Century Bank v. St. Paul Fire & Marine Ins. Co.

• Decision Date: 19 March 1971
• Citation: 93 Cal.Rptr. 569,4 Cal.3d 319,482 P.2d 193
• Court: California Supreme Court
• Parties: , 482 P.2d 193 CENTURY BANK, Plaintiff and Respondent, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY, Defendant and Appellant. L.A. 29795.

Page 569

93 Cal.Rptr. 569

4 Cal.3d 319, 482 P.2d 193

CENTURY BANK, Plaintiff and Respondent, v. ST. PAUL FIRE & MARINE INSURANCE COMPANY, Defendant and Appellant.

L.A. 29795.

Supreme Court of California In Bank.

March 19, 1971.

Dillavou & Cox and C. C. Dillavou, Los Angeles, for defendant and appellant.

Goodstein & Moffitt, John P. Moffitt, Stuart S. Barnett and Maurice Mac Goodstein, Los Angeles, for plaintiff and respondent.

BURKE, Associate Justice.

Plaintiff bank recovered judgment upon an indemnity bond issued to it by defendant insurance company, which appeals. As hereinafter appears, we have concluded that the trial court correctly ruled that a document upon which plaintiff relied in making a loan fell within the bond's coverage with respect to counterfeited or forged instruments, and that the judgment should be affirmed.

Security for a loan of $200,000 made by plaintiff was a document entitled 'Treaty of Reinsurance,' assertedly issued by Manhattan Casualty Company and purportedly guaranteeing the loan in the event of the borrower's default. When the borrower defaulted, Manhattan denied liability under the treaty on the ground that it had been signed on behalf of Manhattan by one who had no authority to do so.

Plaintiff had purchased from defendant a banker's blanket bond which in pertinent part insured the bank against loss from a loan made 'on the faith of * * * documents or other written instruments which prove to have been counterfeited (or) forged.' Plaintiff sued defendant on the bond, and following a nonjury trial was awarded judgment for the full amount of the bond ($100,000), less $500 deductible.

The trial court found that one Rosenfield, upon the authorization of one Begole, had affixed Begole's signature to the treaty of reinsurance, purportedly on behalf of Manhattan Casualty Company; that Begole was not, and knew he was not, authorized to sign such treaties on behalf of Manhattan; that the treaty was not executed by any authorized officer of Manhattan; that the treaty was knowingly 'passed off as genuine' by Begole and Rosenfield for the express purpose of defrauding plaintiff. ¹ The court concluded that inasmuch as the treaty had been falsely passed off to plaintiff 'as a genuine and binding and valid obligation of Manhattan' the treaty constituted a forged and counterfeited document within the language and intent of the blanket bond. We agree.

In Pasadena Investment Co. v. Peerless Cas. Co. (1955) 132 Cal.App.2d 328, 282 P.2d 124, cited by defendant, in which recovery was denied upon a bond containing a provision identical to that in the instant case, the documents in question recited facts which were false but the signature was that of the person who had actually done the signing on his own behalf and not purportedly on behalf of another. Similarly, in Torrance National Bank v. Aetna Casualty & Surety Co. (9th Cir. 1958) 251 F.2d 666, in which recovery was also denied, the involved credit union checks had been signed by an authorized employee, even though the employee was using the checks for an improper and unauthorized purpose.

Defendant also relies upon People v. Bendit (1896) 111 Cal. 274, 43 P. 901. There the defendant without authority collected an account from a debtor who believed him to be the agent of the creditor company, and then in the debtor's presence signed the creditor's name to a receipt, followed by defendant's own initials. It was held that a conviction of forgery was not supported, although defendant 'may have committed some other crime.'

However, the meaning of an insurance policy is to be ascertained according to the insured's reasonable expectation of coverage, and all doubts as to the meaning are to be resolved against the insurer. (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 267--275, 54 Cal.Rptr. 104, 419 P.2d 168; Jones v. Fireman's Fund Ins. Co. (1969) 270 Cal.App.2d 779, 784--785, 76 Cal.Rptr. 97.) As noted in Jones, and cases there cited, the very title of the policy at issue, 'Blanket Bond,' indicates that the coverage is to be wide. By its provisions, the policy insures against loss from reliance upon forged or counterfeited documents, but it does not define those terms. Thus that language is to be construed in accord with the reasonable understanding of a layman as to what constitutes forgery or counterfeiting, rather than in accord with technical definitions and refinements of criminal statutes. It may be noted, however, that the precise conduct which caused plaintiff's loss in the present case falls within the literal definition of forgery set forth in Penal Code section 470. ² Moreover Webster's Third New International Dictionary defines the word 'forge' in our context as '3: to make or imitate falsely,' and defines 'forgery' as '3: an act of forging; Usu: the crime of falsely and with fraudulent intent making or altering a writing or other instrument that if genuine might apparently be of legal effect on the rights of another. * * *'

It appears obvious that the reasonable understanding and expectations of the insured as to the coverage of the blanket bond would encompass the falsely made and spurious treaty of reinsurance which it believed to be genuine and upon which it relied as security for its loan.

