation ("FDIC"), which is also the receiver, and $594,506 has been paid by the receiver as a partial dividend). Plaintiff filed a claim with Cumis for $2,378,025, the unpaid balance of principal and interest due under the CDs issued by Penn Square, asserting that the loss comes within the indemnification provisions of the policy issued by defendant to plaintiff. Defendant rejected the claim, and plaintiff commenced this action to recover the loss.

 Plaintiff's complaint sets forth three claims against Cumis. In the first and second claims, plaintiff alleges that PAM and Penn Square were employees of plaintiff, that the loss was occasioned by the fraud and misrepresentation of those employees, and that it therefore comes within Clause A of the policy:

 This bond provides coverage [:] A. For direct loss of, or damage to, any property, as defined herein, caused by the fraud and dishonesty of any of the Insured's employees, as herein defined, and directors, committed anywhere, whether acting alone or in collusion with others, or through the failure on the part of such employee, excluding directors acting as directors except for fraud or dishonesty, to well and faithfully perform his duties.

 In the third claim, plaintiff alleges that its loss was the result of "burglary, larceny, misplacement or mysterious unexplained disappearance" of plaintiff's property while it was on deposit on the premises of Penn Square, and therefore comes within Clause B of the policy:

 This bond provides coverage [:] . . . B. For direct loss of any property, as defined herein, through burglary, robbery, larceny (whether common-law or statutory), theft, holdup, misplacement, mysterious unexplainable disappearance, damage or destruction, including damage or destruction by fire of property as defined herein, while such property is within the premises as defined herein.

 Defendant moves for summary judgment dismissing each of the three claims. It argues that the undisputed facts show that neither PAM nor Penn Square were "employees" of plaintiff, as that term is defined in the policy. Further, it asserts that the plaintiff's investment in Penn Square's CDs was in the nature of a loan, and that the policy's loan exclusion provision therefore applies. Finally, defendant argues that the funds on deposit with Penn Square were not plaintiff's property, and therefore their loss is not covered by the policy.

 Summary judgment under Fed. R. Civ. P. 56 is a "drastic device" *fn1" -- one that our Court of Appeals has applied rigidly and "with some timidity" to insure that a litigant is not deprived of the right to a jury trial. *fn2" At the same time, however, our Court of Appeals has recognized that, "properly employed, summary judgment is a useful device for unmasking frivolous claims and putting a swift end to meritless litigation." *fn3" On a motion for summary judgment, "the court cannot try issues of fact; it can only determine whether there are issues to be tried." *fn4" The moving party has the burden of proving "the absence of any material factual issue genuinely in dispute," *fn5" and the Court must "resolve all ambiguities and draw all reasonable inferences in favor of the party against whom summary judgment is sought." *fn6" However, the opposing party "may not rest upon mere conclusory allegations or denials," but must instead set forth "supporting arguments or facts in opposition to the motion" *fn7" and "bring to the district court's attention some affirmative indication that his version of relevant events is not fanciful." *fn8"

 When applied to a breach of contract action, these principles "require that where contract language is susceptible of at least two fairly reasonable meanings, the parties have a right to present extrinsic evidence of their intent at the time of contracting. Summary judment is perforce improper of conflicting evidence is adduced." *fn9" Contracts of insurance, like other contracts, are to be construed to effectuate the parties' intent as expressed by the words the parties used, and if the terms of the contract are clear and unambiguous, the Court must enforce the plain, ordinary and common meaning of those terms. *fn10" Accordingly, the Court first must determine as a matter of law whether the terms of the contract are ambiguous. *fn11" If the contract is ambiguous, ...

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