Estate of Jordan by Jordan v. Hartford Acc. and Indem. Co.
| Citation | 120 Wn.2d 490,844 P.2d 403 |
| Decision Date | 21 January 1993 |
| Docket Number | No. 58725-6,58725-6 |
| Parties | ESTATE OF K.O. JORDAN, by John JORDAN as personal representative; Stewart John and Susan John, husband and wife; Estate of L. Rodier, by Tom O'Brien as personal representative; The Pacific Group, a Washington corporation, Petitioners, v. HARTFORD ACCIDENT AND INDEMNITY COMPANY, Respondent. |
| Court | United States State Supreme Court of Washington |
Karr, Tuttle & Campbell, John F. Kruger, Seattle, for respondent.
Ziontz, Pirtle, Morisset, Erenstoff & Chestnut, James J. Purcell, Seattle, for amici.
The petitioners seek review of a Court of Appeals decision holding that the respondent insurance company was not liable to the petitioners under the terms of a statutorily mandated fidelity bond. We hold that theinsurer Lakeside Escrow Corporation (Lakeside) conducted business at several offices in the Puget Sound area. The company was registered under RCW Ch. 18.44, the Escrow Agent Registration Act (Act). Pursuant to the Act, Lakeside obtained a fidelity bond from Hartford Accident and Indemnity Company (Hartford). As required by statute, the bond provided fidelity coverage against loss caused by fraudulent or dishonest acts of Lakeside's employees. See RCW 18.44.050.
is liable under the bond. We reverse the Court of Appeals and reinstate the superior court judgments
Thomas Tinsley was a shareholder, director, vice-president and employee of Lakeside. Beginning in May 1987, Tinsley embezzled money from the escrow trust account at Lakeside's Bellevue office and diverted the funds into the company's operating account to cover general operating expenses. To cover this embezzlement, Tinsley sometimes shifted money back from the operating account to the trust account. He also submitted false operating reports to the other Lakeside officers.
In December 1987, the Department of Licensing audited Lakeside's trust accounts and discovered Tinsley's thefts. As a result, the Department suspended Lakeside's escrow certificate and the bank froze all of Lakeside's trust accounts. The record reflects that Tinsley embezzled almost $180,000 from the trust accounts. Tinsley was subsequently sentenced to 17 months in prison for embezzling the trust account funds.
Jordan and the other petitioners were customers of Lakeside. Each of them had escrow funds in the Bellevue trust account, and each lost money as a result of Tinsley's thefts. The amounts they lost are:
Estate of Jordan .......... $114,536.16
Stewart and Susan John .... $ 26,276.71
Estate of Rodier .......... $ 15,371.24
Pacific Group .............. $ 4,287.50
Lakeside filed for relief under Chapter 7 of the bankruptcy code. Lakeside's trustee in bankruptcy filed a claim The Bankruptcy Court entered judgments against Lakeside in favor of the petitioners. The bankruptcy trustee then assigned Lakeside's claim under the bond to the petitioners. The petitioners sued on the bond in the Superior Court for King County. The Superior Court granted the petitioners' motion for summary judgment, ruling that Hartford was liable under the bond.
on Lakeside's behalf against Hartford, alleging that the trust fund losses were covered by the fidelity bond. Hartford denied the claim on two grounds: (1) that Lakeside suffered no actual "loss" from Tinsley's embezzlement because the stolen funds were diverted into the company's general operating account; and (2) that Tinsley's actions were not "fraudulent" within the meaning of the bond
Hartford appealed the superior court ruling. The Court of Appeals reversed the Superior Court, concluding that Hartford was not liable on the bond because Lakeside suffered no loss. Estate of Jordan v. Hartford Accident & Indem. Co., 62 Wash.App. 218, 813 P.2d 1279 (1991). We granted the petitioners' request for review, and we reverse the Court of Appeals.
This case requires us to interpret a section of the Escrow Agent Registration Act. 1 The Act is a comprehensive scheme that regulates the activities of escrow agents. The section at issue in this case provides:
At the time of filing an application as an escrow agent, or any renewal or reinstatement thereof, the applicant shall satisfy the director [of licensing] that it has obtained the following as evidence of financial responsibility:
(1) A fidelity bond ... covering each corporate officer, partner, escrow officer, and employee ...
. . . . .
The parties present two issues for resolution: (1) did the embezzlement from the trust accounts cause a loss to Lakeside within the meaning of RCW 18.44.050 and the bond?; and (2) was Tinsley's embezzlement of almost $180,000 from the trust account a "fraudulent or dishonest" act within the meaning of RCW 18.44.050 and the bond? We answer both questions in the affirmative.
