Commercial Cas. Ins. Co. v. S. Sur. Co. of Des Moines

• Decision Date: 12 June 1931
• Citation: 155 A. 391
• Parties: COMMERCIAL CASUALTY INS. CO. et al. v. SOUTHERN SURETY CO. OF DES MOINES, IOWA.
• Court: New Jersey Court of Chancery

155 A. 391

COMMERCIAL CASUALTY INS. CO. et al.

v. SOUTHERN SURETY CO. OF DES MOINES, IOWA.

Court of Chancery of New Jersey.

June 12, 1931.

Syllabus by the Court.

Charges of false representation and fraudulent concealment, in procuring reinsurance, examined and found not sustained.

Suit by the Commercial Casualty Insurance Company and another against the Southern Surety Company of Des Moines, Iowa.

Decree in accordance with opinion.

McCarter & English, of Newark, for complainants.

Lum, Tamblyn & Colyer, of Newark, for defendant.

BACKES, Vice Chancellor.

In February, 1924, the Southern Surety Company gave its bond to the county of Allegheny, Pa., for $1,100,000, insuring county funds on deposit with the Carnegie Trust Company during the four-year term of the then recently elected county treasurer. The Southern reinsured the risk with nineteen other companies for $1,000,000, retaining a liability of $100,000. The Commercial Casualty Company and the New Jersey Fidelity & Plate Glass Insurance Company were two of the reinsurers; each for $50,000. The Trust Company failed in April, 1925, and, upon paying the loss, the Southern brought suits at law against the Commercial and the Fidelity for the reinsurance. Thereupon this bill was tiled to restrain the suits and to cancel the reinsurance agreements on the ground of fraud. A preliminary injunction issued. 100 N. J. Eq. 92, 135 A. 511; 101 N. J. Eq. 738, 138 A. 919.

The Southern, previously, in 1920, had given a bond for $1,400,000, insuring the county funds on deposit with the Trust Company during the term of the then county treasurer which expired in January, 1924. That risk was also reinsured. When the Trust Company, in February, 1924, applied to the Southern for a new bond of $1,400,000, John A. Bell, its president, agreed in writing to indemnify the Southern against loss. The bond was written for $1,100,000 because the Southern was unable to obtain more than $1,000,000 reinsurance, and itself was unwilling to carry more than a retained liability of $100,000 and an additional $50,000 insurance of another county fund on deposit with the Trust Company. Mr. Zwinggi, the manager of the Pittsburgh branch of the Southern, negotiated the bond and the reinsurance.

The allegations of fraud are, that Zwinggi represented to Mr. Short, manager of the depository bond department of the Commercial, that:

"(a) The defendant was about to execute a bond as surety for Carnegie Trust Company to the County of Allegheny, in the sum of $1,400,000 to secure the deposit of funds of that County in the said Trust Company;

"(b) The defendant would itself retain at its own risk a liability on the said bond of at least $150,000;

"(c) The said bond was an original bond and not the renewal of a prior bond;

"(d) The said Carnegie Trust Company was then a solvent and well-managed institution;

"(e) John A. Bell, the defendant's indemnitor with respect to the said surety bond, was then worth at least $1,400,000;

"(f) The said John A. Bell was known by the said Zwinggi to be a man worth far in excess of $1,400,000 and not less than $10,000,000 or $11,000,000;

"(g) The fact of the solvency and good management of the Carnegie Trust Company and the wealth of the indemnitor, Bell, would lessen the risk of the proposed reinsurers." —that Short repeated the representations to the Fidelity at Zwinggi's request, to induce it to participate in the reinsurance. The charges are that the representations except (g) were untrue in fact, and all of those untrue in fact except "d" and "e" were untrue to the knowledge of Zwinggi, and were made with intent to induce the complainants to enter into the contracts of reinsurance; that they were material to the risk assumed by the complainants and were relied upon by them in entering into the contracts of reinsurance. At the hearing "a" and "b" were abandoned, and "g," a corollary, was not pressed.

This is the case as developed at the hearing: Zwinggi was in New York seeking reinsurance and accidentally met Mr. Campbell, the general agent of the Commercial at Pittsburgh, and told him of his errand. Campbell agreed to submit the proposition to his company, telephoned and then went to its main office in Newark and took Short back to the Waldorf where he had a dinner engagement with Zwinggi. He introduced them, but says he heard none of their conversation. Short says of the meeting: "Mr. Zwinggi offered the financial statement of the bank, represented the bank to me as a first class institution, well-managed, and he also said that we had the indemnity of a man by the name of John A. Bell, who was reputed to be worth in the neighborhood, net worth, of eleven or twelve million dollars. He further stated that Mr. Bell was, as I recall, a coal baron and banker—man of considerable wealth in that locality."

