GREG WHITE, Magistrate Judge.
This matter is before the Court for consideration of (1) Plaintiff National Credit Union Administration Board, as Liquidating Agent of St. Paul Croatian Federal Credit Union's Motion for Summary Judgment (Doc. No. 90); and, (2) Defendant CUMIS Insurance Society's Motion for Summary Judgment
For the following reasons, Plaintiff's Motion for Summary Judgment (Doc. No. 90) is DENIED; and, Defendant CUMIS's Motion for Summary Judgment (Doc. No. 88) is DENIED.
On August 18, 2011, Plaintiff National Credit Union Administration Board, as Liquidating Agent of St. Paul Croatian Federal Credit Union (hereinafter "Plaintiff" or "Liquidating Agent") filed a Complaint against Defendant CUMIS Insurance Society (hereinafter "Defendant" or "CUMIS"). (Doc. No. 1.) Therein, Plaintiff alleges that, on April 30, 2010,
A case management conference was conducted on November 29, 2011, at which time the Court set a discovery deadline of September 1, 2012 and a dispositive motions deadline of October 1, 2012. (Doc. No. 14.) These deadlines were extended no less than seven times, in large part due to the parties' numerous discovery disputes.
The parties timely filed cross motions for summary judgment on October 29, 2014. (Doc. Nos. 88, 90.) Briefs in Opposition were filed on December 5, 2014, and replies were filed on December 22, 2014. (Doc. Nos. 97, 98, 99, 100.)
St. Paul Croatian Federal Credit Union was established in 1943 to serve members of St. Paul Croatian Parish. (Doc. No. 98-4 at 3.) See also Material Loss Review of St. Paul Croatian Federal Credit Union, National Credit Union Administration, Office of Inspector General Report # OIG-10-16 (hereinafter "OIG Report") at p. 4 (Oct. 7, 2010). It began with a small branch office in Cleveland. (Raguz Depo. at Tr. 18-20, 23-25.)
In 1989, Anthony Raguz ("Raguz") was hired by St. Paul to work as a teller and loan officer. (Raguz Depo. at Tr. 4-15.) At that time, there were three people working in the Cleveland branch: Joe Plavac; Debbie Politi; and, Mr. Raguz. Id. at Tr. 14. Mr. Plavac served as the manager. Id. In 1996, Mr. Plavac retired and Mr. Raguz became the "guy in charge."
Around this same time, St. Paul opened a branch in Eastlake, Ohio. Id. at Tr. 16-18. Initially, the Eastlake branch was relatively small, employing only two people. Id. at Tr. 18. It grew, however, and, sometime between 2000 and 2002, St. Paul obtained a larger space for its Eastlake branch. At that time, three employees remained in the Cleveland branch while the Eastlake branch expanded to four tellers and two to three customer service people. Id. at Tr. 18-19, 22-24. Mr. Raguz testified Ms. Politi was the "office manager" of the Cleveland branch, while Mirjana Zovkic became the "office manager" of the Eastlake branch.
At some point in 2000, Mr. Raguz began making fraudulent loans; i.e., accepting bribes in exchange for authorizing loans. Id. at Tr. 28-30. Mr. Raguz testified that, at first, only approximately 5 to 10% of the credit union's loans were fraudulent. Id. at Tr. 34-36. However, he stated "it got progressively more as time went on."
Mr. Raguz used the term "cover" to describe one such practice. Id. at Tr. 38. In order to "cover" a loan, Mr. Raguz would create a loan for a fictional person or entity and then use those loan proceeds to make payments on delinquent (or soon to be delinquent) loans, thus preventing them from being reported to the NCUA. Id. at Tr. 38-40, 54-56. Specifically, Mr. Raguz explained "covering" loans as follows:
Id. at Tr. 38-39. Mr. Raguz "covered" both fraudulent loans (i.e., loans associated with bribes) as well as legitimate loans that, for one reason or another, were delinquent or about to become delinquent. Id. at Tr. 39-40.
Mr. Raguz also engaged in a practice he called "resetting" to conceal his fraudulent scheme. Id. at Tr. 41. "Resetting" was the process of taking a loan balance plus accrued interest, and resetting it as a new loan. Id. at Tr. 41-42. As Mr. Raguz explained:
Id. at Tr. 41-42.
Finally, Mr. Raguz testified he would "burn" a "bad loan" in order to avoid reporting it as delinquent. Id. at Tr. 96-97. He described "bad loans" as loans that were not being paid for one reason or another. Id. at Tr. 97. Mr. Raguz chose not to write these loans off because it would have required him to adjust the delinquency rates and loan allowance. Id. Instead, he "burned" them by making "them disappear through a fraudulent transaction." Id.
It is undisputed that Mr. Raguz's fraudulent conduct continued from 2000 up until the collapse of St. Paul in April 2010. It is further undisputed that St. Paul experienced tremendous asset growth during this time period. According to an October 2010 report prepared by Lillie & Company, St. Paul had total assets of $52 million and a loan portfolio of $42 million as of December 31, 2001. (Doc. No. 98-4 at 4.) By March 31, 2010, St. Paul's total assets had grown to $250 million and its loan portfolio to $240 million. Id. Moreover, the Lillie & Company report observed that "[d]uring this period, [St. Paul] had virtually no delinquent loans or charge offs." Id. See also OIG Report at p. 17 (Oct. 7, 2010) ("In spite of the economic downturn and contrary to other credit unions, St. Paul reported zero loan delinquency and charge-offs from 2004 to 2009.")
In its regulatory capacity, the NCUA conducted periodic examinations of St. Paul throughout the relevant time period.
St. Paul also engaged an outside auditor, George Hanks, to perform yearly audits during this time period. (Raguz Depo. at Tr. 67-68, 71; Calevich Depo. at Tr. 64-65, 106-108.) These reports were similarly provided to the St. Paul Board and Supervisory Committee. (Raguz Depo. at Tr. 67-68, 71; Calevich Depo. at Tr. 106-108; Ritzler Depo. at Tr. 15, 24-25.) It is undisputed that none of these audits revealed Mr. Raguz's fraud. (Calevich Depo. at Tr. 120-121.)
Throughout the relevant time period, Defendant CUMIS was St. Paul's fidelity insurer.
Id. at Tr. 58-59. CUMIS contends (and Plaintiff does not challenge) that, as St. Paul's assets grew, its bond limit was incrementally increased from $2.5 million in 2002; to $3 million in 2003; to $3.5 million in 2004; to $4.0 million in 2006; and, finally, to $5.0 million in February 2010. (Doc. No. 88-1 at 2.)