The judgment in plaintiff's favor is affirmed.

WRIGHT, C.J., and McCOMB, PETERS, TOBRINER and MOSK, JJ., concur.

SULLIVAN, Associate Justice (concurring and dissenting).

Although I join with the majority in affirming the judgment, I must respectfully disagree with the reasoning by which they purport to arrive at this result. My differences center upon two points. First, I feel that the majority ignore the record which clearly shows that the case was tried on the theory that the bankers blanket bond covered losses resulting only from forgery as defined by the Penal Code. Secondly, the majority discard Sub silentio the longstanding rule of the overwhelming majority of American jurisdictions to the same effect; namely, that the term 'forgery' within the contemplation of an insurance policy or bond, such as the instant one, means an act amounting to the crime of forgery. The majority offer no reason why we should not make plaintiff adhere to his theory of the case below. Nor do they give any explanation for adopting a dictionary definition in place of the accepted majority rule.

As to the first point, I suggest that we are not called upon to reach the question whether the term 'forgery' used in reference to the bankers blanket bond can include acts other than those proscribed by Penal Code section 470. Throughout the trial of this case counsel for plaintiff consistently maintained that 'forgery' referred to the crime prohibited by section 470. ¹ Only on appeal has plaintiff, perhaps realizing the weakness of his position, raised the theory adopted by the majority.

'It is the general rule that a party to an action may not, for the first time on appeal, change the theory of the cause of action. (Citations.) There are exceptions but the general rule is especially true when the theory newly presented involves controverted questions of fact or mixed questions of law and fact. If a question of law only is presented on the facts appearing in the record, the change in theory may be permitted. (Citation.) But if the new theory contemplates a factual situation the consequences of which are open to controversy and were not put in issue or presented at trial the opposing party should not be required to defend against it on appeal. (Citations.)' (Panopulos v. Maderis (1956) 47 Cal.2d 337, 340--341, 303 P.2d 738, 740--741; Ward v. Taggart (1959) 51 Cal.8d 736, 742, 336 P.2d 534.)

In this case, the interpretation of the word 'forgery' involves a mixed question of law and fact. By failing to raise at trial the interpretation it now urges, plaintiff denied defendant the opportunity to present extrinsic evidence bearing on the proper interpretation of the blanket bond. (See Pacific Gas & Electric Co. v. G. W Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 69 Cal.Rptr. 561, 442 P.2d 641). We should not decide this case on an issue as to which defendant was never given the opportunity to present evidence. Since plaintiff during trial never contended that the bankers blanket bond covered acts not prohibited by Penal Code section 470, it should not be allowed to raise that issue on appeal. With all due respect to my colleagues, I suggest that this court should not turn its back upon such a well established rule of appellate practice.

But assuming arguendo that plaintiff has properly raised the issue, I cannot support the majority's facile conclusion that as used in the blanket bond 'forgery' includes virtually any fraudulent act perpetrated by means of a false document. As mentioned above, the great weight of authority in this country holds that in insurance policies or bonds covering forgery, that term refers only to those acts punishable as the crime of forgery. (Pasadena Investment Co. v. Peerless Cas. Co. (1955) 132 Cal.App.2d 328, 282 P.2d 124; Torrance National Bank v. Aetna Casualty & Surety Co. (9th Cir. 1958) 251 F.2d 666; Fitzgibbons Boiler Co. v. Employers' Liability Assur. Co. (2d Cir. 1939) 105 F.2d 893, 896; 52 A.L.R.2d 207, 208--210 (1957).) The majority blithely ignore this line of authority without furnishing any reason why it should be repudiated.

It is of course well settled that 'any ambiguity or uncertainty in an insurance policy is to be resolved against the insurer (citations)' and that '(i)f semantically permissible, the contract will be given such construction as will fairly achieve its object of securing indemnity to the insured for the losses to which the insurance relates.' (Continental Cas. Co. v. Phoenix Constr. Co. (1956) 46 Cal.2d 423, 437, 296 P.2d 801, 809.) Although courts in applying this general principle have followed 'the basic precept that they would look to the words in the contract to...