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St. Paul Mercury Insurance Co. v. M&T Bank Corporation

United States District Court, S.D. New York

February 19, 2014

ST. PAUL MERCURY INSURANCE COMPANY, Plaintiff,
v.
M&T BANK CORPORATION, Defendant. M&T BANK CORPORATION, Third-Party Plaintiff,
v.
THEODORE LIFTMAN INSURANCE, INC., Third-Party Defendant.

Richard S. Mills, Jonathan D. Martin, McELROY, DEUTCHE, MULVANEY & CARPENTER, LLP, for St. Paul Mercury Insurance Company

Robert J. Lane, Jr., Patrick M. Tomovic, HODGSON RUSS LLP, for M&T Bank Corporation.

John F.X. Lawler, Stacie A. Kosinski, James R. Oswald, ADLER POLLOCK & SHEEHAN P.C., for Theodore Liftman Insurance, Inc.

OPINION & ORDER

JOHN F. KEENAN, District Judge.

Plaintiff St. Paul Mercury Insurance Company and Third-Party Defendant Theodore Liftman Insurance, Inc. each move for summary judgment against Defendant and Third-Party Plaintiff M&T Bank Corporation. For the reasons that follow, the motions are granted.

I. Background

Plaintiff St. Paul Mercury Insurance Company ("St. Paul")[1] is a Connecticut insurance company. Defendant and Third-Party Plaintiff M&T Bank ("M&T Bank" or "the Bank") is a New York bank holding company. Its wholly owned subsidiaries include M&T Securities, Inc. and M&T Insurance Agency, Inc. M&T Securities is a securities broker-dealer and a member of the Financial Industry Regulatory Authority ("FINRA"). M&T Insurance is a licensed insurance broker. Third-Party Defendant Theodore Liftman Insurance, Inc. ("Liftman") is a Massachusetts insurance agency that provides insurance services to the investment community, including fidelity bonds underwritten by St. Paul. (Liftman Rule 56.1 Stmt. ¶¶ 1-15, 63.)

On June 24, 2008, M&T Bank executed a General Contract of Indemnity ("GCI") whereby it agreed to indemnify St. Paul for any amounts paid under bonds issued to the Bank. (Compl. ¶¶ 5-9.) One such bond was a Banker's Blanket Bond, which had a $30 million limit and a deductible of $5 million. (Traveler's Rule 56.1 Stmt. ¶ 3.) The GCI includes a merger clause directly before the signature lines, which states in capitalized, boldfaced type: "WE HAVE READ THIS CONTRACT OF INDEMNITY CAREFULLY. THERE ARE NO SEPARATE AGREEMENTS OR UNDERSTANDINGS WHICH IN ANY WAY LESSEN OUR OBLIGATIONS AS ABOVE SET FORTH." (Aug. 23, 2013 Mills Dec. Ex. A.)

In 2009, M&T Securities was subject to National Association of Securities Dealers ("NASD") Rule 3020. That rule, which has since been superseded by FINRA Rule 4360, required M&T Securities to maintain fidelity insurance coverage, which protects a firm and its capital against losses caused by employee dishonesty or malfeasance. On June 30, 2009, M&T Bank Assistant Vice President Cynthia Marano asked Joseph Riggie, a vice president of M&T Insurance and M&T Bank, to replace M&T Securites's fidelity bond, which was due to expire on November 1, 2009. Riggie inquired about St. Paul's fidelity bond coverage, and was directed to contact Liftman, which could issue St. Paul's fidelity bonds. (M&T Bank Responses to Liftman Rule 56.1 Stmt. ¶¶ 1-3.)

On October 26, 2009, Liftman employee Angela Dennis provided a quote for $1 million in fidelity coverage to Riggie and to Robert Chipman, another M&T Insurance employee. In her email, Dennis noted two "subjectivities that need to be addressed" prior the issuance of the bond. (Aug. 23, 2013 Mills Dec. Ex. E.) One of these was a proposed addendum to the GCI between St. Paul and M&T Bank (the "Addendum"), a one-page document that added the proposed fidelity bond to the list of bonds covered under the prior indemnity agreement. ( Id. Ex. H.) Dennis stated: "As explained in today's conversation, this is [St. Paul's] way of addressing this filler bond situation." (Id.)