Sometime in early 2010, the NCUA began to have concerns regarding St. Paul's operations.
On April 12, 2010, St. Paul placed CUMIS on notice of "potentially impermissible" member business loans and "potential improper member accounts," and requested "written verification of continued coverage without change in terms of the bond policy." (Doc. No. 90-4.) On September 9, 2010, CUMIS sent a letter to the NCUA in which it purported to rescind the bond policy "based on material misrepresentations and concealment of material facts made at the time the credit union obtained and renewed the fidelity bond." (Doc. No. 90-6.) On October 8, 2010, the NCUA filed a Proof of Loss with CUMIS in the amount of $72,546,823.72. (Doc. No. 90-5.) CUMIS has continued to deny coverage.
On August 18, 2011, Plaintiff filed the instant action seeking a declaratory judgment that CUMIS owes coverage under the fidelity bond it issued to St. Paul for losses arising from employee or director dishonesty. (Doc. No. 1 at ¶¶ 8-19, 32-34.) The parties timely filed cross motions for summary judgment on October 29, 2014. (Doc. Nos. 88, 90.) Briefs in Opposition were filed on December 5, 2014, and replies were filed on December 22, 2014. (Doc. Nos. 97, 98, 99, 100.)
Federal Rule of Civil Procedure 56(a) governs summary judgment motions and states:
In considering summary judgment motions, this Court must view the evidence in a light most favorable to the non-moving party to determine whether a genuine issue of material fact exists. Adickes v. S.H. Kress & Co., 398 U.S. 144 (1970). A fact is "material" only if its resolution will affect the outcome of the lawsuit. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
Summary judgment is appropriate whenever the non-moving party fails to make a showing sufficient to establish the existence of an element essential to that party's case and on which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Moreover, "the trial court no longer has a duty to search the entire record to establish that it is bereft of a genuine issue of material fact." Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479-80 (6
In other words, "[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial." Scott v. Harris, 550 U.S. 372, 380, 127 S.Ct. 1769, 1776 (2007). When ruling on a motion for summary judgment, "a judge's inquiry, therefore, unavoidably asks whether reasonable jurors could find by a preponderance of the evidence that the plaintiff is entitled to a verdict — `whether there is [evidence] upon which a jury can properly proceed to find a verdict for the party producing it, upon whom the onus of proof is imposed.'" Anderson, 477 U.S. at 252 (citations omitted); accord Fuller v. Landmark 4 LLC, 2012 WL 1941792 (N.D. Ohio May 29, 2012). "[A]t the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter ...." Anderson, 477 U.S. at 249. "It is an error for the district court to resolve credibility issues against the nonmovant." CenTra, Inc. v. Estrin, 538 F.3d 402, 412 (6
In its Motion for Summary Judgment, Plaintiff argues the fidelity bond issued to St. Paul by CUMIS provides coverage for the losses stemming from Mr. Raguz's fraudulent conduct. It maintains CUMIS cannot rescind the bond based on Mr. Raguz's misrepresentations in the bond renewal applications because the bond does not (1) clearly incorporate the applications; or, (2) state that any material misrepresentations will render the bond void ab initio. Plaintiff further argues that coverage under the bond did not terminate because there is no evidence that any member of the St. Paul Board or Supervisory Committee, or any "supervisory staff" members at St. Paul, had knowledge of dishonest conduct on the part of Mr. Raguz. Therefore, Plaintiff maintains it is entitled to summary judgment on its claim for a declaratory judgment that CUMIS owes coverage under bond. (Doc. No. 90.)
CUMIS moves for summary judgment in its own favor on the basis of four arguments. First, CUMIS argues that, under Ohio law, it was entitled to rescind the fidelity bond at issue based on Mr. Raguz's material misrepresentations in the bond applications. Second, CUMIS asserts coverage for Mr. Raguz terminated more than two years before Plaintiff's claim was made because at least one St. Paul "supervisory staff" member (Mirjana Zovkic) learned of the fraud by no later than April 2008. Third, CUMIS maintains the claim is barred by the bond's two year contractual period of limitations because St. Paul's Board of Directors learned of facts which constitute discovery of the loss by no later than April 2008. Finally, CUMIS argues Plaintiff cannot carry its burden of demonstrating that the loss at issue resulted directly from Mr. Raguz's dishonesty. (Doc. No. 88.)
It is undisputed that Ohio law applies to the instant dispute.
Id. See also Safeco Ins. Co. of Am. v. White, 122 Ohio St.3d 562, 566-567, 913 N.E.2d 426 (2009) (stating that "our task is to `examine the insurance contract as a whole and presume that the intent of the parties is reflected in the language used in the policy'") (quoting Westfield, supra); Werner v. Progressive Preferred Ins., 533 F.Supp.2d 776, 781 (N.D. Ohio 2008) ("The Court must reasonably interpret an insurance contract in conformity with the parties's intentions as gathered from the ordinary and commonly understood meaning of the language employed.")(internal quotations omitted)(quoting Brooks v. All America Ins. Co., 2002 WL 31718868 at *2 (Ohio App. 3
Thus, in interpreting policy provisions, "Ohio courts first determine whether contract terms are ambiguous." St. Marys Foundry, 332 F.3d at 992. "The mere absence of a definition in an insurance contract does not make the meaning of the term ambiguous." Nationwide Mut. Fire Ins. Co. v. Guman Bros. Farm, 73 Ohio St.3d 107, 109, 652 N.E.2d 684 (1995). Rather, a term is considered ambiguous only "if it is reasonably susceptible of more than one meaning." St. Mary's Foundry, 332 F.3d at 992 (citing Weiss v. St. Paul Fire & Marine Ins. Co., 283 F.3d 790, 796 (6
Nonetheless, the Ohio Supreme Court has cautioned that, "[a]lthough ambiguous provisions in an insurance policy must be construed strictly against the insurer and liberally in favor of the insured . . . ., it is equally well settled that a court cannot create ambiguity in a contract where there is none." Lager, 120 Ohio St.3d at 49 (citing Hacker v. Dickman, 75 Ohio St.3d 118, 119, 661 N.E.2d 1005 (1996)). If the terms of an insurance policy are not ambiguous, the court determines the meaning of the policy. Nationwide Mut. Fire Ins. Co. v. Guman Bros. Farm, 73 Ohio St.3d 107, 652 N.E.2d 684, 686 (1995).
