Opinion
No. CV 09 502 46 01 S
June 24, 2011
MEMORANDUM OF DECISION RE MOTIONS FOR SUMMARY JUDGMENT (#133, 137)
FACTS
This case involves a claim by the plaintiff, Owens, Schine and Nicola, P.C., a Connecticut law firm, for indemnification under a computer crime insuring agreement issued by the defendant, Travelers Casualty and Surety Company of America. On May 4, 2009, the plaintiff filed a two-count complaint alleging a breach of the insurance policy in count one and, a breach of the implied covenants of good faith and fair dealing in count two.
In the complaint the plaintiff alleges the following facts. The plaintiff purchased a crime insurance policy from the defendant for the policy period of June 1, 2008 through June 1, 2011. The policy states that it will provide coverage for damages directly caused by "computer fraud." In September 2008, the plaintiff was contacted by e-mail through the use of a computer by an attorney from North Carolina who requested the plaintiff's assistance in a collection matter in Connecticut for a client located in China. Subsequently, the plaintiff was contacted "through the use of [a] computer via e-mail" by the China client. The plaintiff entered into an agreement with the client, through the use of computer e-mail, to collect a debt allegedly owed to the China client from a business located in Connecticut. By computer e-mail, the China client contacted the plaintiff stating that, as a result of negotiations, the Connecticut debtor would send a check to the plaintiff as a partial payment of the entire debt. The plaintiff received a check in the amount of $198,610 issued by Wachovia bank. The China client, again by e-mail, directed the plaintiff to deposit the check and wire or transfer the amount of the check, less the plaintiff's fee, to a banking institution in Seoul, South Korea. The plaintiff deposited the check into his Interest on Lawyers' Trust Account (IOLTA) at Chase bank. The plaintiff then directed Chase bank to electronically wire or transfer $197,110 to the banking institution in South Korea on behalf of the China client in accordance with the instructions the plaintiff had received from the China client "through the use of a computer via e-mail." Chase bank electronically transferred that amount to the banking institution in South Korea.
In the complaint, the plaintiff further alleges that Chase subsequently debited the plaintiff's IOLTA account because the check from the Connecticut debtor that the plaintiff had deposited into his account was fraudulent. Since the check deposited into the plaintiff's IOLTA account "was not a Wachovia check," it had not been honored by Wachovia. The plaintiff's complaint alleges that all of the communications between the plaintiff and the China client were through the use of computers by e-mail, which the China client used for the sole purpose of fraudulently causing a loss of money to the plaintiff, the fraudulent check was produced through the use of a computer, and that under the plaintiff's computer crime insurance policy, the defendant had a duty to pay the plaintiff for the loss, but refused to do so. The plaintiff requests monetary damages, interest, costs and attorneys fees.
On November 12, 2009, the defendant filed a motion for summary judgment on the ground that the policy issued to the plaintiff by the defendant does not provide for indemnification as a matter of law. In its memorandum of law in support of the motion, the defendant argued that as a matter of law: (1) Summary judgment is appropriate because there is no genuine issue of material fact that the policy does not provide coverage for the plaintiff's claim; (2) There is no coverage for the loss under the policy because the plaintiff's claim neither involves a computer fraud under the policy nor was the alleged loss directly caused by computer fraud; (3) The plaintiff's loss falls within an exclusion for directly or indirectly accepting money orders or counterfeit money; and (4) The plaintiff's loss falls within an exclusion for directly or indirectly giving or surrendering money, securities or other property in an exchange or purchase. The defendant also submitted the affidavit of Fionuala Dullea, who, as the Claims Executive for Travelers Bond and Financial Products, attested to the truth and accuracy of the insurance policy, a copy of the complaint, the plaintiff's discovery compliance, a copy of the policy, and copies of eight pieces of correspondence between the plaintiff and the defendant on this claim.
Count two is not at issue in the present motion before the court. It was a part of the defendant's first motion for summary judgment, in which the defendant argued that there was no genuine issue of material fact that it had not breached the covenant of good faith and fair dealing in denying the plaintiff's claim, and, even if the denial was not correct, the defendant's investigation and denial were not made in bad faith.
These eight exhibits included correspondence between the defendant and the plaintiff regarding the plaintiff's sworn proof of loss and notice of claim with supporting documentation including the retainer agreement between the plaintiff and the China client, correspondence between the plaintiff and the China client regarding their e-mail transactions, proof of loss and a form for proof of loss sent and filled out by the plaintiff, acknowledgment of the plaintiff's proof of loss, denial of coverage, the plaintiff's letter disputing the denial and another denial letter.
In response, on January 12, 2010, the plaintiff filed a memorandum of law in opposition to the motion, objecting to the motion for the following reasons: (1) The defendant sought to impose a "computer hacking incident" condition to the coverage that did not exist in the policy; (2) Contrary to controlling Connecticut case law, the defendant's reliance upon out-of-state case law for the proposition that direct causation is narrower than proximate causation is not the law in Connecticut, but in any event, causation is a factual issue, not properly decided through summary judgment; and (3) The defendant failed to carry its burden to prove that the policy exclusions relied upon apply, and issues of material fact existed regarding the applicability of these exclusions. The plaintiff submitted with its memorandum of law the affidavit of Dennis Kokenos, an attorney at the plaintiff's law firm responsible for the books and records and a number of exhibits. Thereafter, the defendant filed a reply memorandum on February 9, 2010, the plaintiff filed a "surreply" on March 18, 2010 and the defendant filed a response memorandum on March 19, 2010.
