United States District Court, E.D. Virginia, Richmond Division
HANNAH LAUCK UNITED STATES DISTRICT JUDGE.
matter comes before the Court on four motions:
(1) Defendant National Union Fire Insurance Company of
Pittsburgh, PA.'s ("National Union") Motion for
Summary Judgment (the "National Union Motion for Summary
Judgment"), (ECF No. 20);
(2) Plaintiff Quality Plus Services, Inc.'s
("Quality Plus") Motion for Summary Judgment (the
"Quality Plus Motion for Summary
Judgment") (ECF No. 22);
(3) Quality Plus's Motion to Exclude Testimony of
Defendant's Expert, Robert Anderson, Jr. (the
"Motion in Limine"), (ECF No. 24); and,
(4) National Union's Motion to Disqualify Kristie G.
Haynes (the "Motion to Disqualify"), (ECF No. 33).
Plus and National Union filed Cross-Motions for Summary
Judgment pursuant to Federal Rule of Civil Procedure
Quality Plus and National Union have responded to the Cross
Motions, (ECF Nos. 26, 28), and each has replied, (ECF Nos.
31, 30). National Union responded to the Motion in
Limine, (ECF No. 27), and Quality Plus replied, (ECF No.
29). Quality Plus responded to the Motion to Disqualify, (ECF
No. 38), and National Union replied, (ECF No. 39). These
matters are ripe for disposition.
Court dispenses with oral argument because the materials
before it adequately present the facts and legal contentions,
and argument would not aid the decisional process. The Court
exercises jurisdiction pursuant to 28 U.S.C. §
1332(a)(1). For the reasons stated below, the Court
will deny the Cross Motions for Summary Judgment and the
Motion in Limine. The Court will grant the Motion to
Procedural and Factual Background
insurance contract dispute Quality Plus seeks coverage from
National Union for five monetary transfers it made based on
illegitimate email requests sent to one of Quality Plus's
employees. National Union has refused coverage on the ground
that the applicable policy provision does not provide
coverage and, if it does, several policy exclusions preclude
coverage. Before determining that summary judgment would be
inappropriate in this matter due to genuine disputes of
material fact, the Court sets forth the basic factual and
Quality Plus's Losses
December 19, 2017 and January 4, 2018, a Quality Plus
employee, Lynne Mann, received several emails purportedly
from Aaron Gay, the "founder, President, and Operations
Manager of Quality Plus. (Mem. Supp. Quality Plus Mot. Sum.
J. Ex. 1 "Gay Declaration" 2, 11, 21, 31, 55, 71,
ECF No. 23-1.) Gay, the purported sender of the emails,
has the "final approval for all [Quality Plus]
invoices" and "make[s] the decisions about who has
authority to handle payments for [Quality Plus], including by
wire transfer." (Id. 3.)
five emails unfolded as follows:
(1) On December 19, 2017, the sender requested that Mann
"wire payment for this invoice today." (Gay Decl.
11.) The attached invoice requested a payment of $92, 000.00
to Bonachon Enterprises S.A De C.V for "Supply &
Delievery [sic] of new Cummins (as per quotation)."
(Id. 15.) The sender sent this email from Gay's
email address firstname.lastname@example.org. (Id.
(2) On December 28, 2017, the sender's email to Mann
read: "See if you can get this (QPS) invoice payment
wired this morning. I did not copy any one on this to avoid a
recurrence of messages not delivering. Let me know when the
wired [sic] has been initiated." (Id. 21.) The
attached invoice requested a payment of $97, 384.00 to
Bonachon Enterprises S.A DE C.V for "Supply and
Delievery [sic] of new Cummins (as per quotation)."
(Id. 23.) The sender sent this email from a
different email address than the one used for the December
19, 2017 email. This new email
email@example.com similar to Gay's
actual email address. (Id. 21.)
(3) On December 29, 2017, on the same email chain as the
December 27, 2017 request, the sender transmitted an email to
Mann that said: "See if you can get this wire
out today and send me the confirmation. Thanks."
