National Sur. Co. v. Western Pac. Ry. Co.

• Decision Date: 28 October 1912
• Docket Number: 1,987.
• Citation: 200 F. 675
• Parties: NATIONAL SURETY CO. v. WESTERN PAC. RY. CO.
• Court: U.S. Court of Appeals — Ninth Circuit

200 F. 675

NATIONAL SURETY CO. v. WESTERN PAC. RY. CO.

No. 1,987.

United States Court of Appeals, Ninth Circuit.

October 28, 1912

The defendant in error brought an action against the plaintiff in error to recover upon an indemnity bond. The parties will in this opinion be designated as they were in the court below plaintiff and defendant. The substance of the complaint is that one J. Dalzell Brown was the treasurer of the plaintiff and as such officer was intrusted by the latter with the depositing of its funds in a bank in the city of San Francisco; that on November 9, 1905, the defendant issued to the plaintiff its indemnity bond, whereby it agreed to make good and reimburse to the plaintiff any and all pecuniary loss of money, securities, or other personal property belonging to the plaintiff, sustained by it by or through the personal dishonesty or culpable negligence of the said Brown as treasurer, up to the sum of $50,000; that thereafter, on September 17, 1906, the defendant, by an instrument known as an extension certificate, renewed and continued said indemnity bond in force to September 30, 1907, and on September 5, 1907, the defendant again by a renewal certificate renewed and continued in force said indemnity bond for a period of one year thereafter; that on October 24 1907, said Brown, as treasurer of the plaintiff, deposited with the California Safe Deposit & Trust Company, a banking corporation in San Francisco, to the credit of the plaintiff funds of the plaintiff in the sum of $150,000, and on October 26, 1907, deposited with said bank to the credit of the plaintiff its funds in the amount of $100,000; that at the time when each of said deposits was made the bank was insolvent, and was known to said Brown to be insolvent; that said Brown did not at any time inform the plaintiff of the fact that the bank was insolvent, but that prior to the suspension of payment by said bank the plaintiff had no notice or knowledge of its insolvency; that each of said deposits was made by Brown wrongfully and fraudulently, and with culpable negligence on his part, and with knowledge of the insolvency of said bank, and with knowledge that plaintiff was ignorant of the said insolvency; that on October 30, 1907, the bank suspended payment, and has not since resumed payment; that on January 14, 1908, upon a proceeding had in accordance with the laws of the state of California, the bank was ordered into involuntary liquidation, and a receiver was appointed for the purpose of such liquidation; that no part of said deposits so made by Brown as treasurer of the plaintiff has been withdrawn by the plaintiff, and the full amount thereof was on deposit with the bank at the time when it suspended payment, and no payment had been made to or for the account of the plaintiff on account of said deposits, or any part thereof; that the bank is wholly insolvent, and the depositors therein, including the plaintiff, will receive in the liquidation but a small percentage of the amount of their deposits, and the plaintiff will not receive much more than the sum of $50,000, and that the plaintiff by reason of said deposits has suffered loss in an amount largely in excess of the sum of $50,000.

The answer, after making certain denials, set forth the bond and specified certain particulars in which it is alleged that the plaintiff had failed to comply with the terms thereof, alleging that the bond provided that the company should not be liable for loss occasioned by mistake, accident, error of judgment, or by robbery, unless by or with the cognizance of culpable negligence of the employe, and provided as follows: 'And 'culpable negligence,' as used in this bond, shall be taken and held to mean failure to exercise that degree of care and caution which men of ordinary prudence and intelligence usually exercise in regard to their own affairs. ' The answer further alleged that, if any loss occurred through the facts set forth in the complaint, they resulted from the mistake, accident, or error of judgment of Brown, and not otherwise. The answer set forth the condition of the bond, wherein it was provided that, 'upon the discovery by the employer that a loss has been sustained, or of facts indicating that a loss has probably been sustained, the employer shall immediately so notify the company in writing at its principal offices in the city of New York, and shall, within the time limited in lines 29 to 32, inclusive, of this bond, make and furnish to the company in writing, at its principal offices in the city of New York, claim for and proof of loss, if any sustained, and failure to give such immediate notice, or to make such claim or such proof within such time, shall relieve the company from all liability hereunder on account of the employe causing such loss. ' The answer alleged that on and after October 30, 1907, the plaintiff discovered that it had sustained a loss, or had ascertained facts indicating that a loss had probably been sustained by it, through said Brown, and under the terms of the bond was required to notify the defendant immediately in writing, but no such immediate notice was given as required by the bond.

