Grand Lodge v. Bonding & Ins. Co.

• Decision Date: 04 March 1930
• Docket Number: No. 27216.,27216.
• Citation: 25 S.W.2d 783
• Parties: GRAND LODGE OF UNITED BROTHERS OF FRIENDSHIP AND SISTERS OF MYSTERIOUS TEN v. MASSACHUSETTS BONDING AND INSURANCE COMPANY and JAMES H. WILLIAMS, Appellants.
• Court: Missouri Supreme Court

25 S.W.2d 783

GRAND LODGE OF UNITED BROTHERS OF FRIENDSHIP AND SISTERS OF MYSTERIOUS TEN v. MASSACHUSETTS BONDING AND INSURANCE COMPANY and JAMES H. WILLIAMS, Appellants.

No. 27216.

Supreme Court of Missouri, Court en Banc.

March 4, 1930.

Appeal from Cole Circuit Court. — Hon. Henry J. Westhues, Judge.

AFFIRMED (upon condition).

Harding, Murphy & Tucker and Leahy, Saunders & Walther for appellant.

(1) The court erred in not setting aside the report of the referee because of the erroneous conclusion of law of the referee, that "the burden was upon the defendants to show that said shortage was due to irregularities other than acts of larceny and embezzlement." 25 C.J. 1093, 1094, sec. 5; Monongahela Coal Co. v. Fidelity & Deposit Co., 94 Fed. 732. (2) The statements, representations and agreements in the employer's statement that the checks drawn by the grand treasurer would invariably be countersigned after they were drawn by the grand master, and that throughout the continuance of the bond, or any continuation thereof, the checks and supervisions described in the application would be faithfully observed, were promissory warranties, made such by the employer's statement and by the bond itself, and the conceded failure of the respondent to comply therewith in any respect discharged the appellant from all liability on said bond, and the court and the referee should have so held and found. McGannon v. Ins. Co., 171 Mo. 143; Commercial Bank v. Am. Bonding Co., 194 Mo. App. 224; Police Relief Assn. v. Am. Bonding Co., 197 Mo. App. 430; Linz v. Life Ins. Co., 8 Mo. App. 363; State ex rel. Young v. Temperance Benefit Society, 42 Mo. App. 485; Brooks v. Fire Ins. Co., 11 Mo. App. 349; Long Brothers Grocery Co. v. Fidelity & Guaranty Co., 130 Mo. App. 421; U.S. Fidelity & Guaranty Co. v. Downey, 38 Colo. 414; Rice v. Fidelity & Deposit Co., 103 Fed. 427; Poultry Producers' Union v. Williams, etc., 107 Pac. 1040; Bissinger & Co. v. Bonding & Ins. Co., 83 Ore. 288, 163 Pac. 592; Smith v. Am. Automobile Ins. Co., 188 Mo. App. 297; Kenney v. Fire Ins. Co.; 247 S.W. 249. (3) The statements and representations in the employer's statement that the grand treasurer's books and accounts would be audited and verified with securities on hand and in bank once a year by the Commissioner of Insurance and the Grand Lodge were promissory warranties, and the failure of the respondent to perform the same discharged the appellant from all liability on its bond. Cases under Point 2. (4) The agreement for joint control of the securities constituted a promissory warranty and the failure of the respondent to perform the same discharged appellant from liability under its bond. Cases under Point 2. (5) Even if the statements and representations in the application relative to the countersigning of all checks by the grand master, and relative to the auditing of the books of the grand treasurer, and the verification thereof with the cash on hand and in bank, and the agreement for joint control of the securities be regarded as promissory representations only, the failure of the respondent to even substantially comply with them, they, being material as a matter of law, discharged appellant from all liability on its bond. Krey Packing Co. v. Fidelity & Guaranty Co., 189 Mo. App. 591; McGannon v. Ins. Co., 171 Mo. 143; Burge Brothers v. Ins. Co., 106 Mo. App. 256; Smith v. Am. Automobile Ins. Co., 188 Mo. App. 297; Bella S.S. Co. v. Ins. Co., 5 Fed. (2d) 572; Carrollton Furniture Manufacturing Co. v. Am. Credit Indemnity Co., 124 Fed. 28; Clark v. Ins. Co., 5 Fed. Cas. 889, affirmed 49 U.S. 244; King Brick Manufacturing Co. v. Phoenix Ins. Co., 164 Mass. 291; Am. Bonding & Trust Co. v. Burke, 36 Colo. 49; U.S. Fidelity & Guaranty Co. v. Foster Deposit Bank, 147 S.W. (Ky.) 406. (6) The employer's statement, the joint-control agreement, and the bond must be read, construed and enforced together. Having breached the covenants which were to be performed by respondent, the respondent cannot now enforce the fulfillment of the covenant of appellant. Rice v. Fidelity & Deposit Co., 103 Fed. 433. (7) The statements in the certificates executed in 1920 and 1921 to induce the appellant to execute and deliver continuation certificates, that the books and accounts of the grand treasurer had been on the days stated therein examined and found correct and that all moneys handled by the grand treasurer had been accounted for, were warranties, made so by both the agreement in the employer's statement and by the bond. These certificates were false and, therefore, the appellant is not liable for a shortage, if any, occurring during either the first or second continuation of the bond. Cases under Points 2 and 5. (8) Only pecuniary loss sustained by acts of larceny or embezzlement committed by the grand treasurer, which were committed during the life of the bond and discovered within six months after the expiration thereof were covered by the bond. Each renewal was a separate and distinct contract, having in it, however, all of the terms and conditions of the original bond. The losses, if any, occurring during the life of the original bond and during the life of the first renewal were not discovered within six months after the expiration of each. Under no circumstances, therefore could appellant be held liable for losses, if any, occurring between September 15, 1919, and September 15, 1921. Lyons v. Natl. Surety Co., 243 Mo. 607; Mayor etc. of Brunswick v. Harvey, 40 S.E. 754; Glenn v. Fidelity & Guaranty Co., 135 Tenn. 117; Florida Central & P. Railroad Co. v. Am. Surety Co., 99 Fed. 674. (9) There was not a scintilla of evidence justifying the referee's finding of a vexatious refusal to pay and the imposition of penalty and attorney's fees. Berryman v. Motor Car Ins. Co., 199 Mo. App. 503; Berryman v. Surety Co., 285 Mo. 379; Shoe Company v. Assurance Co., 277 Mo. 399; State ex rel. Continental Life Ins. Co. v. Allen, 303 Mo. 620.

