Hartford Acc. & Indem. Co. v. Federal Deposit Ins. Corp.

• Decision Date: 19 June 1953
• Docket Number: No. 14732.,14732.
• Citation: 204 F.2d 933
• Parties: HARTFORD ACCIDENT & INDEMNITY CO. v. FEDERAL DEPOSIT INS. CORP.
• Court: U.S. Court of Appeals — Eighth Circuit

204 F.2d 933 (1953)

HARTFORD ACCIDENT & INDEMNITY CO. v. FEDERAL DEPOSIT INS. CORP.

No. 14732.

United States Court of Appeals Eighth Circuit.

June 19, 1953.

Roberts P. Elam, St. Louis, Mo., for appellant.

Jacob M. Lashly, St. Louis, Mo. (Paul B. Rava, University, Mo., Lashly, Lashly & Miller, St. Louis, Mo., Norris C. Bakke, Washington, D. C., and John L. Cecil, Washington, D. C., on the brief), for appellee.

Oliver & Oliver, Cape Girardeau, Mo., filed brief of Fidelity & Casualty Co. of New York, amicus curiae.

Limbaugh & Limbaugh, Cape Girardeau, Mo., filed brief of Bank of Altenburg, amicus curiae.

Before SANBORN, WOODROUGH, and JOHNSEN, Circuit Judges.

SANBORN, Circuit Judge.

This is an appeal from a judgment in favor of the plaintiff (appellee), Federal Deposit Insurance Corporation, in an action upon a bond issued by the defendant (appellant), Hartford Accident and Indemnity Company, to the Brazeau Bank, a small bank in the small town of Brazeau, Perry County, Missouri. The bond was dated May 15, 1947, and, so far as pertinent, insured the Bank against "Any loss of property through * * * false pretenses, * * * with or without negligence on the part of any of the Employees of the Bank," excluding, however, "Any loss the result of the complete or partial nonpayment of or default upon any loan made by or obtained from the Insured, whether procured in good faith or through trick, artifice, fraud or false pretenses, * * *."

The Brazeau Bank was managed by Serena A. Barber, who had been its cashier for almost twenty-six years and who was also a stockholder. W. J. Schneier, in December, 1950, had a current checking account in the Bank. He had been raised in the Brazeau community, and Miss Barber had known him all of his life. Schneier was one of two partners engaged in the trucking business under the name of H. & F. Truck Service. The partnership had a deposit account with the Bank of Altenburg, located in Altenburg, Missouri, which is about five miles distant from Brazeau.

In the latter part of December, 1950, Schneier caused the Brazeau Bank to accept for deposit and credit to his personal deposit account three checks signed "H. & F. Truck Service, W. J. Schneier," made payable to the order of the Brazeau Bank, and drawn upon the Bank of Altenburg. The dates and amounts of the three checks were as follows: December 26, 1950, $6,523.96; December 28, 1950, $6,645.29; December 30, 1950, $6,525.87. The checks were sent by the Brazeau Bank to its regular correspondent bank in St. Louis, Missouri, for collection. Before the three checks were presented to the Bank of Altenburg for payment, Schneier had checked out of his personal account in the Brazeau Bank the aggregate amount of the checks.

There were not sufficient funds in the account of H. & F. Truck Service in the Bank of Altenburg to cover any of the checks in suit, and they were dishonored and returned to the Brazeau Bank. No recovery could be had from Schneier. The Brazeau Bank could not survive the loss and was taken over by the plaintiff, Federal Deposit Insurance Corporation, which had insured the deposits in the Bank.

The net loss to the Brazeau Bank as the result of the fraud practiced upon it by Schneier was $18,490.33. The defendant received notice from the Bank by letter on January 25, 1951, that the Bank had sustained losses covered by the bond in suit through the false pretenses of a "check kiter," and that proof of loss would follow. The plaintiff, in May, 1951, furnished proof of loss to the defendant, stating the amount of the loss and how it occurred. On July 23, 1951, the defendant in a letter to the Associate General Counsel of the plaintiff denied liability on the specific ground that the loss did not occur on the premises of the Bank and was therefore not covered. The writer of the letter, however, stated that the defendant was waiving no other defenses it might have.

This action followed. The plaintiff's claim was that the loss was occasioned by the false pretenses of Schneier and was covered by the bond in suit. The plaintiff asked for judgment for the amount of the loss, damages for vexatious refusal to pay, and a reasonable attorney's fee. The defendant in its answer denied liability. At the trial the defendant asserted that the loss was not covered by the bond because the false representations were not made on the Bank premises; that the evidence did not prove that Schneier knew that the partnership checks which he drew on the Bank of Altenburg would not be paid when presented; that the Brazeau Bank should not have sent the checks through regular channels, but should have called the bank on which they were drawn to ascertain whether they would be paid; and that the evidence showed that Schneier, instead of depositing the checks for credit to his account, had, as a matter of Missouri law, procured a loan from the Brazeau Bank, and that the loss from the nonpayment of the checks was therefore a loss resulting from the nonpayment of a loan, within the meaning of the clause of the bond excluding such losses from coverage. The District Court found no merit in any of the defendant's contentions, and entered judgment against it for $18,490.33, the amount of the loss, and, in addition, for $1,849.03 as damages for the defendant's vexatious refusal to pay, and $2,000 as an attorney's fee.

Two questions only are presented for review. 1. Did the loss sustained by the Brazeau Bank result from the nonpayment of a loan within the meaning of the exclusion clause of the bond? 2. Was the District Court justified in finding that the defendant's refusal to pay the loss was vexatious under the applicable statute of Missouri?

Each of these questions is governed by Missouri law. In Western Casualty & Surety Co. v. Coleman, 8 Cir., 186 F.2d 40, 43, this Court said:

"The burden of demonstrating error is upon the Casualty Company. In a case controlled by local law, that burden is a peculiarly heavy one. This Court is not an appellate court of the State of Missouri and establishes no rules of law for that State. We have repeatedly said that, in reviewing doubtful questions of local law, we would not adopt views contrary to those of the trial judge unless convinced of error, and that all that this Court reasonably can be expected to do in such cases is to see that the determination of the trial court is not induced by a clear misconception or misapplication of the local law. Russell v. Turner, 8 Cir., 148 F.2d 562, 564; Buder v. Becker, 8 Cir., 185 F. 2d 311, 315, and cases cited. If a federal district judge has reached a permissible

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