As a preliminary matter, we first address the issue of whether Jordan and the other petitioners 2 have standing to sue under the fidelity bond. The bankruptcy trustee explicitly assigned Lakeside's cause of action under the bond to Jordan. Jordan then asserted a claim as assignee of Lakeside. An assignee steps into the shoes of the assignor, and has all of the rights of the assignor. Morse Electro Prods. Corp. v. Beneficial Indus. Loan Co., 90 Wash.2d 195, 198, 579 P.2d 1341 (1978). The assignee's cause of action is direct, not derivative. See Oklahoma Morris Plan Co. v. Security Mut. Cas. Co., 455 F.2d 1209, 1212 (8th Cir.1972) (); Federal Deposit Ins. Corp. v. National Sur. Corp., 425 F.Supp. 200, 203 (E.D.N.Y.1977) (). Because Jordan, as assignee, stands in the shoes of Lakeside and has all of Lakeside's rights under the bond, Jordan may assert Lakeside's cause of action under the bond.
Nonetheless, Hartford argued before the Court of Appeals that the bankruptcy trustee did not have the authority to assign Lakeside's rights under the bond to Jordan, and that Jordan therefore lacks standing to bring a cause of action Said bond shall be for the sole benefit of the escrow agent and under no circumstances whatsoever shall the bonding company be liable under the bond to any other party.
under the bond. To support its argument, Hartford relied on the following language in RCW 18.44.050:
According to Hartford, this language prohibits assignments of rights under the bond.
The Court of Appeals ruled that the trustee had the authority to assign Lakeside's action to Jordan, and that Jordan has standing to assert the action against Hartford. Estate of Jordan, 62 Wash.App. at 224, 813 P.2d 1279. Hartford did not cross-appeal this holding and did not address the assignability issue in its answer to Jordan's petition for review. A respondent must raise in its answer any issue that it wishes this court to address. RAP 13.4(d). The court will normally not review any issues not presented in the petition for review or the answer. RAP 13.7(b); see also Honcoop v. State, 111 Wash.2d 182, 193, 759 P.2d 1188 (1988) (); Clam Shacks of Am., Inc. v. Skagit Cy., 109 Wash.2d 91, 98, 743 P.2d 265 (1987) (). Because Hartford failed to assign error to the Court of Appeals ruling that Jordan has standing, we will not review that aspect of the court's decision. 3 The next question is whether Tinsley's embezzlement of the trust account funds resulted in a "loss" within the meaning of the statute. According to Hartford, Lakeside suffered no loss even though Tinsley embezzled almost $180,000 from the trust account. Hartford argues that because Tinsley diverted the embezzled funds into another Lakeside account, there was no diminution of Lakeside's total assets and therefore no loss to Lakeside.
Jordan argues that Tinsley's embezzlement resulted in a covered loss. We agree. The fidelity bond insured "against loss of money or other property which the Insured shall sustain." Under the statute, that bond must protect
against the loss of money or other real or personal property ... for which the obligee is legally liable or held by the obligee in any capacity....
(Italics ours.) RCW 18.44.050. Tinsley embezzled money that Lakeside held in its capacity as trustee of the escrow funds. Because of Tinsley's embezzlement, Lakeside was unable to fulfill its obligations as trustee. Lakeside thus suffered a loss in its capacity as trustee, and this loss is covered under the statute.
Neither RCW 18.44.050 nor the bond defines "loss". In reaching the conclusion that the embezzlement resulted in a covered loss, we start with two principles of construction. First, ambiguous terms in bonds are construed in favor of coverage. White & Bollard, Inc. v. Standard Accident Ins. Co., 175 Wash. 174, 181, 27 P.2d 123 (1933); Puget Sound Nat'l Bank v. St....
To continue reading
Request your trial
-
Queen City Farms, Inc. v. Central Nat. Ins. Co. of Omaha
... ... E.g., Broderick Inv. Co. v. Hartford Accident & Indem. Co., 954 F.2d 601, 606 (10th ... Estate of Jordan v. Hartford Accident & Indem. Co., 120 ... Acc. Ins. Co., 134 N.J. 1, 72, 629 A.2d 831 (1993), ... ...
-
City of Seattle v. McCready
... ... See Estate of Jordan v. Hartford Accident & Indem. Co., 120 ... ...
-
Trinity Universal Ins. Co. of Kan. v. Ohio Cas. Ins. Co., 67832–9–I.
... ... Estate of Jordan v. Hartford Accident & Indem. Co., 120 ... ...
-
State v. Cardenas
... ... , 124, 864 P.2d 1382 (1994) ); see also Estate of Jordan v. Hartford Accident & Indem. Co., 120 ... ...
-
Annual survey of fidelity and surety law, 1993.
...(E.D. Mich. 1992), previous decision, 792 F.Supp. 1070. (18.)147 Bankr. 335 (S.D.N.Y. 1992). (19.)818 F.Supp. 1073 (E.D. Mich. 1993). (20.)844 P.2d 403.(Wash. (21.)463 F.2d 4 (5th Cir. 1972). (22.)989 F.2d 635 (3d Cir. 1993), rev'g and remanding 741 F.Supp. 515 (D.N.J. 1990). (23.)822 F.Sup......