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December 5, 1994


The opinion of the court was delivered by: MIRIAM GOLDMAN CEDARBAUM


 This diversity action arises from a dispute over a commercial crime insurance policy ("Policy") issued by defendant Insurance Company of North America ("INA"), a Pennsylvania corporation, on behalf of plaintiff Colson Services Corporation ("Colson"), a New York corporation. Colson seeks to recover $ 4,327,771.87 under the Policy for a loss of money and securities which it alleges was caused by theft inside a banking premises. INA contends that the loss suffered by Colson is not covered by the Policy, and moves for summary judgment. Colson cross-moves for summary judgment.

 For the reasons discussed below, INA's motion for summary judgment is granted, and Colson's motion for summary judgment is denied.


 The following facts are undisputed. Since about April of 1986, Colson has acted as fiscal and transfer agent, and collection and paying agent, for various clients. For the purpose of receiving and holding funds it collected on behalf of its clients, Colson maintained accounts with the trust department of the National Bank of Washington ("NBW"). One such account, Account # 1-825-12-7 (the "12-7 Account"), was maintained by the Institutional Assets division of NBW's trust department. Colson used that account to deposit funds which it received as fiscal agent on behalf of its clients. Pursuant to its agreements with certain clients, Colson was permitted to use the balances of its clients' funds in the 12-7 Account to make short-term investments. (JPTO PP 7-11.)

 One of Colson's clients, the Small Business Administration ("SBA"), authorized Colson to make conservative overnight investments with the money held on its behalf in the 12-7 Account. The agreement between SBA and Colson provided that "no single investment that is not a direct obligation of the U.S. Government shall exceed $ 2.5 million," and that all non-governmental obligations shall be rated AAA by Moody's Investor's Service, Inc., or Aaa by Standard & Poors Corporation. (Meyer Aff. Ex. I at 15; JPTO P 12.) In addition, Colson agreed to indemnify SBA for any costs, liabilities, and expenses arising from Colson's negligence, breach of authority, breach of contract, or bad faith. (Meyer Aff. Ex. I at 17; JPTO P 13.)

 Colson authorized NBW to decide which overnight investments would be made with the funds in the 12-7 Account in accordance with certain guidelines. (Del Col Aff. Ex. 6.) In practice, Colson gave NBW complete discretion in choosing which investments to make with those funds. (JPTO P 14.) Among the investments made by NBW on behalf of Colson were overnight purchases of commercial paper issued by Washington Bancorporation ("WBC"), NBW's corporate parent. (Id. PP 4, 16.) WBC commercial paper was not an approved investment pursuant to Colson's agreement with SBA because it was not a government obligation, nor was it rated by either Moody's or Standard and Poors. (Id. P 17.)

 During the first four months of 1990, Colson received from NBW, on practically a daily basis, confirmation slips and credit advices disclosing NBW's use of the funds in the 12-7 Account to purchase WBC commercial paper. (Id. P 18.) The confirmation slips stated that "as agent we have sold to you" WBC commercial paper, and disclosed the amount, the interest rate, the maturity date, the price, and the trade date of the WBC commercial paper sold. (Meyer Aff. Ex. M; JPTO P 20.) In addition, NBW regularly provided to Colson copies of bank statements for the 12-7 Account which reflected the purchases of WBC commercial paper. (Meyer Aff. Ex. N; JPTO P 22.)

 From March 15, 1990 through May 4, 1990, NBW invested on behalf of Colson a daily average of approximately $ 9.7 million in WBC commercial paper. (JPTO P 23.) During that time, WBC was reporting losses and its ratings were declining. (Id. PP 24-27, 29, 34.) On May 4, 1990, NBW used $ 9.1 million from the 12-7 Account to purchase, on behalf of Colson, WBC commercial paper. Id. P 35.) On May 7, 1990, WBC defaulted on its commercial paper obligations. (Id. P 38.) Thereafter, Colson procured a $ 9.1 million loan to restore the amount in the 12-7 Account that had been used to purchase WBC commercial paper. (Id. P 42.) On August 1, 1990, WBC filed for bankruptcy, and on August 10, 1990, NBW was placed in FDIC receivership. (Id. PP 44-45.)

 Colson later filed a claim of loss with INA, and now sues to recover $ 4,327,771.87 under the Policy's Theft, Disappearance and Destruction Coverage Form. Although Colson alleges that its total loss was $ 11,786,762.68, it received $ 7,458,990.81 in settlement with the FDIC, and therefore seeks to recover the balance of $ 4,327,771.87 from INA. (Meyer Aff. Ex. Z.) INA contends that Colson is not covered for that loss pursuant to two exclusions in the Policy. In addition, INA urges that Colson's loss did not result from a theft, and that the loss did not involve "money or securities," as required under the Policy. Finally, INA argues that Colson failed to provide adequate notice of the loss in accordance with the Policy, and that requiring INA to cover Colson's loss would be against public policy.


 Summary judgment is authorized when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). In examining the record, the court "must resolve all ambiguities and draw all reasonable inferences in favor of the nonmoving party." Gibson v. American Broadcasting Cos., Inc., 892 F.2d 1128, 1132 (2d Cir. 1989); see Celotex, 477 U.S. at 330 n.2. The judge's role in summary judgment is not "to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986).

 INA contends that even if Colson's loss could otherwise be covered by the Policy as a theft of money or securities, Colson cannot recover because the Policy expressly excludes losses resulting from any dishonest act committed by any of Colson's "authorized representatives." Paragraph D(1)(b) ...

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