Fitchburg Savings Bank v. Massachusetts Bonding and Ins. Co.

• Decision Date: 07 January 1931
• Citation: 274 Mass. 135
• Parties: FITCHBURG SAVINGS BANK v. MASSACHUSETTS BONDING AND INSURANCE COMPANY.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

274 Mass. 135

FITCHBURG SAVINGS BANK v. MASSACHUSETTS BONDING AND INSURANCE COMPANY.

Supreme Judicial Court of Massachusetts, Worcester.

January 7, 1931

November 5, 1930.

Present: PIERCE CARROLL, WAIT, & FIELD, JJ.

Bond, Of indemnity. Savings Bank. Estoppel. Waiver. Words, "Loss," "Full particulars."

A "bankers' blanket bond" of indemnity against loss "due to any dishonest or criminal act on the part of any of the officers or employees of the

Insured" or against loss "through any other form or fraud or dishonesty by any person or persons, whether employees of the Insured or not" made effectual to a savings bank to which it was issued insurance against loss sustained by it through diversion of its funds by its treasurer for his own benefit by means of loans made to irresponsible persons without security in violation of G.L.c. 168,

Section 29, and of Section 53A, added to G.L.c. 266 by St. 1922, c. 313, Section 2.

Such a bond contained the following provisions: "At the earliest practicable moment, and at all events not later than ten days, after the Insured shall discover any loss hereunder the Insured shall give the Underwriter notice thereof by registered letter or telegram, addressed to it at its home office, and shall also, within three months after such discovery, furnish to the Underwriter at its home office affirmative proof of loss with full particulars. Legal proceedings for recovery of loss hereunder shall not be brought prior to the expiration of three months from the furnishing of such proof, nor after the expiration of twelve months from the discovery of such loss." ". . . the Underwriter upon payment of any loss hereunder shall become subrogated to all the rights and remedies of the Insured in respect of such loss." Held, that

(1) The word "loss" in the bond meant the deprivation or dispossession of money or property of the bank due to the dishonest, criminal or fraudulent acts of its officers regardless of the security the bank had for the loss;

(2) The insured could maintain an action for such loss against the insurer without proof that it first had exhausted remedies which it had against the treasurer and indorsers upon the notes he fraudulently used;

(3) Such action could be maintained without proof that, at the time the action was begun, it had sustained some actual defined loss not merely nominal, as the result of the transaction in question.

The savings bank insured by the bond above described discovered the fraud of its treasurer on November 10, and on that day and on November 18 sent unregistered letters to the insurer stating in substance that loss might result to it from loans made by the treasurer for his own benefit if there was a loss on paper of others used by him for that purpose, and that, if such loss occurred, it would look to the insurer upon the bond. In reply to the letters, the insurer merely asked for further information and made no complaint of any defect in the notice sent and did not raise the question of its validity as a notice because it was not registered or in the form of a telegram. In an action by the insured against the insurer upon the bond, it was held, that the defendant was estopped from setting up as a defence the defective form of the notice.

In the three months, within which, by the provisions of the bond above described, the insured was required to furnish the insurer "at its home office affirmative proof of loss with full particulars," there was correspondence between the parties in which the insured stated in substance that a loss might occur on the notes in question; and in an interview with a representative of the insurer at the insured's place of business the notes were shown to him. At the trial of the action on the bond, it appeared that there were in the books of the trust company or in the knowledge of its officers material facts relating to the treasurer's transactions which were not stated to the insurer in any form within three months after his unlawful acts were discovered.

Held, that the evidence, documentary and oral, would not warrant a finding that the plaintiff furnished the "affirmative proof of loss with full particulars" required by the provision of the bond within the specified three months.

