Columbia Union Nat. Bank v. HARTFORD ACC., ETC.

• Decision Date: 18 September 1980
• Docket Number: No. 19899-1.,19899-1.
• Citation: 496 F. Supp. 1263
• Court: U.S. District Court — Western District of Missouri
• Parties: COLUMBIA UNION NATIONAL BANK, Third-Party Plaintiff, v. HARTFORD ACCIDENT & INDEMNITY COMPANY, Third-Party Defendant.

496 F. Supp. 1263

COLUMBIA UNION NATIONAL BANK, Third-Party Plaintiff, v. HARTFORD ACCIDENT & INDEMNITY COMPANY, Third-Party Defendant.

No. 19899-1.

United States District Court, W. D. Missouri, W. D.

September 18, 1980.

Daniel M. Dibble, Lathrop, Koontz, Righter, Clagett, Parker & Norquist, Kansas City, Mo., for third-party plaintiff.

Paul Scott Kelly, Jr., Gage & Tucker, Kansas City, Mo., for third-party defendant.

MEMORANDUM OPINION AND ORDERS

JOHN W. OLIVER, Chief Judge.

This is an ancillary action for attorneys' fees, costs, and penalties for vexatious refusal to defend. The case currently pends on cross motions for summary judgment based on the meld of undisputed facts filed June 17, 1980.

Third-party plaintiff, Columbia Union National Bank hereinafter Columbia Union seeks recovery under the terms of a Bankers Blanket Bond issued by third-party defendant, Hartford Accident and Indemnity Company hereinafter Hartford. Columbia Union alleges that Hartford wrongfully refused to defend plaintiff bank against claims asserted by the Trustee in Bankruptcy in the plenary action entitled Jackson v. Star Sprinkler Company, No. 19899-1.

The plenary action, Jackson v. Star Sprinkler Corp. of Fla., reported at 575 F.2d 1223 (8th Cir. 1978), was brought by the trustee in bankruptcy of Great Western Automatic Sprinkler Company and Fabrication and Supply Company to recover assets later held fraudulently transferred by certain defendants in that case. The underlying facts of this litigation are set forth in that opinion at 1226, et seq., and need not be fully recited here.

I. Findings of Fact

The Court incorporates by reference the meld of undisputed facts filed by the parties June 17, 1980 and makes the following findings based primarily on that stipulation. Because the meld of undisputed facts simply refers to the insurance contract by exhibit number, the relevant parts will be quoted herein for easy reference. We shall also summarize the allegations of the trustee's complaint. All other findings of fact are as stipulated by the parties unless clearly indicated in the text.

1. This is an action for attorneys' fees, costs and vexatious refusal to defend brought by third-party plaintiff Columbia Union National Bank ("Columbia Union") against third-party defendant Hartford Accident and Indemnity Company ("Hartford"). The cause of action is brought pursuant to Paragraph D of the general agreements Section and Coverage B of the Insuring Agreements of a Banker's Blanket Bond dated September 12, 1969, between Hartford and Columbia Union, which was in effect according to its terms and conditions in 1970 and 1971. (Meld # 1)

2. The insuring agreement, in relevant part, provides that with respect to loss sustained by the insured at any time but discovered during the bond period, and subject to other terms and conditions of the bond, the insurer will indemnify and hold harmless the insured for:

ON PREMISES

(B) Loss of Property (occurring with or without negligence or violence; through robbery, burglary, common-law or statutory larceny, theft, false pretenses, emphasis added hold-up, misplacement, mysterious inexplainable disappearance, damage thereto or destruction thereof, and loss of subscription, conversion, redemption or deposit privileges through the misplacement or loss of Property, while the Property is (or is supposed to be) lodged or deposited within any offices or premises located anywhere, except in an office listed in Item 4 of the Declarations or amendment therefor or in the mail or with a carrier for hire, other than an armored motor vehicle company, for the purpose of transportation. (Insurance Contract, Ex. A to Third-Party Plaintiff's First Amended Complaint, Meld # 1)

3. General Agreement D provides:

COURT COSTS AND ATTORNEYS' FEES

(Applicable to all Insuring Agreements now or hereafter forming part of this bond)

D. The Underwriter will indemnify the Insured against court costs and reasonable attorneys' fees incurred and paid by the Insured in defending any suit or legal proceeding brought against the Insured to enforce the Insured's liability or alleged liability on account of any loss, claim or damage which, if established against the Insured, would constitute a valid and collectible loss sustained by the Insured under the terms of this bond. . . . In consideration of such indemnity, the Insured shall promptly give notice to the Underwriter of the institution of any such suit or legal proceeding and at the request of the Underwriter shall furnish it with copies of all pleadings and other papers therein; and at the Underwriter's election shall permit the Underwriter to conduct the defense of such suit or legal proceeding in the Insured's name, through attorneys of the Underwriter's own selection. In the event of such election by the Underwriter, the Insured shall give all reasonable information and assistance other than pecuniary, which the Underwriter shall deem necessary to the proper defense of such suit or legal proceeding. (Insurance Contract, Ex. A to Third-Party Plaintiff's First Amended Complaint, Meld # 1)