The fidelity bond issued by CUMIS to St. Paul provides coverage for "employee or director dishonesty" and "failure to faithfully perform." (Doc. No. 90-2 at 20, 24.) Specifically, the bond provides that "[w]e will pay you for your loss resulting directly from dishonest acts committed by an `employee' or `director,' acting alone or in collusion with other." (Doc. No. 90-2 at 20.) It further provides that "[w]e will pay you for your loss resulting directly from a named `employee's' `failure to faithfully perform his/her trust.'"
(Doc. No. 90-2 at 20) (emphasis added).
In the General Agreements section, the bond provides that:
(Doc. No. 90-2 at 63) (emphasis added.)
The applications for the fidelity bond renewals posed the following questions:
(Doc. No. 88-2.) The applications further provided that:
Relying heavily on the Ohio Supreme Court's decision in Allstate Insurance Company v. Boggs, 27 Ohio St.2d 216 (1971), Plaintiff argues CUMIS is not entitled to rescission because the fidelity bond does not (1) clearly incorporate the applications; or, (2) state that any material misrepresentations will render the bond void ab initio. In Boggs, Inland Mutual Insurance Company ("Inland") issued an automobile policy to Dallas Christopher ("Christopher"). In applying for this policy, Christopher misrepresented both his age and his history of traffic accidents/violations. Christopher was subsequently involved in a fatal traffic accident, in which both he and Williams Boggs were killed. Inland thereafter discovered Christopher's misrepresentations. It maintained it would not have issued the policy had it known Christopher's correct age (i.e., under 25), and refused coverage on the ground that its policy was void ab initio.
The trial court rejected Inland's argument, and found the policy was in full force and effect at the time of the accident. The state appellate court affirmed. On appeal, the primary question before the Ohio Supreme Court was "whether a misstatement of age by an insured in an application for an automobile liability insurance policy renders the policy void ab initio." Id. at 218. In resolving this issue, the court explained as follows:
Id. at 218-219.
Examining the policy and application at issue, the court first observed that "there is no provision in the policy to the effect that any misstatement or misrepresentation made by the insured shall render the policy void." Id. at 219. Thus, the court considered "whether the insurer in its contract of insurance provided that age was such a material fact that a misrepresentation thereof would make the contract void ab initio." Id. at 219-220. Although the application required that Christopher state his age and the policy provided generally that "the named insured agrees that the statements in . . . the application for this policy are his agreements and representations, and that this policy is issued in reliance upon the truth of such representations," the court found that the application was not incorporated into the policy. Id. at 220. It noted that "the mere fact that a policy of insurance refers to the application does not make such application a part of the policy." Id. Rather, "[i]n order to have an incorporation by reference in an insurance policy, it must be done in unequivocal language on the face of the policy." Id.
Therefore, the court looked to the policy itself to determine whether Christopher's misstatements regarding his age were sufficient to render the policy void ab initio. Id. Because no reference was made in the policy to the age of the insured, the court determined that "the insurer failed to incorporate [Christopher's] statement as to age." Id. Thus, "[t]hat representation in the application, if shown to be material to the risk and fraudulently made, would be grounds for cancellation of the policy, but does not render the policy void ab initio, and may not be used to avoid liability after the accident has occurred." Id. at 221. Rather, "[i]n order for an insurer to successfully assert that an insured's misstatement as to his age in an insurance policy application is a strict warranty which makes the policy void ab initio, the insurer must include a statement in the policy which it issues to the effect that such a representation as to age in the application is a warranty."
Ohio courts interpreting Boggs have found that it established a two-pronged test for determining whether a misstatement qualifies as a warranty or a representation. The first prong requires that the statement "plainly appear on the policy . . . or be plainly incorporated into the policy." Am. Family Ins. Co. v. Johnson, 2010 WL 1712240 at * 3 (Ohio App. 8
Plaintiff maintains the first prong of the Boggs test is not met because Mr. Raguz's statements do not appear on the face of the bond and, further, because the bond does not expressly incorporate Mr. Raguz's misstatements in the bond application. Plaintiff further maintains the second prong of Boggs is also not satisfied because the plain language of the bond does not provide that a misstatement shall render it void ab initio. Rather, Plaintiff insists the Bond "provides no warning of any consequence for making a misstatement." (Doc. No. 99 at 5.) Thus, Plaintiff maintains CUMIS is not entitled to rescind the bond as a matter of law.
CUMIS maintains Boggs is distinguishable because it "dealt with the insured's misrepresentations and its interplay with coverage for damages to third parties," whereas, here, "plaintiff wants to ignore the insured's misrepresentations concerning the fraud so that it can collect on the bond limits procured by fraud." (Doc. No. 88-1 at 6.) CUMIS cites Credit General Insurance Company v. Marine Midland Bank, 1992 WL 1258518 (S.D. Ohio Aug. 24, 1992) in support of this argument. In Credit General, Marine Midland Bank obtained a reinsurance Vehicle Single Interest ("VSI") policy from Credit General Insurance Co. for certain automobile loans written by Marine Midland. Under this policy, Marine Midland submitted claims to Credit General relating to "repurchase loans," which were associated with a higher degree of risk.
Marine Midland moved for summary judgment on Credit General's claim, relying on Boggs for the proposition that (even if it had failed to disclose the repurchase loans), the VSI policies at issue were voidable and not void ab initio and, therefore, Credit General was responsible for all claims submitted before the policy was cancelled. The court rejected this argument as follows:
Id. at * 8 (italics in original; bold added).
CUMIS suggests the above language stands for the proposition that Boggs applies only in the context of third party claims and not when an insured seeks a declaration of coverage where the insured itself allegedly misrepresented material facts in procuring the policy. As an initial matter, the Court disagrees with CUMIS' reading of Credit General. In that case, the insurance company sued the insured, seeking damages for the insured's alleged fraudulent concealment in procuring the policy at issue. The court found Boggs did not address the particular issue presented by Credit General's claim; i.e., "whether an insured can be liable to a reinsurance company for allegedly misrepresenting and concealing information material to the risk of the reinsurance company." Id. Here, of course, CUMIS is not seeking damages from Plaintiff for claims paid as a result of Mr. Raguz's fraudulent concealment. Rather, CUMIS seeks to rescind the bond and Plaintiff seeks a declaration of its right to coverage thereunder. This is precisely the context in which Boggs has been routinely applied by Ohio courts and renders the instant case distinguishable from Credit General.