As to count two, the plaintiff posited that genuine issues of material fact existed concerning the defendant's breach of the implied covenant of good faith and fair dealing.
The plaintiff's exhibits included an e-mailed retainer agreement between it and the China client, e-mail transactions between them including the checks, correspondence between the plaintiff and defendant regarding the check that was generated through the use of the computer, and letters from the defendant denying coverage under exclusions R and G of the policy.
Submitted with the defendant's reply memorandum was the plaintiff's response to the defendant's interrogatories and requests for production which had been submitted previously with the defendant's motion for summary judgment and memorandum of law on November 12, 2009. In its reply memorandum, the defendant reemphasized that the computer itself must generate a wrongful transfer of funds and there must be a direct loss of property that was caused by the direct use of a computer to fraudulently cause the transfer in order for this claim to be covered under the policy. The defendant maintained that the perpetrator did not use a computer to generate the transfer and the plaintiff contacted its bank in person, by telephone and in writing, directing the bank to wire a specific amount to the South Korea banking institution. The defendant further asserted that the proper standard to analyze the causation issues is under "direct" and not "proximate" cause, but even if the court were to analyze the issue under proximate causation, the immediate cause of the transfer was the plaintiff's instructions to its bank and not prior e-mails with the perpetrator. Lastly, the defendant reiterated that if coverage was available, the claim would be excluded, nonetheless, under policy exclusions F and R.
In its surreply, the plaintiff argued that the crime policy did not require any "hacking" or a "computer generated transfer" to establish a computer fraud. Furthermore, the plaintiff asserted that its interpretation of "computer fraud" within the crime policy is reasonable and that the fraudulent misrepresentations conveyed to the plaintiff did directly cause its loss.
In its additional reply memorandum, the defendant argued that the plaintiff was rewriting the operative language in the policy so broadly that if a computer is used to perpetrate a fraud and the fraud causes a transfer of funds, the policy would provide coverage. The defendant maintained that this reading of the policy is contrary to the rules of construction. In addition, the defendant contended that the plaintiff wrongly interpreted causation and construed the policy so that it would fulfill its expectations.
On September 20, 2010, Judge Arnold filed a twenty-five-page memorandum of decision denying summary judgment on both counts. See Owens, Schine Nicola, P.C. v. Travelers Casualty Surety Co., Superior Court, judicial district of Fairfield, Docket No. CV 09 5024601 (September 20, 2010, Arnold, J.) ( 50 Conn. L. Rptr. 665). Next, on January 14, 2011, the defendant filed a joint motion for continuance of trial, then scheduled for February 10, 2011, on the ground that, based upon the memorandum of decision, which determined that there were factual issues in dispute as to count two, this count would be withdrawn by agreement of the parties, who believed the remaining count could be resolved without the need for a jury trial. As to count one, since the court, Arnold, J., also determined that the proper interpretation of the policy required that the use of the computer for e-mails proximately caused the plaintiff's loss and that the ambiguity in the two exclusions, F and R, had to be construed against the insurer, both parties agreed that each would file a motion for summary judgment on this count only. Thus, both parties concurred that the motion could be decided as a matter of law, which would resolve the remaining count without "the need for a jury trial."
Count two was officially withdrawn on January 26, 2011.
The trial has been rescheduled for July 21, 2011.
Pursuant to their scheduling agreement, the defendant filed a motion for summary judgment on February 10, 2011, on the ground that the computer fraud insuring agreement in the insurance policy does not provide coverage for the plaintiff's claim as a matter of law. In support of the motion, the defendant submitted a memorandum of law, the affidavit of Dullea in which she attests to the authenticity and accuracy of the policy and correspondence between the plaintiff and the defendant, an affidavit of Steve Balmer (Product Manager for Commercial Crime insurance products) and a number of exhibits. On that same date, the plaintiff filed a motion for summary judgment on the grounds that the court "has already decided all questions of law in favor of [the plaintiff] when it denied [the defendant's] prior [m]otion for [s]ummary [j]udgment" and there are no genuine issues of material fact with respect to the amount of the plaintiff's damages. The plaintiff filed a memorandum of law in support with an affidavit of Kokenos, a supplemental affidavit of Kokenos, a copy of the policy and various other exhibits. The defendant and plaintiff each filed a memorandum of law in opposition to each other's motion for summary judgment on March 3, 2011. Included for the first time with the plaintiff's memorandum in opposition is an affidavit of John Bowes, the Chief Executive Officer of the Darien/Rowayton Bank. Both parties also filed a reply memorandum of law. The matter was argued at short calendar on March 21, 2011.
DISCUSSION
"Practice Book § 17-49 provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." (Internal quotation marks omitted.) Sherman v. Ronco, 294 Conn. 548, 553-54, 985 A.2d 1042 (2010). "The courts are in entire agreement that the moving party for summary judgment has the burden of showing the absence of any genuine issue as to all material facts, which, under applicable principles of substantive law, entitle him to judgment as a matter of law . . . Because the burden of proof is on the movant, the trial court must view the evidence in the light most favorable to the nonmoving party." (Citation omitted; internal quotation marks omitted.) Maltas v. Maltas, 298 Conn. 354, 365, 2 A.3d 902 (2010).
