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

• Decision Date: 28 December 1926
• Citation: 135 A. 511
• Parties: COMMERCIAL CASUALTY INS. CO. et al. v. SOUTHERN SURETY CO. OF DES MOINES, IOWA.
• Court: New Jersey Court of Chancery

135 A. 511

COMMERCIAL CASUALTY INS. CO. et al.

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

Court of Chancery of New Jersey.

Dec. 28, 1926.

(Syllabus by the Court.)

Inherently, equity has jurisdiction over all cases of fraud. When the primary right is legal, and the jurisdiction of the law courts is concurrent, and, if the remedy at law is adequate, certain and complete, equity remains passive. But equity remains inactive only in that class of fraud that is recognized and remediable at law.

A false representation without intent to deceive will not sustain an action at law for deceit, while in equity a misrepresentation of a material fact, though there be no moral delinquency, is deemed to be fraudulent.

(Additional Syllabus by Editorial Staff.)

Bill by the Commercial Casualty Insurance Company and another against the Southern Surety Company of Des Moines, Iowa. On order to show cause why injunction should not issue pendente lite, and on motion to strike bill. Motion to dismiss denied, and injunction pendente lite allowed.

McCarter & English and George W. C. McCarter, all of Newark, for complainants.

Lum, Tamblyn & Colyer and Ralph Lum, all of Newark, for defendant.

BACKES, Vice Chancellor. On February 25, 1924, the Southern Surety Company, of Iowa entered into a bond for $1,100,000 to tne county of Allegheny, Pa., to secure the county's deposit in the Carnegie Trust Company during the term of the then county treasurer. The complainants Commercial Casualty Insurance Company and New Jersey Fidelity & Plate Glass Company reinsured the Southern Company against loss on its bond, each to the extent, of $50,000. The Carnegie Trust Company failed in 1925, owing the county more than the sum of the bond, and the Southern Company paid its loss, and called upon the reinsurers to contribute, and, upon refusal, brought an action against each in the Supreme Court in September, 1925. They severally answered, setting up certain affirmative defenses, with which we are not now concerned. Upon motion to strike the answers, and a counter motion for leave to file supplemental answers setting up additional defenses out of time, an order was entered in February, 1926, striking out part of the answers, and the counter motion was denied with leave to renew upon affidavits supporting some of the additional defenses. In October following, and on the eve of the trial at law, the application was renewed, and was denied by the Chief Justice on the ground, as alleged in the bill, "that the defendants in said action were in laches in presenting the matter to the court so near the time when the trials were to come on." It appears that the information supporting the defenses had been in the possession of the defendants' attorney since the previous June. Thereupon this bill was filed to cancel the policies of reinsurance and to stay the actions at law, and a restraint was granted until the return day of the order to show cause why an injunction should not issue pendente lite restraining the suits. The matter is now up on the order to show cause, and also on motion to strike the bill for want of equity, on the ground that the law court has complete jurisdiction to entertain the defenses there proposed and now set up in the bill for equitable relief, and, further, that the refusal of the law court, in the exercise of its discretion, to entertain the defenses out of time, and because they came too late, furnishes no ground for equitable interference.

The allegations of fraud in the procurement of the policies of reinsurance alleged in the bill, and which were rejected by the law court, are that, to induce the reinsurance, a duly authorized agent of the insured represented to one of the complainants that his company was about to enter into a bond to the Carnegie Trust Company for $1,400,000; "that the president of Carnegie Trust Company was one John A. Bell, who was a man of large financial means, worth at least $1,400,000, and known by him to be worth far in excess of that amount and a sum not less than $10,000,000 or $11,000,000; that said Carnegie Trust Company was a solvent and well-managed institution, and that the fact of the solvency of the trust company and wealth of said Bell, who was an indemnitor of the Southern Company, would, of course, lessen the risk of the proposed reinsurers"; and that, relying on the representations, the contract of reinsurance was entered into. (It is not alleged, but it will be assumed as pleaded, that these representations were carried to the other insurer by direction of the insured.) It is further alleged that the bond of the Southern Company to the trust company was a renewal, and not an original bond (and it will be assumed, as pleaded, that it was represented to be an original bond), and that the insured concealed from the complainants that the several insurers on the previous bond had refused to reinsure the previous bond, and that they refused because of irregularities of the Carnegie Trust Company and John A. Bell, its president, disclosed during an investigation known as the Kephart investigation, conducted by the auditor general of Pennsylvania, which resulted in the indictment and conviction of Kephart, the state treasurer, of making false reports of his accounts (with the Carnegie Trust Company) and the compulsory payment by the Carnegie Trust Company to the state of the sum of $15,000 for interest on moneys of which the trust company had the unlawful use as a result of the irregularities between Bell and Kephart; and that, had the complainants known the bond was a renewal, and that the previous reinsurers had refused to reinsure, they would have learned that these reinsurers had refused because the Carnegie Trust Company was insolvent, and had been improperly managed, and that they, the complainant, would not have undertaken to reinsure. The further allegations are that, at the time of the representations, the said John A. Bell was insolvent, and that the Carnegie Trust Company was insolvent, and, instead of being well managed, was carelessly and corruptly conducted by the said John A. Bell; that all the representations were false to the knowledge of the agent of the insured who made them, except the one as to the financial condition of Bell. Two additional allegations that it was represented that the bond was to be $1,400,000, whereas it was for $1,100,000. and that the assured would itself carry $150,000 of the liability, are not traversed, and for the reasons that the bond was in fact for $1,100,000, to the knowledge of the reinsurers, and that it was stipulated in the bond that the assured would carry a...