(Id. 31.) The attached invoice requested a payment
of $372, 018.00 to Grand Atlantis Limited for
"Mechanical, Electrial [sic], Paintings Supplies (As Per
Quotation)." (Id. 45.) The sender sent this
email from the same email address as the December 27, 2017
firstname.lastname@example.org. (Id. 31.)
(4) On January 3, 2018, on a new email thread, the sender
directed a message to Mann that read: "Please see if you
can get this wire out this morning and reply with the
confirmation." (Id. 55.) The attached invoice
requested a payment of $558, 623.00 to Hinhinghang Trading Co
Limited for "Mechanical, Electrical, Paintings Supplies
(As Per Quotation)." (Id. 63.) Similar to the
December 27 and 29, 2017 emails, the sender transmitted this
email from email@example.com. (Id. 55.)
(5) On January 4, 2018, on the same email thread as the
January 3, 2018 request, the sender directed Mann to
"[s]end me confirmation as soon as the attached invoice
have [sic] been paid via wire. Thanks." (Id.
71.) The attached invoice requested a payment of $512, 993.00
to HK Futuolong Co Limited for "Mechanical, Electrical,
Paintings Supplies (As Per Quotation)." (Id.
74.) This final request was also sent from the email address
firstname.lastname@example.org. (Id. 71.)
December 19 and 28 transfers requested that Mann send the
money to Banco Regional de Monterrey in Mexico. (Id.
3, 5.) The December 29, January 3, and January 4 transfers
requested that Mann send the money to three different banks
in Hong Kong. (Id. 4-5.) Mann initiated the
transfers as requested from Quality Plus's bank. (Mem.
Supp. Nat'l Union Mot. Sum. J. Ex. 3 "Mann
Deposition" 35, ECF No. 21-3.) Each email contained a
signature block purporting to belong to Gay, although several
of these signature blocks differed from the others.
Stalnaker "another member of [Quality Plus's]
accounting personnel, approved four of the five
transfers." (Mem. Supp. Quality Plus Mot. Sum. J. 5.)
Stalnaker did not approve the December 29, 2017 transfer.
(Id.) For that transfer Mann used Stalnaker's
approval code to approve the transfer. (Mann Dep. 23.) To do
this, Mann stated that she "[i]nitiate[d] the wire and
then [went] back in. It was under the same log-in
information. And use[d] [Stalnaker's] [code] to approve
it." (Id.) Mann then sent an email to Stalnaker
saying "[j]ust in case someone asks, you just approved a
372K wire to hong kong.... lol." (Mann Dep. Ex.
Plus asserts, and National Union does not dispute, that Gay
did not send any of the emails. (Mem. Supp. Quality Plus Mot.
Sum. J. 7, ECF No. 23.; see Nat'l Union Resp.
Quality Plus Mot. Sum. J. 7, ECF No. 28.)
January 4, 2018, Quality Plus discovered the illegitimate
transfers. (Mem. Supp. Quality Plus Mot. Sum. J. 6.) Gay
declares that he made the discovery "when two separate
events occurred nearly simultaneously:" (1) Gay
"took a call from an unknown person requesting approval
of a wire transfer that [he] had no knowledge of," and,
(2) Gay "received a telephone call from Kristie Haynes,
[Quality Plus's] General Counsel, in which she advised
[Gay] that... Mann informed her that [Mann] had initiated
multiple wire transfers that [Gay] knew nothing about."
(Id.) In its investigation, Quality Plus "did
not find any evidence that any [Quality Plus] employee,
including ... Mann and ... Stalnaker, were knowingly involved
in the fraud." (Mem. Supp. Quality Plus Mot. Sum. J. 7;
see Resp. Quality Plus Mot. Sum. J. 7.)
February 2018, Quality Plus learned "from the Hong Kong
police ... that the Hong Kong bank account associated with
the January 3, 2018 transfer had been successfully
frozen." (Mem. Supp. Quality Plus Mot. Sum. J. 7.)
Quality Plus successfully recovered $411, 304.69 from January
3rd transfer. (Id.) The bank accounts associated
with the other transfers "had zero balances."
