Hansen & Rowland v. Fidelity & Deposit Co.

Decision Date11 July 1934
Docket NumberNo. 7353.,7353.
PartiesHANSEN & ROWLAND, Inc., et al. v. FIDELITY & DEPOSIT CO. OF MARYLAND.
CourtU.S. Court of Appeals — Ninth Circuit

John Lichty, of Portland, Or., for Fidelity & Deposit Co.

Charles T. Peterson, of Tacoma, Wash., and James L. Conley, of Portland, Or., for Hansen & Rowland, Inc., and another.

Before WILBUR, SAWTELLE, and GARRECHT, Circuit Judges.

SAWTELLE, Circuit Judge.

The plaintiff Hansen & Rowland, Inc., is a Washington corporation, with its principal office in Tacoma, Wash., and is engaged in a general insurance agency business. In October, 1919, the company, in addition to its principal office, operated a branch in Seattle, Wash., and also was interested in several subsidiary corporations in Tacoma.

On October 24, 1919, the Fidelity & Deposit Company of Maryland, hereinafter referred to as the defendant, executed and delivered to Hansen & Rowland, hereinafter referred to as the parent company, a "position form of fidelity schedule bond" or "position bond." This bond insured the parent company "and/or its Subsidiary Companies, of Tacoma, Washington, (hereinafter called employer)" against loss through the dishonesty of their employees. Attached to the bond was a "schedule of positions covered hereunder," with the respective amounts of coverage, but listing no names of individuals occupying the positions.

The bond covers losses caused by the acts of "any person now or hereafter filling any office or position named in the schedule hereto attached or added thereto by acceptance notice as hereinafter provided," with the condition that such acts must occur "before the Employer shall become aware of any default on the part of such person," and must be "discovered before the expiration of two years from the termination of the employment of such person or the cancellation of this bond as an entirety," etc.

In 1921, the parent company formed a subsidiary corporation, Thieme, Morris, Hansen & Rowland, Inc., of Seattle, Wash., and, by an "addition notice," requested the defendant to amend the coverage of its bond so as to include the new company as well as the parent company, "and/or their respective subsidiary Companies, Tacoma and Seattle." This was done by rider. H. T. Hansen, president of the parent company, testified that the purpose of the rider was to change the obligee to include subsidiaries in Seattle.

In 1929, the parent company caused a corporation to be formed in Portland, Or., called the "Irving L. Webster Company, Inc." On December 6, 1929, the parent company requested the defendant to add the following positions to the bond, effective as of December 1, 1929:

                  "President, Portland, Ore.,   $10,000.00
                  "Vice-Pres., Portland, Ore.,    5,000.00
                  "Secretary, Portland, Ore.,    10,000.00
                  "Asst. Secy. Portland, Ore.,    5,000.00"
                

This was done. The name of the Irving L. Webster Company, one of the plaintiffs, and hereinafter to be referred to as the Webster Company, did not appear either in the addition notice sent out by the parent company or in the "acceptance notice" sent by the defendant to the parent company.

On September 27, 1930, the first blanket position bond was terminated, and a new bond of the same kind was issued by the defendant, effective as of that date, insuring the parent Company "and/or H. T. Hansen and/or I. C. Rowland and/or any and all of their or either of their subsidiary and/or affiliated corporation and/or institutions located in Tacoma and elsewhere, hereinafter referred to as the Insured, against loss through larceny," etc., "on the part of any Employee of the Insured."

Hansen testified: "That the first time the name of Irving L. Webster Co., Inc., was referred to, or had ever appeared on the bond, was at this time, when plaintiff's letter of December 1st, 1930, was written." This, however, seems to be an error; for, as the defendant itself points out in its brief, "in the schedule attached to this bond," the Webster Company's name first appeared. As we have seen, the second bond bore the date of September 27, 1930, and the name of the Webster Company appears above that date. Furthermore, the names of the Webster Company and of its various officers, with the names of the positions that they occupied, are to be found in a letter from the parent company to the defendant, dated November 13, 1930.

In this second bond, there was a primary coverage of $5,000 and an excess coverage of $10,000 on the president of the Webster Company, making a total of $15,000.

Like the first bond, in its limitation as to the time for discovery, the second contained the provision that the coverage was only for losses "discovered and reported to the Underwriter not later than two (2) years after the termination of this bond," etc.

Attached to the second bond was a "superseded suretyship rider," around which much of the controversy in the instant case is centered. The terms of the rider, in so far as they are material herein, were as follows:

"Whereas, the Employer has been carrying fidelity suretyship as follows: Here the first bond was referred to and whereas, said fidelity suretyship, as of the effective date of the attached bond, has been canceled or allowed to expire, or has been terminated by agreement, as is evidenced by the issuance and acceptance of the attached bond and this rider; and whereas said fidelity suretyship may provide that any loss thereunder shall be discovered, or claim thereunder shall be filed within a certain period after the expiration, cancelation or termination thereof, now, therefore, it is hereby understood and agreed as follows:

"(1) That the attached bond shall be construed to cover, subject to its terms, conditions and limitations, any loss or losses which may have been caused under said fidelity suretyship by the/any `Employee' and which shall be discovered (after the expiration of any such period, or if there be no such period, after the bar of the statute of limitations, and) before the expiration of the time limited in the attached bond for the discovery of loss thereunder, and which would have been recoverable under said fidelity suretyship, had it continued in force, and also under the attached bond, had such loss or losses occurred during the currency thereof.

