Case Name: AUTO LENDERS ACCEPTANCE CORPORATION, PLAINTIFF, v. GENTILINI FORD, INC., DEFENDANT/THIRD-PARTY PLAINTIFF-RESPONDENT, v. PNC BANK, N.A, RANDY CARPENTER, RICHARD BAKER, SHAWN HAMILTON, SHANDA BODDIE, SEAN MURRAY, THOMAS EIDELL, CHRISTOPHER JACKSON, TAMIKA FORTUNE, STARR BARNUM, CASSANDRA BROCK, LATOYA SAVAGE, KENYATTA SAUNDERS, KENNETH GRAHAM, CORNEILIA THROWER, JOYCE TAYLOR, ALFIE STEPHENS, DELORES SIMPSON TAIRAT AJOKE DISU, RAYMOND BICKEL, EDWARD ISIAH GRAHAM, TROY BUTLER, JULIUS JERMELLE, EUGENE COBBS, MICHAEL WHITE, JR., BENJAMIN MANSFIELD, WAYNE TUCKER, CHARLES LENTZ, JOANN JACOBS, MICHELE SLOAN, TIFFANY RICHARDSON, THIRD-PARTY DEFENDANTS, AND OHIO CASUALTY GROUP OF INSURANCE COMPANIES, AMERICAN WEST FIRE & CASUALTY COMPANY AND WEST AMERICAN INSURANCE CO., THIRD-PARTY DEFENDANTS-APPELLANTS
Court: New Jersey Superior Court, Appellate Division
Jurisdiction: New Jersey
Decision Date: 2003-03-05
Citations: 358 N.J. Super. 28
Docket Number: 
Parties: AUTO LENDERS ACCEPTANCE CORPORATION, PLAINTIFF, v. GENTILINI FORD, INC., DEFENDANT/THIRD-PARTY PLAINTIFF-RESPONDENT, v. PNC BANK, N.A., RANDY CARPENTER, RICHARD BAKER, SHAWN HAMILTON, SHANDA BODDIE, SEAN MURRAY, THOMAS EIDELL, CHRISTOPHER JACKSON, TAMIKA FORTUNE, STARR BARNUM, CASSANDRA BROCK, LATOYA SAVAGE, KENYATTA SAUNDERS, KENNETH GRAHAM, CORNEILIA THROWER, JOYCE TAYLOR, ALFIE STEPHENS, DELORES SIMPSON TAIRAT AJOKE DISU, RAYMOND BICKEL, EDWARD ISIAH GRAHAM, TROY BUTLER, JULIUS JERMELLE, EUGENE COBBS, MICHAEL WHITE, JR., BENJAMIN MANSFIELD, WAYNE TUCKER, CHARLES LENTZ, JOANN JACOBS, MICHELE SLOAN, TIFFANY RICHARDSON, THIRD-PARTY DEFENDANTS, AND OHIO CASUALTY GROUP OF INSURANCE COMPANIES, AMERICAN WEST FIRE & CASUALTY COMPANY AND WEST AMERICAN INSURANCE CO., THIRD-PARTY DEFENDANTS-APPELLANTS.
Judges: 
Reporter: New Jersey Superior Court Reports
Volume: 358
Pages: 28–48

Head Matter:
816 A.2d 1068
AUTO LENDERS ACCEPTANCE CORPORATION, PLAINTIFF, v. GENTILINI FORD, INC., DEFENDANT/THIRD-PARTY PLAINTIFF-RESPONDENT, v. PNC BANK, N.A., RANDY CARPENTER, RICHARD BAKER, SHAWN HAMILTON, SHANDA BODDIE, SEAN MURRAY, THOMAS EIDELL, CHRISTOPHER JACKSON, TAMIKA FORTUNE, STARR BARNUM, CASSANDRA BROCK, LATOYA SAVAGE, KENYATTA SAUNDERS, KENNETH GRAHAM, CORNEILIA THROWER, JOYCE TAYLOR, ALFIE STEPHENS, DELORES SIMPSON TAIRAT AJOKE DISU, RAYMOND BICKEL, EDWARD ISIAH GRAHAM, TROY BUTLER, JULIUS JERMELLE, EUGENE COBBS, MICHAEL WHITE, JR., BENJAMIN MANSFIELD, WAYNE TUCKER, CHARLES LENTZ, JOANN JACOBS, MICHELE SLOAN, TIFFANY RICHARDSON, THIRD-PARTY DEFENDANTS, AND OHIO CASUALTY GROUP OF INSURANCE COMPANIES, AMERICAN WEST FIRE & CASUALTY COMPANY AND WEST AMERICAN INSURANCE CO., THIRD-PARTY DEFENDANTS-APPELLANTS.