"In ruling on a motion for summary judgment, the court's function is not to decide issues of material fact, but rather to determine whether any such issues exist . . . [Moreover], [t]he courts hold the movant to a strict standard. To satisfy his burden the movant must make a showing that it is quite clear what the truth is, and that excludes any real doubt as to the existence of any genuine issue of material fact . . . [O]nce the moving party has met its burden [of production] . . . the opposing party [to survive summary judgment] must present evidence that demonstrates the existence of some disputed factual issue." (Citations omitted; internal quotation marks omitted.) Maltas v. Maltas, supra, 298 Conn. 365-66.
Under Connecticut law, because the "construction of a contract of insurance presents a question of law for the court" (internal quotation marks omitted.) Moore v. Continental Casualty Co., 252 Conn. 405, 409, 746 A.2d 1252 (2000), it is appropriate for resolution by summary judgment. QSP, Inc. v. Aetna Casualty Surety Co., 256 Conn. 343, 352, 773 A.2d 906 (2001). "Although ordinarily the question of contract interpretation, being a question of the parties' intent, is a question of fact . . . [w]here there is definitive contract language, the determination of what the parties intended by their contractual commitments is a question of law." (Internal quotation marks omitted.) Goldberg v. Hartford Fire Ins. Co., 269 Conn. 550, 559-60, 849 A.2d 368 (2004).
The defendant moves for summary judgment on the ground that there are no genuine issues of material fact and judgment should be rendered as a matter of law. In the defendant's memorandum in support of the motion, it argues that the court's prior decision, which denied the defendant's first motion for summary judgment, was "wrongly decided as a matter of law" because the court "failed to apply controlling principles of contract interpretation" and "failed to address critical elements of the required analysis." The defendant further argues that (1) there is no coverage under the policy for the plaintiff's alleged loss; (2) the computer fraud insuring agreement excludes losses resulting directly or indirectly from the plaintiff's acceptance of money orders or counterfeit money and from the giving or surrendering of money, securities or other property in an exchange or purchase; and (3) not only does the plaintiff's claim not meet the policy definition of a computer fraud but also the causation analysis in the prior summary judgment decision conflicts with the express terms of the policy.
The grounds and arguments in this second motion for summary judgment and the memorandum of law in support of the motion are identical to the defendant's first motion and memorandum of law in support. The only difference is that in the memorandum of law for the second motion, the defendant adds that the law of the case doctrine does not preclude this court from reconsidering the prior decision and entering an order that addresses all of the pertinent issues and conforms to the applicable legal standards. Also included with this second motion is a new affidavit from Steven Balmer, who for the past ten years has been the defendant's product manager for commercial crime policies.
In its February 10, 2011, motion for summary judgment, the plaintiff argues that the issue of coverage under the crime policy has been fully litigated and considered by the court, which essentially found that the plaintiff, "as a matter of law, is entitled to coverage under the [c]rime [p]olicy for the [l]oss" by determining that the fraud perpetrated on the plaintiff met the definition of computer fraud under the crime policy and that the e-mails directly caused the loss. The plaintiff further asserts that the court has previously determined that neither exclusion F nor R applies to bar coverage of the loss. For the first time, however, the plaintiff argues that there are no genuine issues of material fact with respect to the amount of the loss and, therefore, judgment should be entered on that amount plus interest.
The plaintiff states that it is entitled to judgment in the amount of $193,110. This amount is the loss minus the deductible. The plaintiff also states for the first time that, pursuant to General Statutes § 37-3a(a), it is entitled to interest at the rate of ten percent per year for the principal amount which accrued from the date the plaintiff submitted its claim for the loss.
On March 3, 2011, the defendant filed a memorandum of law in opposition to the plaintiff's motion for summary judgment in which the defendant again argues that the law of the case doctrine does not require the court to grant the plaintiff's motion for summary judgment because that prior decision was incorrect. In addition, the defendant maintains that there is no coverage for the plaintiff's claim of computer fraud under the plain language of the insuring agreement and that exclusions F and R apply to deny coverage. The defendant also argues that the affidavit of Kokenos should not be considered because it states legal conclusions, the intent of the parties, what type of insurance coverage should be purchased and irrelevant statements as to the bases of the defendant's denial of coverage. The defendant further argues that an award of prejudgment interest is not appropriate and, even if such an award were to be made, the date from which it accrues is in dispute.
This same affidavit of Kokenos was submitted with the plaintiff's memorandum of opposition to the defendant's first motion for summary judgment to which no objection was made.
In its memorandum of law in opposition to the defendant's motion for summary judgment, the plaintiff reargues that, under the law of the case doctrine, all questions have already been decided in its favor and that the loss is covered under the policy. More specifically, the plaintiff reiterates that the exclusions relied on by the defendant are not applicable, the fraud perpetrated is within the meaning of "computer fraud" in the policy, and the loss was directly caused by this computer fraud.
Both parties filed a reply memorandum. The defendant rejoins that the plaintiff's claim falls within exclusion F because the loss arose out of its acceptance of counterfeit money, the Wachovia check, and the plaintiff did not purchase the appropriate insurance to cover the loss. The plaintiff replies that, inasmuch as the issues have been decided under the doctrine of the law of the case, reconsideration is inappropriate in this case.