The Pertinent Policy Provisions
Union issued the Private Edge Plus Policy No. 01-406-01-90 to
Quality Plus for the term of April 1, 2017 to April 1, 2018
(the "Policy"). (Compl. Ex. A "The
Policy," ECF No. 1-1.) The Crime Coverage Section of the
Policy, which includes coverage for Funds Transfer Fraud,
contains a $1, 000, 000 per occurrence limit of liability
with a $10, 000 deductible. (Id. 4.)
Plus asserts that coverage exists under the Policy's
Funds Transfer Fraud Provision. This Provision states: "The
Insurer will pay for loss of Funds resulting directly from a
Fraudulent Instruction directing a financial institution to
transfer, pay or deliver Funds from the Insured's
Transfer Account." (The Policy 27.) The Policy defines a
Fraudulent Instruction, in pertinent part, as: "an
electronic, computer, telegraphic, cable, teletype,
telefacsimile, telephone or written instruction initially
received by the Insured which purports to have been
transmitted by an Employee but which was, in fact,
fraudulently transmitted by someone else without the
Insured's or the Employee's knowledge or
consent." (Id. 29 (bold in original).)
Union maintains that coverage does not exist under the Funds
Transfer Fraud Provision. If the Court does find that
coverage exists under the provision, National Union avers
that three exclusions preclude coverage: (1) the Indirect
Loss Exclusion; (2) the Fund's Transfer Fraud Exclusion;
and, (3) the Employee's Acts Exclusion. (Am. Answer
12-17, ECF No. 19.) The Indirect Loss Exclusion states:
Loss that is an indirect result of an Occurrence covered by
this Crime Coverage Section including, but not limited to,
loss resulting from:
(i) the Insured's inability to realize income that the
Insured would have realized had there been no loss of or
damage to Money, Securities or Other Property;
(ii) payment of damages of any type for which the Insured is
legally liable; provided, however, the Insurer will pay
compensatory damages arising directly from a loss covered
under this Crime Coverage Section; or
(iii) payment of costs, fees or other expenses the Insured
incurs in establishing either the existence or the amount of
loss under this Crime Coverage Section.
Policy 32 (bold in original).) The Policy defines Occurrence,
in pertinent part, as
(1) an individual act or event;
(2) the combined total of all separate acts or events whether
or not related; or
(3) a series of acts or events whether or not related;
Committed by the same person acting alone or in collusion
with other persons, or not committed by any person, during
the Policy Period shown in the Declarations, except as
provided under Condition 6(a)(xv) or 6(a)(xvi).
(Id. 30.) The second exclusion upon which National
Union relies is the Fund's Transfer Fraud Exclusion that
states, in pertinent part, that: "Insuring Agreement
I.G., "FUNDS TRANSFER FRAUD," of this Crime
Coverage Section does not apply to:... (b) Loss due to: (i)
unintentional errors or omissions; or (ii) voluntary giving
or surrendering of property in a purchase or exchange,
whether legitimate or fraudulent." (Id. 34-35
(bold in original).) Finally, the third exclusion upon which
National Union relies, the Employee's Acts Exclusion,
(c) Acts Of Employees, Managers, Directors, Trustees Or
Representatives Loss resulting from Theft or any other
dishonest act committed by any of the Insured's
Employees, Managers, directors, trustees or authorized
(i) whether acting alone or in collusion with other persons;
(ii) while performing services for the Insured or otherwise;
except when covered under Insuring Agreement 1.A. of this
Crime Coverage Section.
(Id. 31 (bold in original).)
addition to the Policy exclusions, National Union asserts
that the Policy's Territory Condition precludes coverage.
This Condition states that "This Crime Coverage Section
covers loss that the Insured sustains resulting directly from
an Occurrence taking place within the United States of
America (including its territories and possessions), Puerto
Rico and Canada." (Id. 43 (bold in original).)
Finally, if the Court finds that Quality Plus is entitled to
coverage, National Union maintains that Quality Plus's
recovery should be reduced by the Policy's Recovery
Provision, which states:
(1) Any recoveries, whether effected before or after any
payment under this Crime Coverage Section, whether made by
the Insurer or the Insured, shall be applied net of the
expense of such recovery:
(a) First, to the Insured in satisfaction of the
Insured's covered loss in excess of the amount paid under
this Crime Coverage Section;
(b) Second, to the Insurer in satisfaction of amounts paid in
settlement of the Insured's claim;
(c) Third, to the Insured in satisfaction of any Deductible
(d) Fourth, to the Insured in satisfaction of any loss not
covered under this Crime Coverage Section.