Irwin & Bushman and C.H. Calloway for respondent.

(1) Contracts of fidelity insurance are subject to the same rules of construction as apply to other insurance contracts. 25 C.J. 1091-1103; Long Bros. Grocer Co. v. F. & G. Co., 130 Mo. App. 421; Roark v. Trust Co., 130 Mo. App. 401; Title Guaranty Co. v. Fulton Bank, 33 L.R.A. (N.S.) 676; Whinfield v. Bonding Co., 154 N.W. 632; Commercial Bank v. Am. Bonding Co., 194 Mo. App. 224; State ex rel. Peach v. Bonding Co., 279 Mo. 535. A corporation engaged in the business of acting as surety for hire in respect to its obligation to indemnify is in the position of an insurer. Police Relief Assn. v. Am. Bonding Co., 197 Mo. App. 430; M.K. & T. Ry. Co. v. Am. Surety Co., 236 S.W. 657. (2) The rule requiring strict construction against the company and liberal construction in favor of the insured applies to the construction of the questions and answers or other statements in the application and employer's statement. 32 C.J. 1157; Mann v. Royal Arcanum, 206 Ill. App. 92; Perry v. Ins. Co., 143 Mich. 290, 106 N.W. 860; Dineen v. Ins. Co., 110 N.Y. Supp. 344; Diamond v. Ins. Co., 116 N.Y. Supp. 617; Mo. State Life Ins. Co. v. Hearne, 226 S.W. 789; 3 Joyce, Law of Ins. (2 Ed.) sec. 1934a. (3) In construing the bond of a surety company the first consideration is the language of the bond itself, which must be read in its entirety and all ambiguities therein must be resolved against the surety, and whether the application or employer's statement is a part of the bond must appear from the language of the bond itself that the parties understood and accepted the application or employer's statement as a part of the contract. 32 C.J. 1161, 1283, 1284; Spencer v. Ins. Co., 19 L.R.A. (N.S.) 88; Wilson v. Ins. Co., 240 S.W. 485; Campbell v. Ins. Co., 98 Mass. 381; Ins. Co. v. Allen, 212 Ill. 134; Ins. Co. v. Morgan, 135 Pac. 279; Maryland Casualty Co. v. Robertson, 194 S.W. 1140; Guaranty Co. v. Bank, 32 L.R.A. (N.S.) 676; Bredon v. Ins. Co., 146 S.W. 1104, 148 Ky. 488; Tobert v. Ins. Co., 141 Ga. 773, 82 S.E. 134; American Ins. Co. v. Day, 23 Am. Rep. 198; Fitzgerald v. Mut. Benefit Society, 56 N.Y. Supp. 1005; Whinfield v. Bonding Co., 154 N.W. 632; 3 Joyce, Law of Ins. (2 Ed.) secs. 1957, 1958. (a) The application itself, or the employer's statement, cannot be considered in determining the preliminary question of whether the application or employer's statement is a part of the policy. It must appear from the language of the policy itself that the parties understood and accepted the application as part of the contract. 32 C.J. 1161; Spencer v. Ins. Co., 236 Ill. 444; Mutual Life Ins. Co. v. Allen, 212 Ill. 134; Campbell v. Ins. Co., 98 Mass. 381; Life Ins. Society v. Hadley, 102 Fed. 856; Mutual Life Ins. Co. v. Morgan, 135 Pac. 279; May on Insurance (4 Ed.) sec. 159; Richards on Insurance Law, note, p. 106. (b) Where representations are of a promissory nature but are not a part of the policy itself, then the promise is a collateral agreement and for its breach the insurer cannot avoid the policy. Alston v. Ins. Co., 4 Hill (N.Y.) 333; Cushing Bryant v. Ins. Co., 39 Mass. (22 Pick.) 203; Benham v. United Guaranty, 7 Exch. 744; Gage v. Lewis, 68 Ill. 614. (c) A statement that the accounts of an employee have been examined and found correct is not absolute warranty of such correctness, but merely that the examination has been made as represented. 25 C.J. 1107; Title Guaranty Co. v. Nichols, 224 U.S. 346; Hunter v. F. & G. Co., 129 Tenn. 572, 167 S.W. 692; Remington v. Fidelity Co., 27 Wash. 429, 67 Pac. 898. (d) The renewal statements were representations merely, and not warranties. Commercial Bank v. Am. Bonding Co., 194 Mo. App. 224; Police Relief Assn. v. Am. Bonding Co., 197 Mo. App. 430. (4) The effect of renewing a fidelity bond subject to the terms of the original contract is merely to extend the time covered thereby. Commercial Bank v. Am. Bonding Co., 194 Mo. App. 224; Police Relief Assn. v. Am....