Admissibility of Evidence Submitted
With the second motion for summary judgment and memorandum of law in support thereof, the defendant submitted an affidavit of Dullea, an affidavit of Balmer, along with copies of the policy, Judge Arnold's decision, the complaint, the plaintiff's discovery responses, and all of the previous correspondence attached to its earlier motion for summary judgment and memoranda of law. The plaintiff submitted, with its motion for summary judgment and memorandum of law in support thereof, all of the same previous exhibits it provided to the court with its response and reply memoranda of law to the defendant's first motion for summary judgment with two additional exhibits, a supplemental affidavit of Kokenos and an affidavit of Bowes.
The documents submitted by the parties have been authenticated by the affidavits provided by persons with personal knowledge of their genuineness. See New Haven v. Pantani, 89 Conn.App. 675, 679, 874 A.2d 879 (2005) (discussing rules of authenticating documents); Barlow v. Palmer, 96 Conn.App. 88, 92, 898 A.2d 835 (2006) (same). Moreover, many of the same exhibits are relied on by both parties. In addition, neither party has objected to the admissibility of any of the evidence except as to the affidavit of Kokenos, to which the defendant objects in its memorandum in opposition to the plaintiff's motion for summary judgment and the affidavit of Bowes, to which the defendant objects in its reply memorandum. Regarding the admissibility of affidavits, Practice Book § 17-46 provides: "Supporting and opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein. Sworn or certified copies of all papers or parts thereof referred to in an affidavit shall be attached thereto." "The facts contained in the . . . affidavits and exhibits, with inferences which could be reasonably and logically drawn from them, could, if the trier credited the evidence supporting the facts, support a claim . . ." United Oil Co. v. Urban Redevelopment Commission, 158 Conn. 364, 381, 260 A.2d 596 (1969). "Mere statements of legal conclusions . . . are not sufficient . . ." (Internal quotation marks omitted.) Double G.G. Leasing, LLC v. Underwriters at Lloyd's, London, 116 Conn.App. 417, 430, 978 A.2d 83 (2009).
In its memorandum in opposition to the plaintiff's motion for summary judgment, the defendant objects to statements in the affidavit of Kokenos on the ground that they are not within the affiant's personal knowledge, they express legal conclusions not facts, and the affiant has not stated his "role in determining which coverage to purchase, consideration of the available coverages or purchasing of the [p]olicy." The defendant further objects to Kokenos' statements as irrelevant concerning his understanding of the bases for the defendant's denial of coverage and his understanding of what the defendant did or did not do as part of its investigation. The defendant objects to paragraph four, which states that "[d]uring the month of September 2008, a fraud was perpetrated on [the plaintiff] through the use of a computer"; paragraph fourteen, which states that "[the plaintiff] expected to be covered under the crime policy for the type of loss it sustained"; and paragraphs seventeen through twenty, in which Kokenos implies that the defendant over time gave different reasons for its denial of coverage of the plaintiff's claim. Since none of these statements are relevant to the issue of whether the prior decision is the law of the case or on the interpretation of coverage of the loss under the policy, this court need not rule on their admissibility. With regard to the Bowes affidavit, the defendant, in its reply memorandum, objects to Bowes' characterization of the Wachovia check as not a medium of exchange, counterfeit money, a counterfeit registered check nor a counterfeit money order under the policy because this is a question of law, not a proper subject of expert testimony. The defendant further objects to the content of the affidavit as entirely conclusory: failing to provide any explanation and assessment for the probativeness of the statements made. Lastly, the defendant objects on the basis that it is unclear as to what the affiant is stating about the purported Wachovia check and that he has only offered a conclusion. Again, because the court's determination in the present case rests on a question of law, it is not material to that resolution whether the statements objected to by the defendant are conclusory or not a proper subject of expert testimony.
Law of the Case
The crux of the defendant's motion is that the policy does not provide coverage for the plaintiff's loss and that the loss falls within the policy exclusions, F and R; therefore, the prior decision by Judge Arnold was incorrectly decided. To make that determination, the court must first consider whether to treat Judge Arnold's decision as the law of the case.
"The law of the case is not written in stone but is a flexible principle of many facets adaptable to the exigencies of the different situations in which it may be invoked . . . In essence it expresses the practice of judges generally to refuse to reopen what has been decided and is not a limitation on their power . . . New pleadings intended to raise again a question of law which has already been presented on the record and determined adversely to the pleader are not to be favored . . . But a determination so made is not necessarily to be treated as an infallible guide to the court in dealing with all matters subsequently arising in the cause . . . Where a matter has previously been ruled upon interlocutorily, the court in a subsequent proceeding in the case may treat that decision as the law of the case, if it is of the opinion that the issue was correctly decided, in the absence of some new or overriding circumstance." (Citations omitted; internal quotation marks omitted.) Breen v. Phelps, 186 Conn. 86, 99, 439 A.2d 1066 (1982). See Wasko v. Minella, 87 Conn.App. 390, 396, 865 A.2d 1223 (2003) (court reasonably relied on its prior determination on summary judgment regarding scope of insurance coverage as law of the case).
Although "[a] judge should hesitate to change his own rulings in a case and should be more reluctant to overrule those of another judge" (internal quotation marks omitted); Bowman v. Jack's Auto Sales, 54 Conn.App. 289, 293, 734 A.2d 1036 (1999); "[a] judge is not bound to follow the decisions of another judge made at an earlier stage of the proceedings . . . [I]f the same point is again raised he [or she] has the same right to reconsider the question as if he [or she] had himself [or herself] made the original decision . . . This principle has been frequently applied to an earlier ruling during the pleading stage of a case . . . According to the generally accepted view, one judge may, in a proper case, vacate, modify, or depart from an interlocutory order or ruling of another judge in the same case, upon a question of law . . ."