Before the expiration of such three months' period, the president of the plaintiff had an interview with a representative of the defendant at the defendant's office, in which the defendant's representative stated as the ground for its refusal to recognize liability on the bond a construction of a part of its language which had nothing to do with the requirements as to notice and as to the furnishing of "full particulars" within three months of discovery of the fraud of the treasurer. Eight days later, and nineteen days before the expiration of the three months' period, the defendant wrote to the plaintiff, stating, "You are, of course, in possession of all the facts surrounding this matter. As surety on this bond we are entitled to whatever information you have that in any way affects this bond. . . . Whatever the information, whatever the facts in your possession, it is your duty and the duty of the bank frankly and fully to furnish them to this Company." There was no evidence of an express waiver of the condition precedent by the defendant after the three months' period had elapsed, nor any evidence that after that period the plaintiff abandoned any right or changed its position to its prejudice in reliance upon any statement or conduct of the defendant or of its representatives. Held, that the contents of such letter to the plaintiff prevented the plaintiff's relying on the previous oral statement of the defendant's representative, and the defendant was not estopped to rely on the provision of the bond requiring the plaintiff to furnish "full particulars" in three months after discovery of loss under the bond.

At the trial of the action above described, the judge admitted in evidence the interview with the defendant's representative at its office for all purposes except on the question of waiver of the provisions of the bond as to the furnishing by the plaintiff of "full particulars" within three months; and, at the close of the evidence, ordered a verdict for the defendant and reported the action to this court. Having determined that the statement of the defendant's representative, made twenty-seven days before the expiration of the three months' period and followed eight days later by the defendant's letter stating that it was entitled to full particulars, did not estop the defendant from relying on such provision of the bond, this court held, that

(1) There was no reversible error in the limiting of the use of evidence as to the interview with the defendant's representative;

(2) It was proper to order a verdict for the defendant.

CONTRACT upon an indemnity bond described in the opinion. Writ dated October 25, 1927.

In the Superior Court, the action was tried before Thayer, J. The letter of the plaintiff to the defendant dated November 10, 1925, referred to in the opinion, read as follows:

"For your information we would say that the resignation of the Treasurer of this Bank, Frederic C. Nichols, has been presented and at a special meeting of the Trustees held yesterday was accepted. Although Mr. Nichols appears to be heavily indebted personally to institutions outside of Fitchburg and to certain individuals, we have no information that leads us to believe that this Bank is in any way involved by his management of his personal affairs.

"Mr. Nichols was given leave of absence by the Board of Investment of the Bank on Monday, November 2d, and has not been in the Bank or acted as Treasurer since that date.

"As examination by the Commissioner of Banks, and on Saturday last by our own Auditors, shows the assets and securities and cash of the Bank intact, and that Mr. Nichols is not indebted to the Bank. Consequently we have no expectation of loss to the Bank arising out of his acts as Treasurer which would necessitate formal notice to you under Section 9 of the Blanket Bond #F-128497 which this Bank holds from your Company; but we feel that you should receive this information from us.

"We enclose herewith copies of the statement of the Commissioner of Banks and of our Trustees, and under separate cover Fitchburg Sentinel of the 9th inst.

"Please acknowledge receipt hereof." To the above letter, the defendant replied as follows:

"Re: Frederick C. Nichols. We wish to acknowledge your letter of November 10th, with enclosures from which we note that the resignation of Frederick C. Nichols, Treasurer of your bank, has been accepted, and that an examination by the Commissioner of Banks, and by your own Auditors discloses the fact that the assets, securities and cash of the bank are intact. We hope that your bank will not be injured by this unfortunate occurrence."

On November 18, 1925, the plaintiff, by its president, wrote the defendant as follows:

"Referring to my letter to you of November 10th (acknowledgment of which, by the way, I have not yet received, as requested), I have a criticism from the Commissioner of Banks of the third paragraph of my letter, for the reason that the Bank holds two notes which the Commissioner is satisfied were for the benefit of Mr. Nichols; and that should the makers fail to pay them upon maturity, they would result in a loss to the Bank for which it would look to you on your Blanket Bond. I write this for your further information and to prevent any misunderstanding should the Bank suffer loss on either or both of these notes. Kindly acknowledge receipt of both of my letters."

The defendant replied by the following letter dated November 19, 1925:

"We have your letter of November...