Moreover, even if CUMIS were correct that Credit General stood for the proposition that Boggs does not apply to first party claims, the Court would decline to adopt that position. In the over twenty years since Credit General was decided, Ohio courts have applied Boggs to first party claims on numerous occasions. See e.g. Goodman v. Medmarc Insurance, 2012 Ohio 4061, 977 N.E.2d 128 (Ohio App. 8
CUMIS goes on to assert, however, that Boggs is not applicable because that case dealt with a misstatement concerning age in the context of an automobile insurance policy, while fidelity bonds are a very different form of insurance. (Doc. No. 88-1. at 6, fn 2.) The Court disagrees. While Boggs itself happened to involve an automobile policy, Ohio courts have not limited its application solely to cases involving auto policies. To the contrary, Boggs has been applied in a myriad of contexts, including homeowner's policies, professional liability policies, and commercial premises policies. See e.g. American Family Insurance Co. v. Johnson, 2010 WL 1712240 (Ohio App. 8
Moreover, Boggs was recently applied by a district court from the Southern District of Ohio in the context of a Director & Officer's ("D&O") policy, which provided coverage for both a financial entity and its directors and officers for claims made against them based on "wrongful acts." See The Unencumbered Assets, Trust v. Great American Insurance Co., 817 F.Supp.2d 1014 (S.D. Ohio 2011). In that case, National Century Financial Enterprises procured an excess D&O policy from Great American Insurance Company. This policy provided coverage for "wrongful acts," which was defined as "any error, misstatement, misleading statement, act, omission, neglect, or breach of duty committed or attempted, or allegedly committed or attempted, by one or more Director or Officer." Id. at 1020. National Century's business was to purchase accounts receivables at a discount from health care providers. Lance Poulson was one of the original founders of National Century and served as its president, chairman, and director. Mr. Poulson (along with several other directors and officers of National Century) "used their power over National Century and its supposedly independent subsidiaries to defraud investors." Id. at 1019. Indeed, the district court observed that "[i]t is undisputed that Poulson [and several other directors] used their authority at National Century to commit a multi-billion dollar fraud." Id. at 1020. Based on their roles in the fraud, Poulson and several other directors were convicted in federal criminal proceedings of (among other things) securities fraud and wire fraud. Id. at 1022.
Plaintiff and several of National Century's principal executives (including Poulson) claimed they were entitled to coverage under the D&O policy.
While Great American did not involve a fidelity bond, the D&O policy at issue in that case is similar to the fidelity bond in many respects. As noted above, Boggs was applied in that case to determine whether the insurance company could rescind the policy as void ab initio. Moreover, while CUMIS cites decisions from other Circuits that comment on some of the differences between fidelity bonds and other types of insurance policies, CUMIS cites no legal authority suggesting that the concepts set forth in Boggs regarding rescission would not apply in the context of coverage disputes involving fidelity bonds.
Finally, CUMIS argues Boggs is distinguishable because the misstatements in that case were "tangential to the ultimate issue concerning coverage (i.e., the age was not what caused the damages that were insured)." (Doc. No. 88-1 at 6, fn 2.) CUMIS maintains that, unlike Boggs, the "misstatements which form the basis for CUMIS' rescission of the policy concern the very subject that forms the basis for the plaintiff's claim of coverage." Id. The Court rejects this argument. CUMIS cites no authority for its argument that Boggs is distinguishable on this basis. Moreover, and as discussed above, at least one court has applied Boggs in this very context. Indeed, in Great American, Boggs was applied where the misstatements of the insured (i.e., the fraudulent financial statements submitted by Poulson) formed both the basis for Great American's attempt to rescind the policy as well as the basis for the claim of coverage under the policy (i.e., "wrongful acts" of a director or officer). Accordingly, the Court finds this argument to be without merit.
Nevertheless, CUMIS argues that, even if Boggs is applicable, that case "actually supports CUMIS's position despite plaintiff's attempts to find inconsequential distinctions." (Doc. No. 97 at 3.) CUMIS maintains the "Your Warranty" provision of the bond does, in fact, expressly incorporate Mr. Raguz's misstatements in the application, satisfying the first prong of the Boggs test. Moreover, CUMIS asserts the second prong of the Boggs test is met because the application plainly warns that there will be no coverage in the event of a material misrepresentation. Because the bond "provided a clear warning that the misrepresentations would bar coverage," CUMIS is entitled to rescind the bond as a matter of law.
The Court disagrees. As noted supra, Mr. Raguz testified in deposition that he lied in the bond renewal applications when he answered that he had no "knowledge or information of any act, error or omission which might give rise to a claim against any director, officer, committee member, volunteer, employee or any entity(s) which would be covered under any bond or insurance policy." (Raguz Depo. at Tr. 57-59.) In order for the first prong of the Boggs test to be satisfied, Mr. Raguz's misstatements in the bond application must be "plainly incorporated into the policy." Johnson, 2010 WL 1712240 at * 3.
CUMIS argues this prong is satisfied by the "Your Warranty" provision of the policy, which states that: "[a] statement made by or on behalf of you, whether contained in the application or otherwise, is a warranty that the statement is true to the best of the knowledge and belief of the person making the statement." (Doc. No. 90-2 at 63.) The Court finds this language is not sufficient to incorporate the bond applications completed by Mr. Raguz into the policy. As noted in Boggs, "the mere fact that a policy of insurance refers to the application does not make such application a part of the policy." Boggs, 27 Ohio St.2d at 220. Rather, "[i]n order to have an incorporation by reference in an insurance policy, it must be done in unequivocal language on the face of the policy." Id. See also Winston v. Illinois National Insurance Co., 2001 WL 395154 at *2 (Ohio App. 1
While the CUMIS bond references the application in the "Your Warranty" provision, the bond does not contain "unequivocal language" incorporating that application into the bond itself. It does not unambiguously provide that the application is incorporated into or made part of the bond, but simply attests that any statements in the application are true. This is not sufficient. As the Boggs court observed, "[a]lthough the policy provides generally that, `the named insured agrees that the statements in the declarations and in the application for this policy are his agreements and representations, that this policy is issued in reliance upon the truth of such representations,' nowhere is the application, as such, incorporated in and made a part of the policy." Boggs, 27 Ohio St. at 220. Likewise, the Court finds the "Your Warranty" language in the CUMIS bond does not clearly and unequivocally incorporate the application.