"This court has determined that although a judge should be hesitant to rule contrary to another judge's ruling, he or she may do so [n]evertheless, if the case comes before him [or her] regularly and [the judge] becomes convinced that the view of the law previously applied by [a] coordinate predecessor was clearly erroneous and would work a manifest injustice if followed . . . By way of example, this court has noted that [t]he adoption of a different view of the law by a judge in acting upon a motion for summary judgment than that of his [or her] predecessor . . . is a common illustration of this principle." (Internal quotation marks omitted.) Brown Brown, Inc. v. Blumenthal, 288 Conn. 646, 656-57, 954 A.2d 816 (2008).
Our Appellate Court also has noted: "There is nothing in the rules of practice or in our case law . . . that specifically restricts a party to one summary judgment motion. Our Supreme Court [in Mac's Car City, Inc. v. American National Bank, 205 Conn. 255, 260-61, 532 A.2d 1302 (1987)] found nothing in our rules of practice that prohibited the refiling [of a motion for summary judgment] and looked to the federal rules for guidance . . . [T]he federal courts have held that it is not an abuse of discretion or a violation of the doctrine of the law of the case for a trial judge to reconsider a motion for summary judgment that has previously been denied, particularly where new evidence has been presented which was not before the court at the time of the original motion, or a clarification of the law has since occurred." (Internal quotation marks omitted.) Fiaschetti v. Nash Engineering Co., 47 Conn.App. 443, 445-46, 706 A.2d 476, cert. denied, 244 Conn. 906, 714 A.2d 1 (1998).
In the present case, this court must first determine whether the issues decided by Judge Arnold in the defendant's first motion for summary judgment are the same as those raised by the parties in their respective motions for summary judgment, and, if so, whether the defendant has provided any new or overriding circumstance to persuade this court to reconsider the earlier decision on the motion for summary judgment.
The defendant argues that the prior decision simply declared each operative coverage provision and exclusion as "ambiguous" without offering reasonable alternative interpretations of these provisions under which coverage would be afforded and without applying any of the contract interpretation rules that are necessary for a proper analysis; that it did not consider that the plaintiff had chosen not to purchase coverage under Insuring Agreement E, under which coverage might have been afforded for the facts alleged in its claim; and to the extent that the prior decision reflects any analysis as opposed to just conclusions, that analysis is wrong under the pertinent case law.
Judge Arnold summarized the defendant's arguments made in its motion for summary judgment filed on November 12, 2009 as follows: The defendant "argues that summary judgment should be granted as to Count One because the policy does not provide coverage for the claim alleged in the plaintiff's complaint. Travelers position is that the claim does not constitute Computer Fraud under the terms of the policy, and the plaintiff's alleged loss was not directly caused by a Computer Fraud. Travelers maintains that the plaintiff's loss falls within the exclusion for loss resulting directly or indirectly from the plaintiff's acceptance of `money orders' or `Counterfeit Money,' as well as, the policy exclusion for losses resulting directly or indirectly from the giving or surrendering of Money, Securities or Other Property in an exchange or purchase. It is Travelers' position that in order for there to be a Computer Fraud, the transfer must occur by way of a computer `hacking' incident, such as the manipulation of numbers or events through the use of a computer and in the instant case, no such computer hacking incident occurred. Furthermore, if there had been a computer hacking incident, there must also be a showing of a direct loss caused by that intrusion or incident." Schine Nicola, P.C. v. Travelers Casualty Surety Co., supra, 50 Conn. L. Rptr. 667. The court noted also that the plaintiff filed a response to the defendant's motion, in which the plaintiff disputed the denial of coverage.
Further, in his decision, Judge Arnold first examined the crime policy provisions providing coverage under the definition of "computer fraud" and then the two exclusions, F and R. He stated: "The Computer Fraud Insuring Agreement contained in the policy provides: `We will pay you for your direct loss of, or your direct loss from damage to, Money, Securities and Other Property directly caused by Computer Fraud.' The policy further provides: `Computer Fraud' means: The use of any computer to fraudulently cause a transfer of Money, Securities or Other Property from inside the Premises or Banking Premises: [1.] to a person (other than a Messenger) outside the Premises or Banking Premises; or [2.] to a place outside the Premises or Banking Premises. The policy includes an Exclusion for loss resulting directly or indirectly from the acceptance of money orders or counterfeit money. Exclusion F provides, in pertinent part: This crime policy does not cover . . .: F. Loss resulting directly or indirectly from your acceptance of money orders or Counterfeit Money, unless covered under Insuring Agreements A.1, A.2, A.3, or E.
"The policy contains definitions for Counterfeit Money and Money. Counterfeit money is defined, in pertinent part, as: `an imitation of money that is intended to deceive and to be taken as genuine.' The policy defines money, in pertinent part, as: `a medium of exchange in current use and authorized or adopted by a domestic or foreign government, including currency, coins, bank notes, bullion, travelers checks, registered checks and money orders held for sale to the public.'"