"(2) That nothing herein contained shall be construed to render the Fidelity liable under the attached bond for a larger amount on account of any loss or losses under said fidelity suretyship than would have been recoverable thereunder had it continued in force, or to increase the time for discovering, or making claim for, loss under said fidelity suretyship beyond what would have been the time, had it continued in force.

"(3) That the aggregate liability of the Fidelity under said fidelity suretyship and the attached bond, on account of any loss or losses caused by the/any `Employee' whether sustained under said fidelity suretyship or under the attached bond, or partly under each, shall, in no event, exceed the larger or largest of the amounts carried under said fidelity suretyship and under the attached bond on such `Employee'."

On April 20, 1931, the parent company sold its 162 shares of stock, including 4 directors' qualifying shares, in the Irving L. Webster corporation to Irving L. Webster, who was the president of the latter company, for "the same price they the parent company paid for them, and received payment in full." During the period in which the parent company owned stock in the Webster Company, from November 20, 1919 to April 20, 1931, there was a total of 262 shares of outstanding stock in the latter company.

On April 20, 1931, the same day on which the parent company sold its shares in the Webster Company, the coverage of the second bond, as to the Webster Company, was canceled.

In the fall of 1931, officers of the parent company and the Webster Company began to suspect that there had been misapplication of the latter company's funds. As a result, an audit was made, and it was thereafter discovered that Webster, without authority, had overdrawn his account with the corporation in the amount of $15,848.23 between December 13, 1929, and September 18, 1930, and in the amount of $7,942.93 between October 3, 1930, and April 18, 1931. The exact amount of these "irregularities" is established by stipulation of the parties.

The parent company then notified the defendant of the unauthorized withdrawals, and a series of letters was exchanged, terminating in a proof of loss, whereby the two plaintiffs herein jointly made claim upon the defendant for the loss incurred by such overdrafts. Upon the defendant's refusal to recognize the validity of the claim, the present law action was instituted.

In their complaint, the plaintiffs recognize that they cannot recover more than $10,000 of the above $15,848.23 overdraft occurring during the period of the first bond, but they do claim to recover the entire amount of $7,942.93 occurring during the period that the second bond was in force, notwithstanding the apparent limitation of the superseded suretyship rider to the amount of $15,000 gross.

The defendant offered no evidence and, at the close of the plaintiffs' case, all parties moved for a directed verdict. The court directed a verdict for the plaintiffs on the first bond and cause of action in the amount of $7,057.07, and on the second bond and cause of action, in the amount of $7,942.93; the total of the principal being $15,000. Judgment was entered accordingly.

The defendant has appealed for a reversal of the judgment in its entirety, while the plaintiffs filed a cross-appeal, complaining that final judgment had been entered on their behalf in an amount less than prayed for in their complaint; that is to say, that the court erred in directing the jury to return a verdict for $7,057.07 on the first cause of action, instead of for $10,000, as prayed for.

Although the defendant filed fourteen assignments of error, it subdivides its...

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    ...after they became due the children under Option 3, and we shall not so construe the policy. As was said in Hansen & Rowland v. Fidelity & Deposit Co., 9 Cir., 72 F.2d 151, 155: "`If one construction of an insurance policy would involve a hardship or absurdity or contradict its general purpo......
  • Nautilus, Inc. v. Transamerica Title Ins. Co. of Washington, 2308--I
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    ...of the contract or results in hardship or absurdity is presumed to be unintended by the parties, See Hansen & Rowland, Inc. v. Fidelity & Deposit Co., 72 F.2d 151 (9th Cir. 1934). Transamerica knew from the public record about the conflict between the Trail's End plat and the Nautilus prope......
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    • December 28, 1970
    ...F.2d 735 (1969); American Ins. Co. v. First National Bank in St. Louis, 409 F.2d 1387 (8th Cir. 1969); Hansen & Rowland v. Fidelity & Deposit Co. of Maryland, 72 F.2d 151 (9th Cir. 1934). In Couch on Insurance 2d, 24.17 (1960), the following statement is "In the case of property insurance t......
  • Fed. Deposit Ins. Corp. v. National Sur. Corp., 76 Civ. 494
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
    • January 19, 1977
    ...position would appear to be the same as (if not stronger than) that of the parent corporation in Hansen & Rowland v. Fidelity & Deposit Co. of Md., 72 F.2d 151 (9th Cir. 1934), where the Court of Appeals rejected the same types of arguments as the defendant bonding companies advance herein.......

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