Superior Court of New Jersey Appellate Division
Argued December 4, 2002
Decided March 5, 2003.
Before Judges WEFING, WECKER and FUENTES.
Andrew S. Kent argued the cause for Third-Party Defendants/Appellants (Wolff & Samson, attorneys; Scott D. Baron, of counsel; Mr. Kent, on the brief).
Eric Garrabrant argued the cause for Third-Party Plaintiff/Respondent (Serber, Konschak & Jaquett, attorneys; Mr. Garrabrant of counsel and on the brief).

Opinion:
The opinion of the court was delivered by
FUENTES, J.A.D.
Third-party defendants, Ohio Casualty Group of Insurance Companies, American West Fire and Casualty Company and West American Insurance Company, (Ohio Casualty Group) appeal a judgment in favor of defendant/third-party plaintiff, Gentilini Ford, in the amount of $191,206.83, representing damages suffered as a result of the dishonest acts of its former employee, Randy Carpenter. The loss originates from a fraudulent credit scheme conceived and carried out by Carpenter.
As a salesperson for Gentilini, Carpenter submitted fraudulent applications to Auto Lenders Acceptance Corp. (Auto Lenders) to induce it to finance car purchases to high risk customers. After several of those customers defaulted on their loans, Auto Lenders discovered the fraud and brought suit against Gentilini for participating in the fraud. Carpenter, who was Gentilini's Finance Manager, provided customers with fictitious pay stubs and completed credit applications with knowingly false information intended to improperly bolster the customer's creditworthiness. Gentilini settled that action for $215,000.
Gentilini brought a third-party action against its insurers under the "employee dishonesty extension" of the property insurance section of its commercial coverage insurance policy, seeking a defense to Auto Lenders' suit and indemnification. The insurers declined coverage. On cross-motions for summary judgment, the motion judge granted Gentilini's motion and denied the insurers' motion. We conclude that the Law Division erred in construing the policy of insurance as providing indemnity coverage to Gentilini and reverse.
I
Gentilini is an automobile dealership. Pursuant to a written agreement, PNC Bank provided financing for motor vehicle installment sales contracts that Gentilini would execute with its customers. Auto Lenders agreed to finance those installment sales contracts rejected by PNC. For each approved contract, Gentilini retained the cash deposit paid by its customer and collected the financed portion of the sales price from PNC or Auto Lenders. Gentilini assigned to PNC or Auto Lenders its rights under the customer's installment contract, including any security interest and related insurance. In the event of default by the customer, Auto Lenders was entitled to require Gentilini to repurchase, without recourse, all outstanding contracts purchased by Auto Lenders from Gentilini for the amount of the aggregate unpaid balance due.
In June 1997, Gentilini and the Ohio Casualty Group entered into an insurance contract. The relevant policy language is as follows:
Employee Dishonesty:
(1) You [Gentilini] may extend the insurance provided by this Coverage Form to apply to direct loss of or damage to Business Personal Property and "money" and securities" resulting from dishonest acts committed by any of your employees acting alone or in collusion with other persons (except you or your partner) with the manifest intent to:
(a) Cause you to sustain loss or damage; and also
(b) Obtain financial benefit (other than salaries, commissions, fees, bonuses, promotions, awards, profit sharing, pensions or other employee benefits earned in the normal course of employment) for:
(i) Any employee; or
(ii) Any other person or organization.
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(3) The most we will pay under this Extension for loss or damage in any one occurrence is $5,000.