The parties dispute the contents and significance of the telephone conversation mentioned by Dennis. M&T Bank contends that Dennis led Riggie to believe that the Addendum would not actually confer any indemnity obligations on the Bank, but rather was meant solely to eliminate the possibility that St. Paul might have to make a double payment to the Bank. (M&T Bank Amended Ans. ¶ 56 ("Ms. Dennis expressly represented that the sole purpose and effect of the Addendum was to ensure that M&T could not recover for the same lost dollars under both the Fidelity Bond and the Banker's Blanket Bond.").) Riggie and Chipman testified to this effect in their depositions. (Aug. 26, 2013 Lane Dec. Ex. E at 8; id. Ex. I at 4.) However, Dennis has denied making any such representation. (Dennis Aff. ¶ 16.)

Dennis later emailed a copy of the Addendum to Chipman and requested that it be signed by two authorized officers of M&T Bank. (Aug. 23, 2013 Mills Dec. Ex. H.) On November 6, 2009, Riggie forwarded the Addendum to the President of M&T Bank, Mark J. Czarnecki. Riggie's cover letter to Czarnecki noted that switching to St. Paul for the fidelity bond would save the Bank $49, 000 annually in premiums. ( Id. Ex. J.) Riggie's letter further states: "As a condition of providing the bond referenced above, [St. Paul] requires that M&T Bank Corporation acknowledge that this new bond is included under the term Bonds' as used in their indemnity agreement." (Id.) Czarnecki signed the Addendum, as did Corporate Secretary Marie King, before a notary on November 23, 2009. ( Id. Ex. I.)

After St. Paul received the signed Addendum, it issued the $1 million fidelity bond to M&T Securities for a one-year period beginning November 1, 2009. At M&T Bank's request, St. Paul later renewed the bond for another year, commencing on November 1, 2010. (Liftman Rule 56.1 Stmt. ¶¶ 61, 66.)

On November 23, 2010, an employee of M&T Bank notified St. Paul of a claim under the fidelity bond, arising out of an alleged theft of client funds by an M&T Securities employee. (Aug. 26, 2013 Lane Dec. Ex. X.) St. Paul advised M&T Securities that it had received the claim, which it had assigned to employee Ben Zviti for handling. Zviti later spoke to Manus Christopher O'Donnell, an employee of M&T Bank, and advised O'Donnell that St. Paul would seek indemnity under the Addendum for any losses paid under the bond. Apparently unaware of the Addendum, O'Donnell emailed Riggie with a series of questions. Riggie forwarded O'Donnell's email to Dennis with additional questions, although he did not mention their previous telephone conversation about the Addendum. (Aug. 23, 2013 Mills Dec. Ex. U.)

M&T Bank was thus faced with the choice of adjusting the claim itself, or allowing St. Paul to investigate and pay the claim under the fidelity bond. (Liftman Rule 56.1 Stmt. ¶ 72.) It chose the latter. O'Donnell directed St. Paul to adjust and settle the claim, but the issue of indemnity remained unresolved. (Aug. 23, 2013 Mills Dec. Ex. S.) St. Paul made two payments totaling $868, 995.56 to settle the claim. (Liftman Rule 56.1 Stmt. ¶ 27.)

On May 8, 2012, St. Paul employee Sherrie L. Monteiro wrote to Czarnecki, care of O'Donnell, and demanded indemnification for the amounts paid out. ( Id. Ex. W.) After M&T Bank refused to indemnify, St. Paul filed the instant suit on August 17, 2012, for indemnification plus costs, statutory interest, and attorney's fees.

M&T Bank answered the complaint on October 29, 2012, and filed an amended answer on June 7, 2013. The Bank continues to assert that Dennis made misrepresentations to Riggie about the purpose of the Addendum during their telephone conversation on October 26, 2009. Additionally, the Bank contends that the Addendum as written causes the fidelity bond to be illegal, such that the Addendum cannot be enforced. On January 14, 2013, the Bank filed ...


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