Plaintiff Bleznak Black (BB), an estate planning investment entity, filed suit against the insurers to compel coverage for losses exceeding $15 million, which BB alleged it incurred as a result of Bernie Madoff’s investment fraud. BB had purchased property insurance from the insurers for the June 30, 2008 to June 30, 2009 policy period. The Allied policy extended coverage up to the first $5 million in claims, and the U.S. Fire policy provided $5 million of excess over that available under the Allied policy. Westchester and Axis extended portions of an additional $25 million in additional excess coverage, with policies that “followed the form” of the Allied and U.S. Fire policies.
The Allied policy insured against “all risk of direct physical loss of or damage to property described herein,” but excluded the loss of money or securities. While the policy did not define “money,” the policy defined “securities” as “all negotiable and nonnegotiable instruments or contracts representing either money or other property, [including] revenue and other stamps in current use, tokens, and tickets but does not include money.”
The U.S. Fire policy limited coverage to claims in which the Allied policy had admitted liability for its limits. The U.S. Fire policy also contained a fidelity exclusion, which excluded losses incurred as a result of fraudulent or dishonest acts, intended to result in financial gain, and committed by certain individuals (including officers of corporations) “engaged by the [i]nsured to render any service or perform any act in connection with property insured under th[e] [p]olicy.”
In its complaint for breach of contract and declaratory judgment, BB argued that Madoff did not steal money or securities (as defined in the policies), but rather stole an “account” valued at approximately $16.3 million. In their motion for summary judgment, the insurers argued that BB did not sustain a loss to covered property. U.S. Fire also argued that the fidelity exclusion in its policy precluded coverage for the loss. The trial court granted the defendants’ motion, rejecting BB’s attempt to distinguish “account” from “money” or “securities” because accounts are comprised of the money contained within them. The trial court also found that the U.S. Fire fidelity exclusion applied.
Affirming the trial court, the New Jersey appellate court reasoned that the terms at issue were unambiguous and the plain language of the policies excluded BB’s claim. It agreed with the trial court’s observation that it was unreasonable to suggest that “money” or “securities” did not include the accounts that Madoff managed. The appellate court also affirmed the trial court’s application of the U.S. Fire fidelity exclusion, finding it unambiguously excluded Madoff’s fraudulent and dishonest acts. The court reasoned that BB had engaged BLMIS, a corporation, to render services with respect to the account, and Madoff, the company’s chief financial officer, engaged in fraudulent or dishonest acts with respect to the account.