"The policy also contains an exclusion for loss directly or indirectly from the giving or surrendering of Money in an exchange or purchase. Exclusion R provides, in pertinent part: This Crime Policy does not cover: R. Loss resulting directly or indirectly from the giving or surrendering of Money, Securities or Other Property in exchange or purchase, whether or not fraudulent, with any party not in collusion with an Employee, except when covered under Insuring Agreement E." Owens, Schine Nicola, P.C. v. Travelers Casualty Surety Co., supra, 50 Conn. L. Rptr. 667-68.
The arguments analyzed in this prior decision are essentially identical to those arguments raised in the defendant's second motion for summary judgment. In its second motion, the defendant maintains that whether the actions causing the plaintiff's loss constitute "computer fraud" as defined in the policy is of no matter, as the coverage afforded under the agreement excludes losses resulting directly or indirectly from the acceptance of money orders or counterfeit money as well as losses resulting directly or indirectly from the giving or surrendering of money, securities or other property in an exchange or purchase. In addition, the defendant argues that the plaintiff's complaint does not constitute computer fraud because it fails to allege the use of a computer to generate an authorized or fraudulent transfer of the plaintiff's funds and even if the claim did fall within the definition of computer fraud in the policy, the "alleged computer fraud did not directly cause the [p]laintiff's loss, as required for coverage under the [p]olicy." Thus, in applying the rules of construction to the insuring agreement, the defendant reasons that there is no coverage of the plaintiff's claim or loss as a matter of law.
In examining the coverage provided and applying the rules of contract construction, the court, Arnold, J., concluded that, even though the policy is ambiguous as to the amount of computer usage necessary to constitute computer fraud, this ambiguity must be resolved in favor of the plaintiff. Owens, Schine Nicola, P.C. v. Travelers Casualty Surety Co., supra, 50 Conn. L. Rptr. 670. The court reasoned that the China client communicated with the plaintiff by an e-mail and the fraudulent check may have been created by the use of a computer even if the transfer of the money occurred when the plaintiff contacted Chase Bank in person, by telephone and in writing to direct the transfer of the money to a bank account in South Korea. "The court agrees that the policy is ambiguous as to the amount of computer usage necessary to constitute computer fraud. This ambiguity is resolved in favor of the plaintiff." Id. The court next examined the issue of causation, again raised in the defendant's second motion for summary judgment, in which the defendant argues that the court ignored all portions of the definition of a computer fraud except for the term cause and interpreted it to mean that a computer must cause any part of a loss regardless of whether it played a role in the transfer. The defendant once more, as in its first motion for summary judgment, maintains that "a computer must be used to cause the transfer of money and must be the direct cause of the loss" and, for that proposition, relies on Brightpoint, Inc. v. Zurich American Ins. Co. No. 1:04-CV-2085-SEB-JPG (S.D.Ind. March 10, 2006), and the terms of the policy. The defendant repeats that the plaintiff's loss or claim not only did not involve computer fraud but also was not directly or proximately caused by a computer fraud.
Based on Connecticut's well-settled law, Judge Arnold reasoned "that the words `direct cause' ordinarily are synonymous in legal intendment with `proximate cause' a rule applicable to causes involving the construction of an insurance contract"; thus, "[w]hat is meant by proximate cause is not that which is the last in time or place, not merely that which was in activity at the consummation of the injury, but that which is the procuring, efficient, and predominant cause." Owens, Schine Nicola, P. C. v. Travelers Casualty Surety Co., supra, 50 Conn. L. Rptr. 670. The court concluded that the "proper interpretation of the policy requires that the use of the computer, in this case, for e-mails `proximately caused' the plaintiff's loss." Id. It is this interpretation by the court that is not consonant with the defendant's position. The defendant, however, in its second motion for summary judgment, has not argued anything new on these issues, nor has the defendant shown how the prior decision was clearly erroneous or that adhering to that decision would work a manifest injustice.
Not only does the defendant argue that there is no "coverage under the Computer Fraud Insuring Agreement for the [plaintiff's] alleged loss," but also argues that the loss "falls within two exclusions contained in the [p]olicy: an exclusion for losses resulting directly or indirectly from the acceptance of money orders or [c]ounterfeit [m]oney and an exclusion for losses resulting directly or indirectly from the giving or surrendering of [m]oney, [s]ecurities or [o]ther [p]roperty in an exchange or purchase." This exact argument was raised in the defendant's first motion for summary judgment.
As to the first exclusion, exclusion F, dealing with money orders and counterfeit money, the prior decision examined the definition of "counterfeit money" and "money" and the respective positions of both parties and the law provided in support of them. Contrary to the defendant's stance that the Wachovia check constitutes both a money order and counterfeit money, Judge Arnold held that "the check does not fall within the recognized definitions of money as listed in the policy or in the recognized definitions of money in its usual and ordinary meanings." Owens, Schine Nicola, P.C. v. Travelers Casualty Surety Co., supra, 50 Conn. L. Rptr. 671 n. 8. Thus, Judge Arnold concluded that "the Wachovia check [did] not constitute a `money order' or `counterfeit money' as provided in Exclusion F. Exclusion F [was] at best very ambiguous and [was] not applicable to the plaintiff's claims." The defendant takes issue with this conclusion on the ground that "[a] court may not find `a contract or policy provision to be "ambiguous" unless the court can articulate without violence, two equally responsible interpretations of the policy or contract.'" The construction of an insurance policy, however, requires that "[w]hen the words of an insurance contract are, without violence, susceptible of two [equally reasonable] interpretations, that which will sustain the claim and cover the loss must, in preference be adopted . . . [T]his rule of construction favorable to the insured extends to exclusion clauses . . . The court must conclude that the language should be construed in favor of the insured unless it has `a high degree of certainty' that the policy language clearly and unambiguously excludes the claim." (Citations omitted; internal quotation marks omitted.) Liberty Mutual Ins. Co. v. Lone Star Industries, Inc., 290 Conn. 767, 796, 967 A.2d 1 (2009). Although not stated in such terms, it is reasonable to conclude that Judge Arnold in the prior decision did not find to a high degree of certainty that the policy unambiguously excluded the plaintiff's loss under exclusion F.