(2) Recoveries do not include any recovery:
(a) from insurance, suretyship, reinsurance, security or
indemnity taken for the Insurer's benefit; or
(b) of original Securities after duplicates of them have been
(Id. (bold in original).)
Quality Plus's Request for Coverage
January 5, 2018, Quality Plus notified National Union of its
losses. (Gay Decl. 6.) On February 2, 2018, Quality Plus
"filed with National Union the required sworn Proof of
Loss." (Id.) On March 19, 2018, Quality Plus
"received National Union's coverage denial letter by
four months after it received National Union's coverage
denial letter, Quality Plus filed suit in this Court
requesting that the Court "declare the rights of the
parties under the Policy" and asserting a breach of
contract cause of action. (Compl. 8-9, ECF No. 1.) National
Union answered, denying that coverage existed and asserting
several affirmative defenses, including that several Policy
exclusions preclude coverage.
Court held an Initial Pretrial Conference with Counsel for
both Quality Plus and National Union and scheduled a final
pretrial conference and a bench trial. Several months later,
Quality Plus and National Union filed the Cross Motions for
Summary Judgment. Quality Plus also filed the Motion in
Limine and National Union filed the Motion to
to the Parties' disagreement concerning the necessity of
a trial [in the Cross-Motions for Summary Judgment], and to
conserve judicial resources and resources of the Parties, the
Court continued generally the final pretrial conference ...
and the bench trial." (May 3, 2019 Order 2, ECF No. 37.)
The Court took the motions under advisement.
Court now turns to those motions. It will first discuss the
Cross-Motions for Summary Judgment, which it cannot grant at
this stage of the proceedings due to disputed material facts.
The Court will then turn to the Motion in Limine and
the Motion to Disqualify.
Cross-Motions for Summary Judgment
Standard of Review: Rule 56
judgment under Rule 56 is appropriate only when the Court,
viewing the record as a whole and in the light most favorable
to the nonmoving party, determines that there exists no
genuine issue of material fact, and that the moving party is
entitled to judgment as a matter of law. See Celotex
Corp. v. Catrett, 477 U.S. 317, 322-24 (1986);
Liberty Lobby, 477 U.S. at 248-50. "The
interpretation of an insurance policy is a question of law
that is particularly well suited for summary judgment."
Minn. Lawyers Mut. Ins. Co. v. Protostorm LLC, 197
F.Supp.3d 876, 882 (E.D. Va. 2016) (citing St. Paul Fire
& Marine Ins. Co. v. Jacobson, 826 F.Supp. 155, 157
(E.D. Va. 1993), affd, 48 F.3d 778 (4th Cir. 1995)).
fact is material if the existence or non-existence thereof
could lead a [finder of fact] to different resolutions of the
case." Thomas v. FTS USA, LLC, No. 3:13cv825,
2016 WL 3653878, *4 (E.D. Va. June 30, 2016) (citing
Liberty Lobby, 477 U.S. at 248). Once a party has
properly filed evidence supporting its motion for summary
judgment, the nonmoving party may not rest upon mere
allegations in the pleadings, but instead must set forth
specific facts illustrating genuine issues for trial.
Celotex Corp., 477 U.S. at 322-24. The parties must
present these in the form of exhibits and sworn affidavits.
views the evidence and reasonable inferences drawn therefrom
in the light most favorable to the nonmoving party.
Liberty Lobby, 477 U.S. at 255. Whether an inference
is reasonable must be considered in conjunction with
"competing inferences to the contrary." Sylvia
Dev. Corp. v. Calvert Cty.,48 F.3d 810, 818 (4th Cir.
1995). Nonetheless, the nonmoving "party is entitled
'to have the credibility of his [or her] evidence as
forecast assumed.'" Miller v. Leathers, 913