This conclusion is supported by a comparison of policy language that Ohio courts have deemed sufficient versus insufficient to satisfy the first prong of Boggs. In Johnson, supra, the court found the following policy language did not expressly incorporate the application and, thus, failed to satisfy the first prong of Boggs: "We will provide this insurance to you in reliance on the statements you have given us in your application of insurance. You warrant the statements in your application to be true and this policy is conditioned upon the truth of your statements." Johnson, 2010 1712240 at * 4. Similarly, in James, supra, the court found the following policy language insufficient to incorporate the application: "This policy was issued in reliance upon the information provided on your application. We may void this policy if you or an insured have concealed or misrepresented any material fact or circumstance, or engaged in fraudulent conduct, at the time the application was made or any time during the policy period." James, 195 Ohio App.3d at 268-269. Finally, in Chicago Insurance Company v. Capwill, 2009 WL 3063351 at * 5 (N.D. Ohio Sept. 21, 2009) (Katz, J.), another judge in this District found that the following policy language was not sufficient to incorporate the application: "By acceptance of this policy, the insured agrees that the statements, Declarations, and application are his agreements and representations, that they shall be deemed material and that this policy is issued in reliance upon the truth of such representations and that this policy embodies all agreements existing between himself and the Company or any of its agents relating to this insurance."
Conversely, in Fragatos, supra, the court found that the following policy language expressly incorporated the application: "It is understood and agreed that the statements made in the insurance application are incorporated into, and shall be part of, this policy." Fragatos, 190 Ohio App.3d at 121-122. Likewise, in Unencumbered Assets, supra, the following language in the policy declarations page was found sufficient to incorporate the proposal form containing the misstatements at issue: "These Declarations, along with the endorsements (if any) and the completed and signed Proposal Form shall constitute the contract between the Insured and Insurer." Unencumbered Assets, 817 F.Supp.2d at 1027. In Winston, supra, the policy provided that it was issued "in reliance upon the statements made in the applications and declarations attached hereto and made part hereof," and the application provided that "it is agreed that this application shall be the basis of the contract should a policy be issued, and it will be attached to and become a part of the policy." Winston, 2001 WL 395154 at * 3. The court found that this language unambiguously incorporated the applications into the policy. Id. Lastly, in Ozbay v. Progressive Insurance, 2003 WL 257448 at *7 (Ohio App. 6
The "Your Warranty" provision in the CUMIS bond does not contain the type of unequivocal incorporation language set forth in Fragatos, Unencumbered Assets, Winston, and Ozbay, supra. Rather, the bond merely references the application, using language similar to that found insufficient by a number of Ohio courts as set forth above, including the Ohio Supreme Court in Boggs itself. Accordingly, the Court finds the CUMIS bond issued to St. Paul fails to unequivocally incorporate the misstatements set forth in the applications completed by Mr. Raguz and, therefore, the first prong of the Boggs test has not been satisfied.
Moreover, CUMIS does not point to any language in the bond that clearly and unambiguously provides that a misstatement by the insured shall render the policy void ab initio. CUMIS emphasizes language in the applications providing that "if such knowledge or information [of fraud] exists, any claim or action subsequently arising therefrom shall be excluded from coverage." (Doc. No. 88-2.) As an initial matter, the Court is not convinced that this language is sufficient to clearly and unambiguously provide that Mr. Raguz's misstatements would render the bond void ab initio. Although the applications state that claims arising from existing knowledge or information "shall be excluded from coverage," this language does not state the bond itself would be void, void ab initio, or "null and without effect," as cases finding this prong of the Boggs test have generally required. See e.g. Personal Service Insurance Co. v. Lester, 2006 WL 2796253 at * 5 (Ohio App. 4
Moreover, even assuming this language would be sufficient, it does not appear in the bond itself. Rather, it appears only in the applications, which (as discussed above) are not incorporated into the bond. As set forth in Boggs, "[i]f it is [the insurer's] purpose to provide that misstatement by the insured shall render the policy void ab initio, such facts must appear clearly and unambiguously
Accordingly, and for all the reasons set forth above, the Court finds Mr. Raguz's misstatements in the bond renewal applications constitute representations, and not warranties. Therefore, and pursuant to Boggs, CUMIS is not entitled to rescind the bond as void ab initio.
Alternatively, CUMIS argues the Court should nonetheless find it is entitled to rescind the bond based on the unreported, state appellate court decision in Empire Sec. Corp. of Ohio v. Travelers Indem. Co., 1974 WL 184506 (Ohio App. 10
The court engaged in a lengthy discussion of the doctrine of imputed knowledge; the adverse interest exception to that doctrine; and, an exception to the adverse interest exception commonly known as the "sole actor" rule.
Based on the Empire decision, CUMIS argues Mr. Raguz's knowledge of his fraudulent conduct is imputed to St. Paul (and, in turn, Plaintiff), thereby allowing CUMIS to rescind the bond. Plaintiff argues Empire is distinguishable because it "addressed fraud in the procurement of a fidelity bond" and "had no occasion to consider whether the language of the bond permitted rescission under the two-prong test in Boggs." (Doc. No. 98 at 19.) Specifically, Plaintiff asserts that Empire does not address whether the CUMIS bond is written such as to allow it to be rescinded, which it claims is "an issue for which black letter law in Ohio exists, in the Boggs decision." Id. at 20.
The Court agrees with Plaintiff. The Ohio Supreme Court's decision in Boggs applies where an insurance company seeks to rescind a policy on the basis of material misrepresentations in an insurance application. This Court has found, for the reasons set forth at length supra, that Boggs applies to the fidelity bond at issue herein and, further, that Mr. Raguz's misstatements in the bond renewal applications do not constitute warranties under the twopronged Boggs test routinely applied by Ohio courts. Accordingly, it is not relevant whether Mr. Raguz's knowledge of his own fraudulent conduct may or may not be imputed to St. Paul. As Mr. Raguz's misstatements do not constitute warranties under Boggs, CUMIS is not entitled to rescind the bond as void ab initio. The Empire decision does not require a different result.
Accordingly, and for all the reasons set forth above, the Court finds CUMIS is not entitled to summary judgment in its favor on the basis of rescission as a matter of law. Moreover, while the Court agrees with Plaintiff on this issue, Plaintiff is not entitled to summary judgment in its favor on the ultimate issue of coverage under the bond as CUMIS raises three additional, independent grounds for denying coverage. These grounds will be discussed below.
CUMIS argues it is entitled to summary judgment in its favor under the fidelity bond's Termination provision. That provision states as follows:
(Doc. No. 90-2 at 69-70.)
CUMIS asserts Mirjana Zovkic, the "office manager" of St. Paul's Eastlake branch, qualifies as supervisory staff under the above provision. It maintains coverage terminated for Mr. Raguz no later than April 1, 2008 because, by that date, Ms. Zovkic knew Mr. Raguz was falsifying loans and loan documents. (Doc. No. 88-1 at 7.) Because the claim was not made until April 2010 when Mr. Raguz was no longer covered by the bond, CUMIS asserts Plaintiff's claim for Mr. Raguz's dishonest acts is not covered.