And being asked what else, he replied: "Why, he just—he submitted the financial statement of the bank and financial statement of Bell, showing his worth and so forth, and told me that the bank was well-managed and financially sound and so forth."

And on cross-examination he added: "He (Zwinggi) said, 'Now, this is a largo bond,' and, he says, 'we have the indemnity of the president, Mr. John A. Bell,' he says, 'Mr. Bell is a very wealthy man, a banker,' and something as I recall it,—He said, 'A coal baron here in Pennsylvania;' and he also showed me the personal statement of Mr. Bell which showed, as I recall now, above all his liabilities, about a net worth of eleven or twelve million dollars."

Asked if Zwinggi said anything about its being a renewal or original bond, he answered: "It was a new bond, as I recall, sir, I am rather certain as to that, sir. It was a new bond covering county funds."

This is substantially all of Short's testimony as to representations. It will be observed that Short does not say that Zwinggi represented that Bell "was then worth at least $1,400,000," or that Bell "was known by the said Zwinggi to be a man worth far in excess of $1,400,000 and not less that $10,000,000 or $11,000,000," as alleged in "e" and "f," but that Bell was reputed to be worth ten or eleven million dollars. That he was so reputed is not controverted.

Zwinggi's version is quite different. He says that before he set out from Pittsburgh to canvass the trade, he made up numerous sets of credentials, consisting of the Trust Company's application for a $1,400,000 bond and its-financial statement; Bell's indemnity agreement; the Jones Mercantile Agency report and R. G. Dun's report on Bell, and a list of Bell's directorships; that when he met Campbell he gave him an outline, told him of the old bond and the reason for the new one, and furnished him with a set of credentials to take to his company, and that when he met Campbell and Short in the evening, Short simply announced that his company would take $50,000, and that he replied he thought it was a safe risk. Later, in the course of conversation, he says Short suggested the Fidelity as a prospect; that he gave him a set of the credentials for that concern, upon Short agreeing to submit the matter and to solicit its co-operation. Zwinggi's attitude is that all his advances to the Commercial were made to its Pittsburgh general agent, Campbell, who, he says, was as familiar with the standing of the Trust Company and of Bell as he was, and that when Short met him in the evening and announced his company's action, there was no call for any further representations, and that he made none. Campbell does not deny that Zwinggi told him of the old bond and the reason for the now one; he says he cannot recall. He admits that he discussed the risk with Short over the telephone before going to Newark, but asserts he did not take a set of credentials with him; that he did not lay the matter before Short, though he went to Newark with that in mind; and that he did nothing more than to refer Short to Zwinggi. And Short says that he did not get a set of credentials from Campbell, and yet, a set, not otherwise accounted for, was produced at the hearing from the files of the Commercial. The most natural thing for Zwinggi to have done would have been to give a set to Campbell as his "talking papers," and for Campbell to have unfolded the proposal to Short, and for Short to have made inquiry of him concerning the Trust' Company and Bell, he being from Pittsburgh. It would be singular if these most likely things did not happen. The three committeemen say, as Short says, that they did not consider the risk until the next morning after Short met Zwinggi. But the following sequential events, all well established, are persuasive that the committee approved the risk before Short went to meet Zwinggi, and, in doing so, that they relied on their own records and the set of credentials given by Zwinggi to Campbell. A notation by the committee "O. K. for fifty thousand addl. 2-15-24" in the Commercial's record bears witness that the reinsurance was approved Friday, February 15th. Zwinggi left New York Friday night, February 15th, right after his meeting with Short, and he arrived home the next morning. Short telephoned the proposition to Mr. Vreeland of the Fidelity the morning of the 16th (Saturday) saying, according to Vreeland, "I was over and had lunch yesterday in New York with Mr. Zwinggi" and that "Zwinggi had to get back to Pittsburgh last night" and "to wire Zwinggi, if I wanted any reinsurance, to Pittsburgh." On the morning of the 16th, the Fidelity wired acceptance to Zwinggi at Pittsburgh. And there is this pertinent inquiry. If Short did not carry the news to Zwinggi on the evening of Friday, February 15th, when and how did he inform him that his company would take $50,000 reinsurance, for he did not again see Zwinggi, yet, twelve days later, and as a matter of course, his company executed the reinsurance.

Undoubtedly, Zwinggi and Short talked shop when they met, but Short's testimony, that Zwinggi fraudulently...