Delmar Bank of University City v. Fidelity & Dep. Co. of Md.

• Decision Date: 03 August 1970
• Docket Number: No. 19845.,19845.
• Citation: 428 F.2d 32
• Parties: DELMAR BANK OF UNIVERSITY CITY, a Missouri Corporation, Appellant, v. FIDELITY & DEPOSIT COMPANY OF MARYLAND, a Maryland Corporation, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

428 F.2d 32 (1970)

DELMAR BANK OF UNIVERSITY CITY, a Missouri Corporation, Appellant, v. FIDELITY & DEPOSIT COMPANY OF MARYLAND, a Maryland Corporation, Appellee.

No. 19845.

United States Court of Appeals, Eighth Circuit.

June 30, 1970.

Rehearing Denied August 3, 1970.

Thomas C. Walsh, St. Louis, Mo., for appellant, and filed brief and reply brief; Joseph H. Grand, St. Louis, Mo., on the briefs.

Herbert E. Barnard, of Barnard, Timm & McDaniel, St. Louis, Mo., for appellee, and filed brief; James E. McDaniel, St. Louis, Mo., on the brief.

Before VAN OOSTERHOUT, Chief Judge, and MATTHES and GIBSON, Circuit Judges.

VAN OOSTERHOUT, Chief Judge.

This is a timely appeal by plaintiff Delmar Bank from final judgment dismissing its complaint against defendant Fidelity & Deposit Company of Maryland (Fidelity). Plaintiff predicated liability on an alleged loss brought about by reason of forgery of endorsements of certain checks paid by plaintiff which plaintiff asserted were covered by the forgery provisions of a Banker's Blanket Bond issued by defendant to plaintiff. Jurisdiction, based on diversity of citizenship, is established. The trial court's opinion is reported at 300 F.Supp. 496.

There is no dispute as to the material facts. In April of 1965 Pearce H. Young, an agent of General American Life Insurance Company (General American), designed a scheme to defraud his principal by representing to General American that a policy holder, Lester O. Becker, desired to borrow money against two life insurance policies issued on Becker's life. Young induced General American to grant policy loans and issue twenty checks payable to Becker totalling $24,600. The checks were drawn on the First National Bank of St. Louis and paid over a period from June 4, 1965, to March 10, 1967. Young had General American deliver the checks to him on the representation that he was to deliver them to Becker. Young did not transmit the checks but endorsed Becker's name as well as his own on the checks and deposited them in his own account or obtained cash therefor at the Delmar Bank. It is agreed that Young never intended Becker to have any interest in or to receive such checks or the proceeds thereof.

The plaintiff Delmar Bank sent the checks for collection to its collection agent, Mercantile Trust Company, who paid Delmar and presented the checks to the First National for payment. First National then paid Mercantile and charged General American's account. In November 1967 when General American discovered that Becker had not endorsed the checks or received payment thereon, General American demanded that First National reimburse it for the amount charged against its account. First National complied with this request and then sent the checks back through the chain of endorsements to Mercantile for repayment. Mercantile made payment to First National and then sent the checks to the Delmar Bank for repayment.

On December 4, 1967, Delmar Bank gave notice to Fidelity that it might have a claim against its bond because of the checks presented to it by Mercantile for repayment. The Delmar Bank passed on to Fidelity all available information with respect to the alleged forgery. Delmar Bank paid Mercantile the amount of the checks on December 21, 1967, and eight days later mailed proof of loss to Fidelity demanding payment on the bond coverage for forgery.

After investigating the claim, Fidelity on February 28, 1968, declined to accept liability for the amount of Delmar's loss, its refusal being based upon the following ground:

"We must respectfully decline to accept liability under the provisions of our bond for the reason that the evidence submitted indicates the twenty (20) checks attached to the Proof of Claim were payable to bearer or payable to order under the provisions of former Section 401.009, Revised Statutes of Missouri or present Section 400.3-405. Under these provisions we do not believe that when the Delmar Bank of University City gave value for these checks they bore `forged\' endorsements within the meaning of our bond or within the meaning of the Missouri Statutes."

Delmar Bank contends that the defendant Fidelity is limited to the defenses asserted in its refusal to pay and that it is not entitled to urge upon the trial defenses not properly raised in such refusal.

It is quite clear in Missouri that when a bonding company or insurance company denies liability on one basis it waives all defenses to the claim not asserted in their declination of payment. Kammeyer v. Concordia Telephone Co., Mo.App., 446 S.W.2d 486, 490; Aetna Casualty & Surety Co. v. Haas, Mo., 422 S.W.2d 316, 321; State Farm Mutual Automobile Ins. Co. v. Central Surety & Insurance Corp., Mo. App., 405 S.W.2d 530, 532; McCarty v. United Ins. Co., Mo.App., 259 S.W.2d 91. As heretofore shown, Fidelity in declining liability asserted only that the checks did not bear forged endorsements within the meaning of its bond or the Missouri statutes. We believe that under Missouri law Fidelity is limited to this defense and may not assert the defense that the loss was not the result of the forgeries.

Defendant upon this appeal places principal reliance upon its contention that the Delmar Bank was not required to reimburse Mercantile when it passed the checks to Delmar and that in so doing, it acted as a volunteer and created its own loss. It was on this theory that the trial court found for the defendant. Clearly this defense was not raised in the letter rejecting coverage. It was first raised by an amendment to the pleadings permitted by the court after the case had been argued and submitted. We agree...