With respect to the second exclusion, exclusion R, the defendant again argues that the plaintiff's act of wiring or transferring money to the bank in South Korea constitutes the giving or surrendering of money. Further, the defendant maintains that the loss in giving or surrendering the money was clearly an exchange because "in exchange for wiring [$197,110] of the [$198,610] ostensibly received by way of [the] [p]urported [c]heck, the [plaintiff] was to retain the amount of [$1,500]." The defendant states that the prior decision merely declared that the exclusion is ambiguous without establishing "the precondition to a finding of ambiguity; that is, it did not articulate an equally reasonable alternative interpretation of Exclusion R under which coverage would not be excluded." After looking at the language of the policy, the court analyzed Harrah's Entertainment, Inc. v. ACE American Ins. Co., 100 Fed.Appx. 387, 389-91 (6th Cir. 2004), the case on which the defendant relied. Judge Arnold stated: "The Harrah's court found the exclusion language ambiguous as to the phrase `giving or surrendering of Money or Securities in exchange in any exchange or purchase,' finding it to be a `loosely worded exclusion' . . . The court concluded that the ambiguity must be construed against the drafter." Owens, Schine Nicola, P.C. v. Travelers Casualty Surety Co., supra, 50 Conn. L. Rptr. 671. In construing exclusion R against the defendant, it is reasonable to conclude again that the court in the prior decision must have determined that the policy did not unambiguously to a high degree of certainty exclude the plaintiff's loss.
After repeating all of its prior arguments in this second motion for summary judgment, the defendant lastly asserts that the law of the case does not preclude the court from reconsidering the prior decision, which was "wrong under the pertinent case law, and [should] apply the proper contract interpretation principles to hold that the plaintiff's loss is not covered under the policy." This court now has reexamined the issues of coverage and the exclusions in a comprehensive manner, the present claims are not distinct from the previous ones, and the defendant has failed to bring to the court's attention any new evidence, clarification of the law or overriding circumstance that would persuade the court that the earlier decision was wrongly decided. This court can reasonably rely on Judge Arnold's prior determination regarding the scope of coverage of and the respective exclusions in the insurance policy as the law of the case. Therefore, the defendant's motion for summary judgment is denied.
Prejudgment Interest
Aside from arguing that the law of the case was correctly determined as a matter of law, the plaintiff, in its motion for summary judgment, asserts that there are no genuine issues of material fact with respect to the amount of its loss and, therefore, judgment should be entered in the amount of $197,110 minus the deductible of $4,000, plus interest. Based on General Statutes § 37-3a, which provides in relevant part that "interest at the rate of ten percent a year and no more, may be recovered and allowed in civil actions," the plaintiff argues that it should be awarded this rate from the date the claim was submitted to the defendant or October 6, 2008, up through the date of this motion. The defendant counters that, even if this court were to find that there is coverage for the plaintiff's claim, the defendant did not wrongfully withhold the money based on its fair reading of the policy and the relevant case law. Second, the defendant argues that the determination of a proper commencement date for prejudgment interest is a question of fact. Thus, the defendant maintains that the earliest possible date for interest to accrue would be September 20, 2010, the date notice of the prior decision was issued by the court. Third, the defendant asserts that the rate of interest must be reasonable and just, which, based on the federal reserve rate for the ten-year Treasury Bond, requires the court to apply a rate in the range of 3 percent, rather than 10 percent.
Specifically, the plaintiff argues that the court already determined correctly as a matter of law that it is entitled to coverage for the loss under the insurance crime policy because (1) the defendant relied upon exclusions that do not apply to the facts in the present case; (2) the fraud perpetrated on the plaintiff fits within the meaning of computer fraud under the crime insurance policy; and (3) the loss was directly caused by the computer fraud.
"Prejudgment interest pursuant to § 37-3a has been applied to breach of contract claims for liquidated damages, namely, where a party claims that a specified sum under the terms of a contract, or a sum to be determined by the terms of the contract, owed to that party has been detained by another party." Foley v. Huntington Co., 42 Conn.App. 712, 740, 682 A.2d 1026, cert. denied, 239 Conn. 931, 683 A.2d 397 (1996). "The allowance of prejudgment interest as an element of damages is an equitable determination and a matter lying within the discretion of the trial court . . . The determination of whether or not interest is to be recognized as a proper element of damages, is one to be made in view of the demands of justice rather than through the application of an arbitrary rule . . . A trial court must make two determinations when awarding compensatory interest under § 37-3a: (1) whether the party against whom interest is sought has wrongfully detained money due the other party; and (2) the date upon which the wrongful detention began in order to determine the time from which interest should be calculated." (Citation omitted; internal quotation marks omitted.) Blakeslee Arpaia Chapman, Inc. v. EI Constructors, Inc., 239 Conn. 708, 734-35, 687 A.2d 506 (1997).