Plaintiff emphasizes that the term "supervisory staff" is not defined in the bond and argues that term should therefore be strictly construed against CUMIS. It further argues Ms. Zovkic did not constitute supervisory staff because deposition testimony reveals she did not manage "staff" and had no supervisory responsibilities. Plaintiff also maintains there is no evidence Ms. Zovkic knew Mr. Raguz had committed any dishonest or fraudulent act prior to liquidation. Moreover, Plaintiff asserts that "to the extent Ms. Zovkic is deemed to be `supervisory staff' and did know of [Mr. Raguz's] dishonest acts, then she was in collusion with him by conducting the transactions that brought about the loss, failing to report the same to the authorities and generally assisting in the continuation of the scheme." (Doc. No. 98 at 25.) Finally, Plaintiff maintains that, even if coverage did terminate, "the termination condition could only be triggered after the effective date of the policy at issue, in this case February 11, 2010." (Doc. No. 90 at 27.)
The deposition testimony reflects the following. Ms. Zovkic first came to work at St. Paul in 1993.
Id. at Tr. 19-20. Later, on examination by Plaintiff's counsel, Ms. Zovkic clarified her testimony:
Id. at Tr. 96-97.
Mr. Raguz also testified regarding Ms. Zovkic's job responsibilities. He stated he created the title of "office manager" for Ms. Zovkic because it recognized the fact that he "entrusted" her with that position. (Raguz Depo. at Tr. 147.) Mr. Raguz described her role as "keeping control of the tellers" and keeping "an eye on" the Eastlake branch. Id. at Tr. 20, 22. Specifically, he stated Ms. Zovkic "managed the teller operations to make sure that they balanced, find the differences if there were differences, do supplies, audits of cash, that kind of stuff," as well as "[m]aking sure tellers were aware of any procedure change as far as tellers, making sure the customer service aspect was good." Id. at Tr. 20. Mr. Raguz emphasized that he, and he alone, was the "supervisor" of St. Paul. Id. at 148. However, he also acknowledged that Ms. Zovkic occasionally assisted him by sitting in on interviews of potential job candidates "so we both hear the same thing." Id. at Tr. 152. He indicated, though, that he had the "last say" in terms of hiring decisions. Id.
The Court finds the term "supervisory staff" is ambiguous in the context of the Termination provision. As noted supra, the bond itself contains no definition. The plain and ordinary meaning of the term "supervisor" is not particularly helpful in this context either. Black's Law Dictionary defines "supervisor" as "one having authority over others; a manager or overseer." Black's Law Dictionary, 8
Plaintiff suggests the following definition of the term "supervisor" applies herein:
29 U.S.C. § 152(11) (emphasis added).
Based on the above, the Court finds a genuine issue of material fact exists regarding whether Ms. Zovkic qualified as "supervisory staff." Specifically, construing the facts in a light most favorable to Plaintiff for purposes of CUMIS' Motion for Summary Judgment on this issue, the Court finds the above deposition testimony that Ms. Zovkic was not a supervisor and not "in charge of" any other employee creates a genuine issue of material fact as to whether she qualified as "supervisory staff" under the definition suggested by Plaintiff. Conversely, construing the facts in a light most favorable to CUMIS for purposes of Plaintiff's Motion for Summary Judgment on this issue, the Court finds deposition testimony indicating Ms. Zovkic "kept control of the tellers;" implemented employee procedures and regulations; and, participated in job applicant interviews creates a genuine issue of material fact that precludes judgment on this issue in Plaintiff's favor.
The Court similarly finds a genuine issue of material fact exists with respect to whether Ms. Zovkic "learn[ed] of" any "dishonest or fraudulent act" committed by Mr. Raguz. Ms. Zovkic testified that she understood Mr. Raguz was resetting loans; i.e., making it appear loans were current even though they were delinquent. (Zovkic Depo. at Tr. 38.) However, she also stated she was "not sure what reset meant" and "a lot of the names [on the loans] were unfamiliar to me" and "I really didn't understand what the intent of it was at the time." Id. at Tr. 37. Similarly, Ms. Zovkic acknowledged that Mr. Raguz would occasionally ask employees at St. Paul to "show on the books and records of the credit union that a loan was being made was backed by share certificates owned by somebody else."
Finally, Plaintiff argues that "the termination condition could only be triggered after the effective date of the policy at issue, in this case February 11, 2010." (Doc. No. 90 at 27.) Thus, Plaintiff maintains that coverage could only have terminated as early as February 11, 2010, by which time losses in excess of the $5 million bond limit had already been suffered. Id. Plaintiff cites a North Carolina appellate decision, Home Savings Bank SSB of Eden v. Colonial American Cas. & Surety Co., 165 N.C. App. 189 (2004), in support of this argument.
CUMIS argues decisions from this court and the Sixth Circuit have held that a termination provision may be invoked where the insured learned of employee dishonesty prior to the policy year in place when the claim was made. (Doc. No. 97 at 7-8.) In support of this assertion, CUMIS cites City Loan & Sav. Co. v. Employers Liability Assurance Corporation, 249 F.Supp. 633 (N.D. Ohio 1964) and William C. Roney & Co. v. Fed. Ins. Co., 674 F.2d 587 (6
The Court will not reach the legal issue of whether a bond's termination provision may be invoked where an insured had prior knowledge of employee dishonesty. In the cases cited by both parties, it was either undisputed or (in the case of City Loan & Sav. Co., supra) had been found as a finding of fact after bench trial, that the insured had actual knowledge of the dishonest conduct of its employee prior to the effective date of the bond at issue. See City Loan & Sav. Co, 249 F.Supp. at 647; Home Savings Bank, 165 N.C. App. at 267; Roney, 674 F.2d at 589. Here, however, the Court has found there is a genuine issue of material fact regarding whether Ms. Zovkic "learned of" a dishonest or fraudulent act of Mr. Raguz prior to the effective date of the bond. On this basis, the Court finds the authority cited by the parties distinguishable from the instant case.
Accordingly, and for all the reasons set forth above, the Court finds that neither Plaintiff or CUMIS is entitled to summary judgment in their favor on the issue of whether coverage for Mr. Raguz terminated under the bond by virtue of Ms. Zovkic's alleged knowledge of Mr. Raguz's dishonest conduct.
CUMIS argues it is entitled to summary judgment in its favor under the Bond's Discovery of Loss and period of limitations provisions. Those provisions state as follows:
(Doc. No. 90-2 at 70, 73) (emphasis added).