(4) All loss or damage:
(1) Caused by one or more persons; or
(2) Involving a single act or series of related acts; is considered one occurrence.
The policy defines "money" as:
currency, coins, bank notes in current use and having a face value, travelers checks, register checks and money orders held for sale to the public.
The term "securities" is defined as:
all negotiable and non-negotiable instruments or contracts representing either "money" or other property. "Securities" includes revenue and other stamps (whether represented by actual stamps or unused value in a meter) in current use, tokens and tickets, and evidence of debt issued in connection with credit or charge cards, which cards are not issued by you, but does not include money.
The motion judge decided in favor of coverage and made the following findings:
It is undisputed that Mr. Carpenter was an employee of Gentilini Ford. This court finds that the fraudulent acts that Mr. Carpenter committed in order to obtain loans for prospective automobile purchasers were dishonest. Ohio Casualty contends that the policy was intended to protect against embezzlement or theft but the policy states "dishonest acts." The policy does not define "dishonest acts." This court holds that if Ohio Casualty intended "dishonest acts" to mean embezzlement and theft then either "dishonest acts" would have been defined as such or the policy would have stated embezzlement and theft rather than "dishonest acts." For these reasons and the fact that the frauds undertaken by Mr. Carpenter were dishonest, this court finds that the fraud fall within the meaning of "dishonest acts."
The motion judge further held that the loss sustained by Gentilini, as a result of the law suit brought by Auto Lenders was á "direct loss" within the meaning of the policy based on the so-called Appleman's Rule which provides that:
Where a peril specifically insured against sets other causes in motion which, in an unbroken sequence and connection between the act and final loss, produced the result for which recovery is sought, the insured peril is regarded as the proximate cause of the entire loss. It is not necessarily the last act in a chain of events which is, therefore, regarded as the proximate cause, but the efficient or predominant cause which sets into motion the chain of events producing the loss. An incidental peril outside the policy, contributing to the risk insured against, will not defeat recovery____In other words, it has been held that recovery may be allowed where the insured risk was the last step in the chain of causation set in motion by an uninsured peril, or where the insured risk itself set into operation a chain of causation in which the last step may have been an excepted risk.
[Franklin Packaging Co., v. California Union Ins. Co., 171 N.J.Super. 188, 191, 408 A.2d 448 (App.Div.1979), (citing 5 Appleman, Insurance Law and Practice § 3083 at 309-311 (1970)).]
Under this reasoning, the motion judge found "an unbroken sequence" of events all leading to a recoverable loss: Carpenter's fraud against Auto Lenders precipitating in Auto Lenders' suit against Gentilini, which in turn resulted in a loss to Gentilini.
II
On appeal from a grant of summary judgment, we use the same standard as the motion judge: first we decide whether there is a genuine issue of material fact, and if none, we then decide whether the Law Division's ruling on the law is correct. Brill v. Guardian Life Ins. Co., 142 N.J. 520, 523, 666 A.2d 146 (1995); Southern Jersey Family Med. Ctrs., Inc., v. City of Pleasantville, 351 N.J.Super. 262, 279, 798 A.2d 120 (App.Div.), certif. granted, 174 N.J. 545, 810 A.2d 65 (2002); Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J.Super. 162, 167, 704 A.2d 597 (App.Div.1998); R. 4:46-2.
Our analysis will be guided by well-established principles of insurance law.
When examining an insurance contract, the first step is to determine whether the policy is ambiguous. If a court determines that the policy is clear and unambiguous the policy must be enforced as written. However, if the policy clause is found to be ambiguous, any ambiguities must be resolved against the insurance carrier and in accordance with the objectively reasonable expectations of the insured. A policy provision is considered ambiguous if the phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage. If the policy is considered ambiguous, the reviewing court should determine whether more precise language by the insurer, had such language been included in the policy, would have put the matter beyond reasonable question.
[U.S. Mineral Prods. Co., v. American Ins. Co., 348 N.J.Super. 526, 538, 792 A.2d 500 (App.Div.2002) (citations omitted)].