"In the context of § 37-3a, `wrongful' means nothing more than that the act is performed without legal right to do so. Ballentine's Law Dictionary [(3d Ed. 1989)] at 1382." Sarasota, Inc. v. Ralion Corp., Superior Court, judicial district of Fairfield, Docket No. CV 95 0322000 (February 10, 1998, Mottolese, J.) ( 21 Conn. L. Rptr. 382). Thus, "`wrongful' detention of money is not synonymous with `bad faith' conduct." Id., 382.
In MedValUSA Health Programs, Inc. v. Member Works, Inc., 273 Conn. 634, 872 A.2d 423, cert. denied sub nom. Vertrue, Inc. v. MedValUSA Health Programs, Inc., 546 U.S. 960, 126 S.Ct. 479, 163 L.Ed.2d 363 (2005), the Supreme Court addressed the issue of a wrongful detention of money involving an arbitration award. Therein, on appeal, the plaintiff argued, inter alia, that the trial court had abused its discretion in denying its motion for prejudgment and postjudgment interest. The Supreme Court held that the trial court did not abuse its discretion in denying the plaintiff's motion for interest pursuant to § 37-3a based on the trial court's finding that "the defendant had not wrongfully withheld the money because the defendant's arguments in opposition to the application to confirm the award and in support of its motion to vacate the arbitration award were not frivolous. This was an appropriate equitable consideration within the discretion of the trial court." Id., 666.
In Norwalk v. Barton, Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV 02 0187554 (January 27, 2009, Tierney, J.T.R.), the court discussed how to determine what rate of interest should be applied. The court stated: "The Statutes in Title 37 are not models of consistency or clarity. Frequently parties will request and trial courts award in addition to a damage award, `statutory interest.' Mariculture Products Ltd v. Certain Underwriters at Lloyd's of London, 110 Conn.App. 668, 674 n. 6, [ 955 A.2d 1206] (2008); Rejouis v. Greenwich Taxi, Inc., 263 Conn. 132, 134, [ 819 A.2d 226] (2003). There is no such statute in Connecticut. [Section] 37-3a is the statute most frequently cited as the authority for `statutory interest.' Under § 37-3a: `Interest at the rate of ten percent a year, and no more, may be recovered and allowed in civil actions . . . Yet § 37-3a only sets a cap at 10%. Any rate of interest from 10% lower is "statutory interest.'" Stuart v. Stuart, 112 Conn.App. 160, 180-81, [ 962 A.2d 842] (2009) [rev'd in part on other grounds, 297 Conn. 26, 996 A.2d 259 (2010)].
"The language of . . . § 37-3a is directory not mandatory. The plain language of the statute sets a cap of 10% otherwise the phrase `and no more' would be meaningless . . . `Consistent with its plain language, § 37-3a establishes a maximum rate above which a trial court should not venture in the absence of specific legislative discretion.' Sears, Roebuck Company v. Board of Tax Review, 241 Conn. 749, 765-66, [ 699 A.2d 81] (1997). [Section] 37-3a sets the maximum rate, a ceiling of 10%. It does not set 10% as the fixed rate of statutory interest. Id., 766; White Oak Corp. v. Dept of Transportation, 217 Conn. 281, 297, [ 585 A.2d 1199] (1991).
"Simply to chose 10.0% as the interest rate because that is the only number referenced in § 37-3a is not the proper exercise of judicial discretion. The following two trial court decisions are examples of the correct use of . . . § 37-3a. The two trial judges selected, not the 10% maximum interest rate but interest rates of 5% or 8% in the exercise of their discretion. Choi v. Argenti, Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket [No.] CV 98 0168719 (April 21, 2003, Lewis, J.T.R.) ("General Statutes § 37-3a provides that interest at the rate of not more than 10% may be imposed"); Lebrun v. Lebrun, Superior Court, judicial district of New Haven, Docket [No.] FA 94 0366032 (November 7, 2008, Frazzini, J.) ("Accordingly, the court exercises its discretion to order statutory interest at the rate of eight percent per year on the arrearage owed . . .")." (Citation omitted.) Norwalk v. Barton, supra, Superior Court, Docket No. CV 02 0187554.
Since this court has determined as a matter of law that the plaintiff's claim or loss is covered under the insurance policy, the plaintiff is entitled to payment under the policy. Questions of fact remain to be decided, however, as to whether the defendant "wrongfully" detained the money and, if so, from what date the money was wrongfully detained, and then what rate of interest should be applied in calculating the amount of interest to be awarded. As a result, the plaintiff's motion for summary judgment on the issue of interest is denied.
The defendant's third argument, that the interest must be "reasonable and just," does not seem to apply to § 37-3a. Whether a court must ascertain that the interest rate is reasonable and just on the amount of the compensation awarded is a part of the two-step process for awards of interest in condemnation cases under General Statutes § 37-3c. See Section 37-3c, entitled: "Rate of interest recoverable in condemnation cases" provides in relevant part: "The judgment of compensation for a taking of property by eminent domain shall include interest at a rate that is reasonable and just on the amount of the compensation awarded . . ."
CONCLUSION
In sum, for the foregoing reasons, the defendant's motion for summary judgment is denied, and the plaintiff's motion for summary judgment is granted on the issue of coverage. As to the issue of interest, the plaintiff's motion is denied.