CUMIS argues that, by April 1, 2008, the St. Paul Board of Directors (hereinafter "the Board") knew two "critical facts" which constituted discovery of loss under the bond. First, CUMIS asserts that, by January 2008, the Board "had been told for seven years that St. Paul had zero delinquencies even though its loan portfolio was nearly $165 million." (Doc. No. 88-1 at 14.) CUMIS claims there were no other credit unions in the United States at that time that had both over $150 million in loans and zero delinquencies. Second, CUMIS claims that, on April 1, 2008, the Board received an NCUA Examination Report dated December 2007 which disclosed that share-secured loans ($131.2 million) exceeded share-secured deposits ($122.5 million) by $8.7 million. CUMIS maintains that "[n]eedless to say, this is impossible." Id. Based on these two facts, CUMIS argues the Board became aware, by April 2008, of facts that "would cause a reasonable person to assume that a loss of they type covered under this Bond has been or will be incurred." Id. Because the bond contains a two year period of limitations provision, and suit was not filed within two years of April 2008, CUMIS maintains the instant action is time-barred.
Relying on its expert report, Plaintiff argues the Board reasonably relied on both its own outside auditing reports, as well as NCUA examination reports, none of which detected any fraud. (Doc. No. 98 at 25-26.) Indeed, Plaintiff emphasizes that the NCUA reports "repeatedly and consistently gave a CAMEL 2 rating to St. Paul until the end of 2009." Id. at 25. Plaintiff further argues CUMIS misconstrues the December 2007 NCUA examination report and "ignore[s] vital information that explains the situation as nothing more than simply `a problem with reporting of loans by type.'" Id. at 26. Finally, Plaintiff claims actual knowledge is required to demonstrate discovery of loss, and the fact that the Board was aware of continuous zero delinquency report was not sufficient to constitute "actual knowledge" of a loss.
The record reflects the following. Mr. Raguz testified he kept his fraudulent conduct a secret "from everybody," including the Board, the Supervisory Committee, and the NCUA examiners. (Raguz Depo. at Tr. 145.) St. Paul Board member Robert Calevich testified that, as late as December 2009, the Board "had no idea there was a fraud going on" at St. Paul. (Calevich Depo. at Tr. 237.) He further stated he had "no knowledge of any irregularities of any sort" in terms of Mr. Raguz's management of the credit union until early 2010. (Calevich. Depo. at Tr. 29-30, 314.) Likewise, Mr. Raguz's father, St. Paul Board member Luke Raguz, testified he did not know about his son's fraudulent scheme until just prior to liquidation in 2010. (L. Raguz Depo. at Tr. 68-69.) In sum, CUMIS directs this Court's attention to no evidence indicating that anyone other than Mr. Raguz had actual knowledge of his fraudulent scheme prior to 2010.
The question, then, is whether the Board became "aware of facts which would cause a reasonable person to assume that a loss of the type covered under this Bond has been or will be incurred" and, if so, when. CUMIS asserts the Board's knowledge that St. Paul had reported a zero delinquency rate for seven years, as well as its knowledge that St. Paul's share-secured loans exceeded share-secured deposits by over $8 million in 2007, would have alerted a "reasonable person" to Mr. Raguz's fraudulent conduct. Mr. Calevich acknowledged that, between 2006 and 2008, the Board was told at every monthly meeting that St. Paul had a zero delinquency rate. (Calevich Depo. at Tr. 93.) Moreover, the record reflects the Board received copies of NCUA examination reports for the years 2004 to 2009, each of which reported a zero delinquency rate. See Doc. No. 89-1; Raguz Depo. at Tr. 86-87. CUMIS asserts that one of those reports (effective December 31, 2007) disclosed that St. Paul's share-secured loans well exceeded its share-secured deposits. See Doc. No. 89-1 at 9-10.
Despite the above, Mr. Calevich maintained he was not aware of "any irregularities" in Mr. Raguz's management of St. Paul until early 2010. (Calevich Depo. at Tr. 29-30.) He reiterated that Mr. Raguz was a "trusted member of the community" and stated it "never even came into my mind that he would do something this big." Id. at Tr. 315-316. Mr. Calevich acknowledged that, at some point during the relevant time period, the NCUA recommended the Board engage an independent certified public accountant (CPA) to audit St. Paul. He further acknowledged St. Paul elected not do so, explaining that:
(Calevich Depo. at Tr. 93.)
Id. at Tr. 229-230.
Not surprisingly, the parties' experts come to different conclusions regarding the above evidence. CUMIS' expert, Robert Kravetz, concludes the Board "failed in their responsibilities as early at 2005 and maybe as early as 2002 when reports started showing no delinquent loans." (Doc. No. 62-1 at 4.) He states that "[y]ear-after-year of no reported delinquent loans, coupled with the dramatic increase in loans made, most certainly should have alerted the Board of Directors that further inquiry and investigation was necessary and, in fact, essential." Id. Mr. Kravetz further opines that Mr. Raguz's "failure to provide the requested information to the Board [in 2008] should have been a crystal clear indication that there was a serious problem with the loan portfolio and that a possible fraud may have existed yet it was not pursued by the Board." Id. Thus, Mr. Kravetz concludes as follows: "In sum, there were many obvious indicators that should have alerted the Board of Directors as early as 2002, at least by 2005, and certainly not later than 2008, that there was a serious problem. It is my opinion that the Board completely failed in its responsibilities and that their failure continued until the demise of this Credit Union. It is also my opinion that any responsible Board Member would have investigated the warning signs which foretold a massive fraud." Id.
Plaintiff's expert, Christine Dawe, reaches the opposite conclusion. (Doc. No. 90-3.) Ms. Dawe opines that "the Board and Supervisory Committee of St. Paul fulfilled their responsibilities to the members of St. Paul by hiring and depending on external specialists to review the books and records." Id. at 23-25. With regard to the continuous zero delinquency rate issue, she states:
Id. at 33-35. With regard to CUMIS' assertion that the 2007 NCUA Examination Report indicated St. Paul's share-secured loans exceeded its share-secured deposits, Ms. Dawe disagrees with CUMIS' reading of that report, opining that "[t]he discussion [in the NCUA report] was related to the reporting of loan types, not that the loans were not collateralized." Id. at 35. In sum, Ms. Dawe concludes as follows: "If experienced NCUA examiners and trained, experienced auditors did not detect the loan fraud at St. Paul, how can the Board of Directors and Supervisory Committee be expected to do so? In other words, the Board and Supervisory Committee did not fall below industry standards when they did not detect the fraud. It would be unreasonable, under the facts and circumstances, for the Board and Supervisory Committee to suspect the fraud." Id. at 39.
