Foxley Cattle Co. v. Bank of Mead, 40545

• Decision Date: 21 July 1976
• Docket Number: No. 40545,40545
• Citation: 196 Neb. 587,244 N.W.2d 205
• Parties: FOXLEY CATTLE COMPANY, a Nebraska partnership, Appellant, v. BANK OF MEAD, a Nebraska Banking Corporation, Appellee, St. Paul Fire & Marine Insurance Company, Garnishee-Appellee.
• Court: Nebraska Supreme Court

Page 205

244 N.W.2d 205

196 Neb. 587

FOXLEY CATTLE COMPANY, a Nebraska partnership, Appellant, v. BANK OF MEAD, a Nebraska Banking Corporation, Appellee St. Paul Fire & Marine Insurance Company, Garnishee-Appellee.

No. 40545.

Supreme Courtof Nebraska.

July 21, 1976.

Syllabus by the Court

1. A fidelity bond is an indemnity insurance contract whereby insurer agrees to indemnify the insured against loss arising from want of integrity, fidelity, or honesty of employees or other persons holding positions of trust.

2. For the insurer to be liable to its insured on a contract of employee fidelity insurance, the insured must sustain an actual loss of the nature insured against.

3. An insurer under a fidelity bond is liable only in event of loss sustained by the insured.

4. Legal liability of a named insured to a third party does not create legal liability of the insurer under a blanket honesty bond to such third party.

5. Contracting parties are presumed to act for themselves and intent to benefit a third person should be clearly expressed in the contract.

6. In contracts of indemnity against loss, an insurer does not become liable until the insured has suffered proven loss.

John R. Douglas, Cassem, Tierney, Adams & Gotch, Omaha, for appellant.

Joseph Ginsburg, of Ginsburg, Rosenberg, Ginsburg & Krivosha, Lincoln, for Bank of Mead.

Emil F. Sodoro and Ronald H. State of The Law Offices of Emil F. Sodoro, P.C., Omaha, for St. Paul Fire & Marine Ins. Co.

Heard before WHITE, C.J., and SPENCER, BOSLAUGH, McCOWN, NEWTON, CLINTON, and BRODKEY, JJ.

WHITE, Chief Justice.

This case involves a garnishment action brought by the plaintiff, Foxley Cattle Company, against the St. Paul Fire and Marine Insurance Company (hereinafter referred to as St. Paul).

Plaintiff is a judgment creditor of the defendant, Bank of Mead, having obtained a judgment in the amount of $227,850.71 against the bank. The basic facts giving rise to plaintiff's cause of action and the resulting judgment in that case were as follows: Kenneth W. Schuette, president and a paid employee of the Bank of Mead, made certain representations to the plaintiff concerning the ownership, clear title, and location of 1,802 head of steers. These representations were in fact untrue. In reliance upon the fraudulent representations of Schuette, plaintiff issued its check, payable to the Bank of Mead and Agri-Land & Beef, Inc. No cattle were ever delivered to plaintiff. The jury verdict in favor of the plaintiff against the Bank of Mead was affirmed by this court on appeal. Foxley Cattle Co. v. Bank of Mead, 196 Neb. 1, 241 N.W.2d 495 (1976).

After obtaining its judgment, plaintiff caused summons and interrogatories in garnishment to be issued to St. Paul. Thereafter, St. Paul filed its answers, admitting that it had issued various bonds to the Bank of Mead (copies of these bonds were attached to the answers), but denying that it was indebted to the defendant at the time of the garnishment summons.

Trial on plaintiff's application for determination of liability of St. Paul was held on September 5, 1975. On October 31, 1975, the District Court found that, at the time of the service of summons in garnishment, St. Paul was indebted to the defendant Bank of Mead under the terms of its bonds and liable to the plaintiff in the amount of $227,850.71, plus $95,808.43 in prejudgment interest, plus $16,457.62 interest to date of judgment, for a total of $340,116.76, plus costs, including reasonable attorneys' fees.

On November 10, 1975, St. Paul filed motions for a new trial and for a judgment notwithstanding the verdict. On December 5, 1975, the District Court denied the motion for a new trial, but granted the motion for judgment notwithstanding the verdict, finding that its judgment of October 31, 1975, in favor of the plaintiff, should be vacated and set aside and that a judgment for the garnishee should be entered. The District Court vacated and set aside its judgment of October 31, 1975, against St. Paul and entered judgment in favor of St. Paul, finding that St. Paul was not indebted or liable to the plaintiff or the Bank of Mead. Plaintiff appeals. We affirm the judgment of the District Court.

Plaintiff alleges that St. Paul is indebted to the Bank of Mead by virtue of several bonds which St. Paul had issued to the Bank of Mead.

Excess Blanket Employee Dishonesty Bond No. 400 CG 4176, issued by St. Paul to the Bank of Mead provided: The Underwriter, in consideration of the payment of the premium, and subject to the Declarations made a part hereof, the General Agreements, Conditions and Limitations, and other terms of this bond, agrees to indemnify and hold harmless the Insured from the against any loss sustained by the Insured at any time but discovered during the Bond Period, including loss of money, securities or other property held by the Insured for any purpose or in any capacity and whether so held gratuitously or not and whether or not the Insured is liable therefor, through any dishonest, fraudulent or criminal act committed anywhere by any of the Employees, acting alone or in collusion with others * * *.'

Bankers Blanket Bond No. 400 CP 5231, issued by St. Paul to the Bank of Mead provided: 'The St. Paul Fire and Marine Insurance Company (herein called Underwriter), in consideration of agreed premiums and subject to these Declarations, the General Conditions of this Bond and the terms and limitations expressed in its Insuring Clauses, agrees to indemnify the Insured * * * from and against any losses sustained by the Insured as the result of any of the occurrences or events mentioned in the Bond * * * which shall happen at any time but which are discovered by the Insured subsequent to noon of the 16th day of March 1970 * * *.

'(A) Dishonesty

'The Underwriter agrees to indemnity the Insured to any amount not exceeding the amount stated in the Declarations for this Insuring Clause, or endorsement amendatory thereto, from the against any loss, or any loss of Property, by reason of any dishonest, fraudulent or criminal act of any of the Employees, wherever committed and whether acting alone or in collusion with others * * *.'

Plaintiff contends on appeal, as it did in the District Court, that the misrepresentations made to it by Schuette, a salaried employee of the Bank of Mead, were fraudulent and dishonest acts within the terms of these bonds, and that the judgment which it obtained against the Bank of Mead, based upon these fraudulent misrepresentations, was a loss sustained by the bank as a result of the fraudulent and dishonest act of one of its employees, and thus within the coverage of these bonds, making St. Paul liable and indebted to the Bank of Mead.

In order that a surety or insurer may be liable under a fidelity bond, the loss suffered by the insured employer must be caused by acts or defaults within the contemplation of the bond.' 35 Am.Jur.2d, Fidelity Bonds and Insurance, § 18, p. 515. The insurer under a fidelity bond is liable only for lesses sustained by the insured and of the type described in the insurance contract. KAMI Kountry Broadcasting Co. v. United States Fidelity & Guaranty Co., 190 Neb. 330, 208 N.W.2d 254 (1973).

The issue, therefore, in this case is whether or not the judgment obtained against the Bank of Mead by the plaintiff,...