4. On November 29, 1971 Robert L. Jackson, Trustee in Bankruptcy for Great Western Automatic Sprinkler Company ("Great Western") and Fabrication and Supply Company ("Fabrication"), filed a complaint in the United States District Court for the Western District of Missouri entitled Robert L. Jackson, Trustee, v. Star Sprinkler Company, et al., naming Columbia Union as a defendant. (Meld # 2)

5. On August 14, 1972, the Trustee filed a First Amended Complaint, naming Columbia Union as a defendant. (Meld # 3)

6. In Count IV of his complaint and First Amended Complaint, the count which is the foundation of Columbia Union's claim against Hartford here, the Trustee made claims against Columbia Union and certain other defendants. For the sake of brevity the allegations are summarized as follows but the complaint as originally filed and as amended is incorporated herein by reference. In Count IV of the trustee's original complaint it was alleged that certain defendants, not including plaintiff bank, organized High Point of the Midwest, in contemplation of the filing of bankruptcy proceedings for Great Western Automatic Sprinkler Company and Fabrication & Supply Company, to conceal and divert the assets of Great Western and Fabrication to High Point.

The trustee also alleged that defendant High Point established bank accounts at defendant Columbia in which checks payable to the bankrupts were deposited from April to June 8, 1971. He further alleged that the deposits payable to the order of the bankrupts were received after bankruptcy and were endorsed and deposited to the account of defendant High Point in accordance with the plan and conspiracy among other defendants, with knowledge and notice of the bankruptcies acquired by Defendant Columbia no later than May 7, 1971.

In the original complaint the trustee prayed for relief from defendant Columbia Union as follows:

That Plaintiff have and recover such sum as is determined to represent the amount of checks and other legal instruments payable to the order of the bankrupts, endorsed and deposited to the accounts of Defendant High Point after actual knowledge emphasis added of the said bankruptcy proceedings was acquired by Defendant Columbia, less such amount as may be recovered by Plaintiff under judgment granted pursuant to Count V of this Complaint.

The first amended complaint filed August 14, 1972 alleges basically the same scheme among other defendants, and with respect to Columbia Union, seeks recovery for transfers after bankruptcy void against the trustee pursuant to § 70(d) of the Bankruptcy Act, 11 U.S.C. § 110(d). (Trustee's original and amended complaints)

7. The series of letters exchanged between counsel for Columbia Union and counsel for Hartford as set forth in the parties' Meld of Undisputed Facts No. 5 are incorporated herein by reference. (Meld # 5)

8. During the course of discovery, the action by the Trustee against Columbia Union was directed solely to post-bankruptcy transfers which the Trustee sought to recover under § 70(d) of the Bankruptcy Act. The Trustee did not seek recovery from Columbia Union for transfers of property of Great Western prior to Columbia Union's actual knowledge of bankruptcy of Great Western. (Meld # 6)

9. Prior to December 15, 1970, Columbia Union had never done any business with Great Western. Great Western had previously banked at Roeland Park State Bank. (Meld # 8)

10. Robert E. Miller, an insurance agent of Great Western, and his brother, Richard W. Miller, an attorney for Great Western and various of its secured creditors, were friends of Robert W. Wallerstedt, the President of Columbia Union. They had previously gone to school together. (Meld # 9)

11. Robert E. Miller was owed $62,000.00 for insurance premiums from Great Western on December 15, 1970. At that time, he was in an unsecured position and wanted to place himself in a secured position in the event of the bankruptcy of Great Western. (Meld # 10)

12. Robert E. Miller called Robert Wallerstedt to discuss a loan from Columbia Union to Great Western for the purpose of putting Robert E. Miller in a secured position in the event of the bankruptcy of Great Western. Wallerstedt referred Miller to E. H. Bickerton, an executive officer of Columbia Union. Mr. Bickerton met with Miller, who informed Bickerton of his plan to change his status from an unsecured creditor to a secured creditor in the event of Great Western's bankruptcy. In connection with the loan, Bickerton prepared a bank credit memorandum. (Third-Party Def. Ex. No. 1) Robert Miller agreed to arrange to have Great Western grant the bank a security interest in all the assets of Great Western, but pointed out that the security interest would be in a third position behind a security interest previously given in all Great Western's assets to Star Sprinkler Company and...