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Adirondack Trust Co. v. St. Paul Mercury Insurance Co.

June 11, 2010

ADIRONDACK TRUST COMPANY, PLAINTIFF,
v.
ST. PAUL MERCURY INSURANCE COMPANY, DEFENDANT.



The opinion of the court was delivered by: Gary L. Sharpe District Court Judge

MEMORANDUM-DECISION AND ORDER

I. Introduction

Plaintiff Adirondack Trust Company brings this action seeking a declaration of coverage under a financial institution bond issued by defendant St. Paul Mercury Insurance Company. (See Compl., Dkt. No. 1.) Pending is St. Paul's motion to dismiss Adirondack's complaint. (Dkt. No. 6) For the reasons that follow, the motion is granted.

II. Facts

Plaintiff Adirondack is a banking corporation insured by defendant St. Paul under Financial Institution Bond No. 010-F-0457B0620. (See Compl. ¶¶ 1, 4, Dkt. No. 1.) On April 24, 2009, an Adirondack customer deposited into his account a Citibank cashiers check for $498,580.90. (Id. at ¶ 9; see also Compl., Ex. C at 1, Dkt. No. 1.) On April 27, before the check cleared, the customer instructed Adirondack to wire substantially all of the funds to the Bank of China, which Adirondack did. (Id. at ¶ 10.) Several days later, Adirondack learned that the check was fraudulent. (Id. at ¶ 11.) However, Adirondack was unsuccessful in recalling the wire or otherwise recovering the funds. (Id. at ¶¶ 12-13.)

Based on these facts, Adirondack sought coverage under Insuring Clause D1(a) of the Bond, which covers "[l]oss resulting directly from ... [f]orgery or alteration of, on, or in, any Negotiable Instrument." (Id. at ¶ 6; Compl., Ex. A, Bond at 4, Dkt. No. 1.) By letter dated June 30, 2009, St. Paul denied Adirondack's claim under Exclusion (q) of the Bond, which excludes from coverage:

Loss resulting directly or indirectly from payments made or withdrawals from a depositor's account involving items of deposit which are not finally paid for any reason, including but not limited to forgery or any other fraud .... (Compl., Ex. A, Bond at 16, Dkt. No. 1.) St. Paul explained that because "the Loss concerns a fraudulent/counterfeit Cashiers Check deposited into a customer's account, followed by a subsequent wire transfer before said Cashiers Check cleared" coverage for the loss was precluded under Exclusion (q). (Ex. F to Compl. at 1,2, Dkt. No. 1.)

Challenging St. Paul's denial, Adirondack commenced this action for declaratory and other relief, claiming that Exclusion (q) should not apply. St. Paul now moves to dismiss Adirondack's complaint, arguing that Exclusion (q) unambiguously excludes Adirondack's loss from coverage.

III. Standard of Review*fn1

The standard of review under FED. R. CIV. P. 12(b)(6) is well established and will not be repeated here. For a full discussion of the standard, the court refers the parties to its decision in Dixon v. Albany County Bd. of Elections, No. 1:08-CV-502, 2008 WL 4238708, at *2 (N.D.N.Y. Sept. 8, 2008).

IV. Discussion

Under New York law, insurance contracts are construed and interpreted like other business contracts. In re Estates of Covert, 97 N.Y.2d 68, 76 (N.Y. 2001). Accordingly, in resolving a dispute over insurance coverage, the court must first look to the language of the policy. Consol. Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208, 221-22 (N.Y. 2002). If the terms of the policy are clear and unambiguous, the court must enforce the policy according to the plain meaning of those terms. See Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569 (N.Y. 2002). Similarly, where an insurer asserts a policy exclusion to disclaim coverage, a court must enforce that disclaimer if the exclusion is "stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case." See Cont'l Cas. Co. v. Rapid-Am. Corp., 80 N.Y.2d 640, 652 (N.Y. 1993) (citations omitted).

Whether policy terms are clear or ambiguous is a question of law for the court. S. Rd. Assocs., LLC v IBM, 4 N.Y.3d 272, 278 (N.Y. 2005). Contract language is ambiguous if it is susceptible to multiple meanings when viewed in the context of the entire agreement. See Sayers v. Rochester Tel. Corp. Supplemental Mgmt. Pension Plan, 7 F.3d 1091, 1095 (2d Cir. 1993). No ambiguity exists, however, where contract language has "a definite and precise meaning" that is not reasonably capable of multiple interpretations. Id. (internal citations and quotation marks omitted).

Here, St. Paul argues that its disclaimer should be enforced because Exclusion (q) unambiguously precludes coverage for Adirondack's loss. The court agrees. Adirondack neither disputes that Exclusion (q) is written in plain, clear terms, nor alleges that it is susceptible to multiple interpretations. And having reviewed the clause, the court discerns no ambiguity or lack of clarity.*fn2 Indeed, the Bond plainly states that "it does not cover ... (q) Loss resulting directly or indirectly from payments made or withdrawals from a depositor's account involving items of deposit which are not finally paid for any reason." (Compl., Ex. A, Bond at 16, Dkt. No.1.) There is also no dispute concerning the fundamental facts underlying Adirondack's loss. Adirondack does not deny that the Citibank check was an item of deposit, that it ...


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