Dawson v. Fidelity and Deposit Company of Maryland

• Decision Date: 11 January 1961
• Docket Number: Civ. No. 1110.
• Citation: 189 F. Supp. 854
• Parties: William J. DAWSON, as Receiver of Central Standard Insurance Company, Plaintiff, v. FIDELITY AND DEPOSIT COMPANY OF MARYLAND, a Corporation, Defendant.
• Court: U.S. District Court — District of South Dakota

189 F. Supp. 854

William J. DAWSON, as Receiver of Central Standard Insurance Company, Plaintiff, v. FIDELITY AND DEPOSIT COMPANY OF MARYLAND, a Corporation, Defendant.

Civ. No. 1110.

United States District Court D. South Dakota, S. D.

December 21, 1960.

As Amended January 11, 1961.

Woods, Fuller, Shultz & Smith, by F. M. Smith, Sioux Falls, S. D., for plaintiff.

Davenport, Evans, Hurwitz & Smith, by Ellsworth E. Evans, Sioux Falls, S. D., for defendant.

BECK, District Judge.

Defendant, Fidelity and Deposit Company of Maryland, a corporation, on a separate trial¹ of the issues raised by its second defense,² the amendment³ thereto, the plaintiff's reply⁴ and the record made in connection therewith, is on this trial seeking a dismissal of the plaintiff's suit to collect the $50,000 specified in the defendant's "Insurance Companies Blanket Bond."⁵

The request for such dismissal is predicated on the theory that the plaintiff's settlement of a principal's obligation on said bond and the obligation of others, had operated to discharge the defendant's thereon as surety and any and all subrogation rights it otherwise could have asserted: to which the plaintiff replies: (1) that the defendant's obligation on the bond is an absolute undertaking to indemnify and hold harmless, against any loss sustained by the insured, one not qualified or contingent upon a remedy against the principal or others, but contingent only on proof of loss through dishonest or fraudulent acts of any one or more of the principals and (2) on the theory of the defendant being a surety on the bond, that the settlements effected, were but covenants not to sue, hence not a defense.

From that part of the entire record which is material on the questions raised by that defense, it is established and the court finds: (1) that Virgil D. Dardi, Paul Cliver and Nathan H. Wendell, Jr., throughout the period from June 11, 1954 to December 6, 1955, were "employees" of the Central Standard Insurance Company, referred to in said bond and as therein defined; (2) that Central during the period through dishonest or fraudulent acts of its "employees",⁶ or some of them, had a loss of property to the extent of $3,177,381.12; (3) that the defendant after the commencement of this action, timely, served "Notice of Suit and Tender of Defense Thereof"⁷ on said Dardi, Cliver and Wendell; (4) that Dardi, Cliver, and Wendell failed or refused to accept the tender of defense communicated by the defendant in that notice, (5) that negotiations between the plaintiff, Dardi, United Dye & Chemical Corporation, the Atlantic Bank of New York and Hyman D. Lehrich, another defendant in the New York action, conducted after the commencement of this action and service of said notice of tender of defense, resulted in settlements and payments to the plaintiff as follows: Dardi $8,500, United Dye & Chemical Corporation $50,000, the Atlantic Bank of New York $25,000 and Hyman D. Lehrich $8,500, under the terms and conditions of certain releases⁸ executed by the receiver for Central and delivered to the releasees in New York as those sums were paid; (6) that those settlements were effected without permission or consent by the defendant, but with notice from the defendant to the plaintiff that it would regard its obligation on the bond as having been discharged if those settlements were consummated and the plaintiff's New York action⁹ thereupon should be dismissed; (7) that the Circuit Court at Sioux Falls, South Dakota, on August 14, 1958, entered the following order, formal parts being omitted:

"The Petition of D. E. Mitchell, Receiver herein, presenting offers of settlement of all claims of the Receiver and Central Standard Insurance Company against Virgil D. Dardi, United Dye and Chemical Corporation, Atlantic Bank of New York, and Hyman D. Lehrich was heard by the court at 2:00 o'clock P.M. July 15, 1958 pursuant to Order and Notice of Hearing heretofore entered. The said D. E. Mitchell appeared by his Special Deputy, C. D. Gregg, and by his attorney, F. M. Smith. Creditors Louis Nelson and Virginia Nelson appeared by their attorney, Gale Braithwaite. Creditor Laurence Lantaff appeared by his attorneys, John Walsh and James Gootz. Creditor Associate Discount Incorporated appeared by its attorney, William Clayton. There were no other official appearances. The court found that notice of said hearing had been given all creditors and stockholders of record of Defendant, Central Standard Insurance Company, in accordance with Order of the Court entered June 19, 1958.