However, the insured bears the burden of establishing that a claim is within the policy terms. Cobra Prods., Inc. v. Federal Ins. Co., 317 N.J.Super. 392, 401, 722 A.2d 545 (App.Div.1998), certif. denied, 160 N.J. 89, 733 A.2d 494 (1999). Here, the policy language unambiguously describes the type of coverage to be limited to direct loss from an act of dishonesty by an employee with the "manifest intent to cause loss or damage" to the insured. However, Carpenter's criminal acts were intended to defraud Auto Lenders, not Gentilini.
Indeed, as the direct seller of the automobiles, Gentilini became the unintended beneficiary of the fraud by receiving the proceeds of the illicit sales. Such sales proceeds were not limited to the percentage of the sale's price financed by Auto Lenders. Gentilini received and kept the down payment paid by the buyers, received full credit for the amount of the loan amortized by the debtors and retained its right to institute legal action directly against the buyers, both to repossess the collateral and seek payment of the outstanding loan balance.
Thus, under these undisputed facts, coverage cannot be found in Gentilini's favor. This principle was succinctly elucidated by the court in F.D.I.C. v. Nat'l Union Fire Ins. Co., 205 F.3d 66 (2d Cir.2000):
[Bly their clear terms, the fidelity bonds require that the unfaithful employee must intend to cause the employer a loss directly and solely relating to the faithless act, classically describing embezzlement or another type of theft from the employer])] An embezzler, at one end of the continuum, necessarily intends to cause the employer the loss, since the employee's gains are directly at the employer's expense. At the other end of the continuum, not triggering fidelity coverage, is the situation where the employee's dishonesty at the expense of a third-party is intended to benefit the employer, since the employee's gain results from the employer's gain. Under such circumstances, even if the employer suffers a loss, fidelity coverage is not triggered.
[Id. at 72 (citations omitted).].
We also agree with and adopt the reasoning of the Fifth Circuit in Lynch Prop., Inc., v. Potomac Ins. Co., 140 F.3d 622 (5th Cir.1998):
Employee dishonesty policies insure against the risk of property loss through employee dishonesty. Liability policies, by contrast, require an insurer to discharge an obligation of the insured to a third party for some act of the insured or its employee. Although employee dishonesty policies may cover the loss of third-party property in the possession of the insured, these policies do not serve as liability insurance to protect employers against tortious acts committed against third-parties by their employees.
[Id. at 629 (citations omitted).].
A similar conclusion was reached by the Ninth Circuit in Vons Cos., Inc. v. Fed. Ins. Co., 212 F.3d 489, 491 (9th Cir.2000); the New York Court of Appeals in 175 East 74th Corp. v. Hartford Acc. & Indem. Co., 51 N.Y.2A 585, 435 N.Y.S.2d 584, 416 N.E.2d 584, 593 (1980) and the Supreme Court of Iowa in Cent. Nat'l Ins. Co., of Omaha v. Ins. Co. of N. America, 522 N.W. 2d 39, 42 (Iowa 1994).
Our dissenting colleague would find Carpenter's actions to réveal a manifest intent to harm his employer because Gentilini was contractually obligated to Auto Lenders to buy back any promissory note in default. We believe this analysis glosses over the clear pecuniary benefits derived by Gentilini from the fraudulent loans and contorts the meaning of "direct loss" to make it apply to a scenario not intended by the plain wording of the contract language.
The relevant coverage language unambiguously described the insurable risk: "You may extend the insurance provided by this Coverage Form to apply to direct loss of or damage to Business Personal Property and 'money' and 'securities' resulting from dishonest acts committed by any of your employees _" (emphasis added). Here, the facts involve fraudulent conduct by the employee directed against a third-party. The words "direct loss" must be afforded their plain and ordinary meaning. Zacarias v. Allstate Ins. Co., 168 N.J. 590, 595, 775 A.2d 1262 (2001). Accordingly, we decline to adopt the proximate cause analysis embodied in the Appleman's Rule. The policy involved here provides coverage to employers for losses sustained as a direct result of the illegal acts of employees, without any intervening event. To be afforded coverage, the employee's action must be directed against the employer, i.e., embezzlement, theft or destruction of business property.
