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Nova Financial Holdings Inc., and Nova Bank v. Bancinsure

April 17, 2012

NOVA FINANCIAL HOLDINGS INC., AND NOVA BANK, PLAINTIFFS,
v.
BANCINSURE, INC., DEFENDANT.



The opinion of the court was delivered by: Robert F. Kelly, Sr. J.

MEMORANDUM

Presently before this Court is a "Motion to Dismiss Plaintiffs' Complaint Pursuant to Rule 12(b)(6)" filed by Defendant, Bancinsure, Inc. ("Defendant"), Plaintiffs' Response and Defendant's Reply. For the reasons set forth below, we grant Defendant's Motion as to Counts III and IV, and deny Defendant's Motion on Counts V and VI.

I. BACKGROUND

Plaintiffs, Nova Financial Holdings, Inc. and Nova Bank ("Plaintiffs"), are corporations organized under the laws of the Commonwealth of Pennsylvania, with their principal place of business located in Berwyn, Pennsylvania. (Compl. at p. 1.) Defendant is an Oklahoma corporation with its principal place of business located in Oklahoma City, Oklahoma. (Id.) Plaintiffs and Defendant entered into a one-year insurance agreement ("Insurance Agreement") starting on October 31, 2009. (Id. at p. 2.) Among other provisions, the Insurance Agreement states that Defendant will indemnify Plaintiffs for losses "resulting directly from dishonest or fraudulent acts committed by the Employee acting alone or in collusion with others." (Compl. at Exhibit A.) These acts must be committed "with the manifest intent to (a) cause the (Plaintiffs) to sustain such loss, or (b) to obtain improper financial benefit for the Employee or another person or entity." (Id.)

In May 2010, Plaintiffs became aware that two of their employees, Thomas Patterson ("Patterson") and Beth Martin ("Martin"), misappropriated hundreds of thousands of dollars of customer funds. (Compl.at p. 3.) Patterson was the Chief Lending Officer at Nova Bank and Martin worked as Nova Bank's Berwyn Business Center Manager. (Id.) In meetings with the officers of Nova Bank, Martin and Patterson admitted to committing the criminal acts. (Id.)

An ensuing investigation by Nova Bank corroborated Martin and Patterson's admissions, and uncovered a scheme to illegally provide money to several of Patterson's clients. (Id. at p. 5.) Patterson and Martin attempted to conceal these illegal transactions through misappropriating other client's funds. (Id.) This deceptive and illegal behavior was aimed at circumventing the established rules, standards and procedures of Nova Bank. (Id.)

Specifically, Plaintiffs allege that the unauthorized and illegal actions of Patterson and Martin included:

* On November 24, 2009, Patterson issued and approved a cashier's check in the amount of $230,938 to a Federal Identification Card ("FIC") creditor from the Betti Family Control Partnership ("Betti Trust") line of credit. The check was signed by both Patterson and Martin. (Id.)

* On November 30, 2009, Patterson approved, and Martin processed, a $200,000 deposit into an FIC account from the Betti Trust credit line. (Id.)

* On March 10, 2010, Patterson deposited an unauthorized and illegal advance of $110,000 into two accounts held by Mario Dinardo Custom Cabinets ("Dinardo") from the Betti Trust line of credit. The deposit was approved by Patterson and processed by Martin. (Id.)

* On April 2, 2010, Patterson made a $120,000 advance to an FIC account drawn from the Betti Trust credit line. This advance was approved by Patterson and processed by Martin. (Id. at p. 6.)

* On April 28, 2010, Patterson made an advance for $30,000 to Dinardo from a line of credit held by SVI Development. This advance was approved by Patterson and processed by Martin. (Id.)

On June 26, 2010, the Tredyffrin Township Police Department and the Federal Bureau of Investigation formed a joint task force to investigate the criminal actions of Patterson and Martin. (Id. at pp. 4-5.) Criminal charges were subsequently brought against Patterson. (Id.) On October 14, 2011, Patterson pled guilty to one count of misapplication of funds by a bank employee. (Id. at p. 6.) The guilty plea colloquy stated that Patterson "fraudulently and intentionally transferred funds from three existing bank customers to other bank customers." (Id.) The colloquy asserted that such actions were done without creating any loan documents, without having any such documents signed, and without the knowledge or approval of Nova Bank. (Id. at p. 7.)

On November 19, 2010, pursuant to the Insurance Agreement, Plaintiffs provided Defendant with their insurance claims in relation to the actions of Patterson and Martin. (Id.) Defendant notified Plaintiffs on two separate occasions in December 2010 that they required more time to investigate the claims. (Id.) Throughout this investigation, Plaintiffs bore all the costs of reimbursing their clients' stolen funds. (Id.) On May 19, 2011, Defendant denied coverage for all of Plaintiffs' theft related losses. (Id.) Subsequently, on June 30, 2011, Plaintiffs requested a reconsideration of this denial of coverage. (Id.) Defendant refused to reconsider their coverage decision and reissued a denial of the claim on August 4, 2011. (Id.) Finally, Plaintiffs ...


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