"The written proposal containing the offers of settlement of the said Virgil D. Dardi, United Dye and Chemical Corporation, Atlantic Bank of New York and Hyman D. Lehrich and executed by their attorneys of record on June 20, 1958 was presented to the court and ordered filed. The court examined the said proposal of settlement and heard the parties appearing in connection therewith and thereupon adjourned said hearing until such time as the said D. E. Mitchell could be personally present and heard.

"Said hearing was reconvened at 3:00 o'clock P.M. on August 1, 1958 pursuant to written notice to the attorneys of record of all parties whose appearances have hereinabove been noted and at said time Receiver, D. E. Mitchell, was personally present and heard by the court on his Petition.

"The court then finding that acceptance of said offers of settlement is in the best interests of Defendant, Central Standard Insurance Company, and its creditors and stockholders, taking into consideration the questions of law and fact involved in the litigation heretofore instituted by the Receiver to pursue his claims against said parties, the expenses and hazards of such litigation, the financial responsibility of each of said parties as it has been represented to the court and all other factors involved, it is, on all the files and records herein, good cause appearing.

"Ordered that the offers of settlement of the said Virgil D. Dardi, United Dye and Chemical Corporation, Atlantic Bank of New York and Hyman D. Lehrich in the amounts hereinafter set forth be and the same hereby are accepted in accordance with the terms and conditions contained in the said proposal of settlement dated June 20, 1958:

                Virgil D. Dardi          $ 8,500.00
                United Dye and Chemical
                  Corporation            $50,000.00
                Atlantic Bank of
                  New York               $25,000.00
                Hyman D. Lehrich         $ 8,500.00
                

"and it is

"Further Ordered that the said D. E. Mitchell, as Receiver of Defendant, Central Standard Insurance Company, be and he hereby is authorized and directed to forthwith, execute and deliver to each of the parties above named a general release in the form annexed as Exhibit `A' to the said proposal of settlement dated June 20, 1958 and to thereafter receive and deposit the said settlement sums as general assets in the Receivership estate and to do all other and further things that shall be required to conclude said settlements, and it is

"Further Ordered that upon consummation of said settlement the Receiver be and he hereby is authorized and directed to dismiss with prejudice but without costs as to the said Virgil D. Dardi, United Dye and Chemical Corporation, Atlantic Bank of New York and Hyman D. Lehrich, in action pending in the Supreme Court of the State of New York, County of New York, entitled `Don Mitchell, as Receiver of Central Standard Insurance Company v. Stewart B. Hopps, et al.' and bearing index number 8777/1956."¹⁰

(8) that the receiver pursuant to the terms of that order signed said releases at Sioux Falls and that he thereafter received and deposited the settlement sums as general assets in the receivership account; (9) that the offers for those settlements came as a result of Central's claim in the New York action that each of the offerors had a part in its total alleged loss; (10) that this defendant was not made a party defendant in the New York action; (11) that it at the time had authority to do business in that state and had a resident agent therein upon whom process could have been served; (12) that Dardi was a principal on said bond, the other releasees were not; (13) that Cliver and Wendell also were principals; (14) that United Dye & Chemical Corporation and the Atlantic Bank of New York are solvent, but Cliver and Wendell are not, and (15) that the parties hereto by written stipulation have agreed:

"That the application for the insurance policy or contract of insurance was made by Central Standard Insurance Company in Sioux Falls, South Dakota; that the premium for said policy of insurance was paid by checks issued by the said Central Standard Insurance Company in Sioux Falls, South Dakota drawn upon a Sioux Falls, South Dakota bank; that the said policy was delivered to said Central Standard Insurance Company in Sioux Falls, South Dakota and accepted by said Central Standard Insurance Company in that city; that said policy was retained during all times material herein by said Central Standard Insurance Company in Sioux Falls, South Dakota until possession of said policy was taken by the Receiver, who has retained possession of the same in the State of South Dakota."¹¹

Included in Central's alleged total loss is one item for $909,381.12, involving General American Insurance Company, a Texas corporation, Inland Empire Insurance Company, a Utah corporation, Guardian Insurance Company, a South Dakota corporation and United Benefit Fire Insurance Company, a Nebraska corporation, two disbursements, without consideration to Central, one for $200,000 to Limestreet Corporation, a Delaware corporation, and another for $1,818,000 to Royal American Insurance Company, an Alabama corporation, also an appropriation out of Central's assets on deposit with the Atlantic Bank of New York of $250,000 to pay a United Dye & Chemical Corporation's obligation to that bank in that amount.

Other material factual aspects are settled by a...