In this context, payment by the insured to settle a third party claim does not constitute a direct loss triggering coverage under the policy's "Employee Dishonesty" provisions. To find coverage under these circumstances would convert this direct loss policy into a third party indemnity policy. This was not the risk the insurer agreed to cover nor the coverage purchased by the insured. "[I]n the absence of any ambiguity, courts 'should not write for the insured a better policy of insurance than the one purchased.' " Gibson v. Callaghan, 158 N.J. 662, 670, 730 A.2d 1278 (1999) (quoting Walker Rogge, Inc. v. Chelsea Title & Guar. Co., 116 N.J. 517, 529, 562 A.2d 208 (1989)).
Our dissenting colleague considers our conclusion that the trial court erred in construing this policy to provide indemnity coverage to be use of a mere "label [and not] accurate or useful." To describe a policy as providing indemnity coverage or liability coverage, however, is more than placing a "label" for it defines the scope of the insured risk. In the area of insurance law, the terms "third party liability" and "direct loss" are not mere labels, to be discarded when their application would frustrate a desired result. These terms have well established legal significance:
[O]ne method of classifying insurance is to categorize the subject matter by the interests protected in the insurance contract which is accomplished by asking this basic question: 'To whom does the insurer's obligation to pay (indemnify) run?" Liability insurance is customarily described and classified as third-party insurance because the liability insurer's duty to pay runs not directly to the insured but directly (on the insured's behalf) to a third-party claimant who is injured by the insured's conduct. For instance, if an insured negligently injures a person not in privity of the insurance contract, that third party has a claim usually in tort against the insured. The third party's claim is not a contract claim under the liability insurance contract. But if the third party reduces its claim to a judgment (or a settlement between the insured, insurer and third party), the insured will suffer a loss. However, the insured's loss is "indirect" and the third party's loss is "direct." The liability insurer reimburses ("indemnifies") its insured for the insured's indirect loss, but payment in practical effect runs directly to the third-party claimant. The liability insurer essentially reimburses its insured for any liability it may have to the third party by paying the third party on the insured's behalf and benefit.
[1 Appleman On Insurance § 3.3 (Holmes ed.2d ed.1996).]
Furthermore, none of the cases cited by the dissent used a proximate cause analysis to transform direct loss coverage into a third party indemnity policy. The facts here do not present a facial conflict between a covered risk and an exclusion provision in the policy. We are called upon here to declare the scope of coverage contracted for by the insured under the employee dishonesty provisions of the policy. The words: "direct loss of or damage to Business Personal Property and money and securities resulting from dishonest acts committed by any of your [Gentilini's] employees . with the manifest intent to cause you to sustain loss or damage" cannot be transformed into "damages sustained as a result of a third party liability suit brought against you by the victim of your employee's dishonesty."
III
Since we have determined that the insured cannot recover payment made to settle a third-party claim under this direct loss policy, we also vacate the trial court's award of counsel fees. Eagle Fire Prot. Corp. v. First Indem. of Am. Ins. Co., 145 N.J. 345, 364, 678 A.2d 699 (1996); Giri v. Med. Inter-Insurance, 251 N.J.Super. 148, 151, 597 A.2d 561 (App.Div.1991); R. 4:42-9.
IV
The order of the Law Division granting summary judgment in favor of defendanVthird-party plaintiff Gentilini Ford is reversed. We remand the matter to the Law Division for the entry of judgment in favor of third-party defendants, Ohio Casualty Group of Insurance Companies, American West Fire and Casualty Company and West American Insurance Company.
Reversed.
A certification executed by Thomas Eidell, one of the automobile buyers who participated in Carpenter's fraudulent scheme, reflects that he paid $20,000 for a vehicle he purchased from Gentilini. Eidell paid $4,000 in cash directly to Gentilini as down payment. Thus, the amount financed by Auto Lenders was only $16,000.
Auto Lenders also assigned to Gentilini the right to receive any monetary restitution paid by Carpenter as part of any criminal sentence imposed by a court.