Courts have generally found that "mere suspicion" is not enough to constitute discovery of the loss. See e.g. FDIC v. Aetna Casualty & Surety Co., 903 F.2d 1073, 1079 (6
Id. at 1002-1003 (emphasis added). See also Central National Life Insurance Co. v. Fidelity & Deposit Company of Maryland, 626 F.2d 537 (7
The Court finds there is a genuine issue of material fact regarding whether (and, if so, when) the Board became "aware of facts which would cause a reasonable person to assume that a loss of a type covered under this Bond has been or will be incurred." While Mr. Calevich testified he was not aware of "any irregularities" in Mr. Raguz's management of St. Paul until early 2010, he also acknowledged the Board had "a concern about the total amount of [share-secured] loans" which led to the Board's repeated (and unheeded) requests for information from Mr. Raguz. (Calevich Depo. at Tr. 29-30, 61.) Mr. Calevich further acknowledged that "at least a year before the truth was known," either he or fellow Board member Nikola Franic "suspected something was wrong [but] just couldn't figure out what it was." Id. at Tr. 103. Moreover, while Plaintiff's expert opines that the Board's reliance on the reports of the NCUA and Mr. Hanks was reasonable, CUMIS' expert concludes the precise opposite, asserting that the information available would have caused "any responsible Board Member [to] investigate[] the warning signs which foretold a massive fraud." (Doc. No. 62-1 at 4.)
The Court finds the testimony and evidence discussed above create a material issue of fact regarding "the timing and quality of knowledge acquired by the Board," FDIC v. Reliance Insurance Corporation, 716 F. Supp. at 1002, and whether that information was sufficient to constitute discovery of the loss under the bond. Accordingly, CUMIS is not entitled to summary judgment in its favor on the basis of the bond's Discovery of Loss and period of limitations provisions.
CUMIS next argues it is entitled to summary judgment in its favor because Plaintiff has failed to demonstrate that the loss for which it is seeking coverage under the bond resulted directly from Mr. Raguz's dishonesty. CUMIS notes the bond provides that: "[w]e will pay you for your
CUMIS also emphasizes that Plaintiff has filed at least twelve other lawsuits in this District against individual borrowers, seeking to recover "millions of damages" for fraud, misrepresentations, and/or omissions of fact in connection with loans obtained from St. Paul beginning in 2002. See e.g., NCUAB v. Loncarevic, et al., Case No. 1:13cv00227 (N.D. Ohio) (Boyko, J.); NCUAB v. Zovkic, et al., Case No. 1:13cv1148 (N.D. Ohio) (White, M.J.); NCUAB v. Medic, et al., Case No. 1:12cv3128 (N.D. Ohio) (Oliver, J.); NCUAB v. Vukovic, et al., Case No. 1:13cv1064 (N.D. Ohio) (Gwin, J.). Although aware that suits against individual borrowers had been filed, Ms. Murphy was not able to quantify how much of the loss was caused by Mr. Raguz as opposed to borrower fraud. (Murphy Depo. at Tr. 51-53.) Accordingly, CUMIS argues it is entitled to summary judgment because Plaintiff has failed to demonstrate that the loss resulted directly from Mr. Raguz's dishonest conduct.
Plaintiff argues it has proved that "the loss in question far exceeded CUMIS' $5 million Bond limit [and] that all the damages were caused by" Mr. Raguz's dishonesty. (Doc. No. 98 at 31.) It notes that the Lillie & Company Report dated October 2010 documented damages in excess of $72 million as a result of Mr. Raguz's fraudulent scheme. Plaintiff further cites deposition testimony from Ms. Murphy that "all 72 million" was a result of Mr. Raguz's dishonest conduct. (Murphy Depo. at Tr. 51.) Additionally, Plaintiff notes the following remarks by the district court judge during Mr. Raguz's sentencing hearing in his criminal case:
United States v. Raguz, Case No. 1:11cr00008 (N.D. Ohio) (Boyko, J.) at Doc. No. 178 at 26. Finally, with respect to the lawsuits filed against individual borrowers, Plaintiff asserts "there is not a scintilla of evidence or any conclusion that could ever be reached to support a finding that borrowers alone, without the substantial and continuous assistance of Tony Raguz, led to the losses incurred by the Liquidating Agent." (Doc. No. 98 at 33.)
In response, CUMIS notes that legitimate loans went delinquent during the relevant time period and asserts that "Plaintiff cannot distinguish St. Paul's losses that stem from legitimate loans from those that stem from loans that would not have issued but for Raguz's dishonesty." (Doc. No. 100 at 22.) By way of example, CUMIS argues that "if a legitimate loan for $1 million was issued by St. Paul and the loan went delinquent because the borrower could not pay, the loan is not covered just because Raguz `reset' the loan by incurring interest, which is also not covered by the bond, and restating the principal." Id. In particular, CUMIS emphasizes Mr. Raguz's own testimony that many of his fraudulent practices involved legitimate loans that were heading into default because the borrower could not pay for one reason or another. (Raguz Depo. at Tr. 157-159.) Thus, CUMIS asserts that "because Plaintiff is unable to differentiate between good loans and bad loans, between borrower fraud and employee dishonesty, its claim must fail." (Doc. No. 97 at 15.)
The Court finds CUMIS is not entitled to summary judgment in its favor on this issue. Mr. Raguz's deposition transcript can fairly be read as an acknowledgment that he was responsible for the massive losses and resultant collapse of St. Paul. Indeed, the federal district court considering his criminal case reached the same conclusion and, on that basis, held Mr. Raguz responsible for over $71.5 million in restitution. See U.S. v. Raguz, Case No. 1:11cr008 (N.D. Ohio) at Doc. Nos. 176, 178 at Tr. 32. Based on the above, the Court cannot say that Plaintiff has failed to demonstrate it sustained a covered loss under the bond as a result of Mr. Raguz's dishonest conduct. While Plaintiff will of course be required to demonstrate the amount of its loss at trial, the Court is unable to say, given the wealth of evidence regarding Mr. Raguz's dishonest conduct, that CUMIS is entitled to judgment in its favor on the basis that Plaintiff has failed in its burden to demonstrate a covered loss under the bond.
Accordingly, the Court finds this argument to be without merit.
Accordingly, and for all the reasons set forth above, Plaintiff's Motion for Summary Judgment (Doc. No. 90) is DENIED; and, Defendant CUMIS's Motion for Summary Judgment (Doc. No. 88) is DENIED.
IT IS SO ORDERED.