With these and other issues unnecessary to be set forth for the consideration of the case in this court, the case was tried before a jury, and a verdict was returned for the full amount of the stipulated liability upon the bond, and thereupon judgment was rendered.

Heller, Powers & Ehrman and Garret W. McEnerney, all of San Francisco, Cal. (William J. Griffin, of counsel), for plaintiff in error.

Warren Olney, Jr., of San Francisco, Cal., for defendant in error.

Before GILBERT and ROSS, Circuit Judges, and WOLVERTON, District judge.

GILBERT Circuit Judge (after stating the facts as above).

Error is assigned to the ruling of the court below in sustaining a demurrer to one of the defenses pleaded in the amended answer. That defense was that in 1903, two years prior to the issuance of the bond which is sued upon, the defendant issued a bond insuring the plaintiff against loss through the personal dishonesty of Brown, which bond was procured upon an application or 'employer's statement' made by the plaintiff, in which it was represented that Brown would sign checks or drafts on bank accounts only with the countersignature of the secretary of the plaintiff; that during the entire month of October, 1907, and for many months prior thereto, Brown, as treasurer of the plaintiff, had signed checks and drafts on its account with the bank without such countersignature of the secretary of the plaintiff, or any other person; that in said employer's statement it was said that the same was to be taken as a condition precedent to and the basis of the bond applied for, 'or any other bond that may be executed by the National Surety Company to the undersigned upon applicant above named in said position, or any renewal or continuation of such suretyship. ' Now the facts as they were stipulated are that in 1904 there was a renewal of the bond of 1903 and a continuation of such suretyship for another year, but that before the expiration of the term of that bond so renewed it was canceled, and in lieu thereof a new bond was issued by the defendant, which is the bond now sued upon, and that such bond is not the same kind of a bond as that which was issued upon the 'employer's statement' of 1903. The bond that was issued upon that statement was a bond insuring the plaintiff against loss through Brown alone in the sum of $250,000, and the liability of the defendant was limited to loss occurring through Brown's personal dishonesty. The bond which is sued upon here is a schedule bond, issued, so far as the record shows, upon no employer's statement, covering indemnity against losses through a large number of the employes of the plaintiff in its various offices and stations in California, Nevada, and Utah, specifying the liability assumed as to Brown to be $50,000, and specifying the liability assumed as to each of the other employes named in the schedule, in sums ranging from $500 to $25,000, and as to Brown it insures against loss through his culpable negligence, as well as his personal dishonesty. There is no reference in the bond to any employer's statement or application, and it is admitted that at the time of the issuance of that bond the employer's statement of November 14, 1903, was in no way mentioned or referred to between the plaintiff and the defendant, and no other employer's statement or representations relative to Brown or the risk covered by the defendant in assuming such insurance as to him was given or required of the plaintiff. In view of these facts, we think there was no error in the ruling of the court below. The statements contained in the application of 1903 were the conditions of the bond which was issued thereupon, and of any renewal of such bond. The bond of 1905 cannot in any proper sense be said to be a renewal of the bond of 1903. It insured against loss through Brown, as treasurer of the plaintiff, it is true, but at a greatly reduced liability, and upon different conditions, and as one of a large number of employes. Section 2605 of the Civil Code of California provides that any statement which is to be incorporated in a policy of insurance must be referred to in the policy. The parties to the original bond of 1903 were not prevented by the terms of the contract then made from entering into any contract of insurance thereafter upon different terms, as they have done in this case as we read the record.

Error is assigned to the following portion of the instructions of the court to the jury:

'The evidence in this case shows without conflict that approximately all of the $250,000 so deposited by Brown on the 24th and

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