Oklahoma Morris Plan Co. v. Security Mutual Cas. Co., 71-1097.

• Decision Date: 22 February 1972
• Docket Number: No. 71-1097.,71-1097.
• Citation: 455 F.2d 1209
• Parties: OKLAHOMA MORRIS PLAN COMPANY, a Corporation, and Liberty Loan Corporation, a Corporation, Appellee, v. SECURITY MUTUAL CASUALTY COMPANY, a Corporation, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

455 F.2d 1209 (1972)

OKLAHOMA MORRIS PLAN COMPANY, a Corporation, and Liberty Loan Corporation, a Corporation, Appellee, v. SECURITY MUTUAL CASUALTY COMPANY, a Corporation, Appellant.

No. 71-1097.

United States Court of Appeals, Eighth Circuit.

February 22, 1972.

Norbert J. Wegerzyn, Chicago, Ill., for appellant.

R. H. McRoberts, St. Louis, Mo., for appellee.

Before LAY and HEANEY, Circuit Judges, and HUNTER, District Judge.

LAY, Circuit Judge.

Appeal has been filed by the Security Mutual Casualty Company from a judgment awarded under a banker's blanket bond to Liberty Loan Corporation and Oklahoma Morris Plan Company, a subsidiary of Liberty Loan. Prior to August 1967 Oklahoma Morris Plan was a wholly owned subsidiary of General Contract Finance Corporation, a Missouri corporation engaged in consumer and commercial finance. The bond in question covered losses from forgery and other dishonest acts discovered during the period of coverage by the insureds, General Contract and certain of its named "associated, subsidiary and affiliated companies," including Oklahoma Morris Plan Company.

On August 7, 1967, General Contract Finance Corporation entered into a plan of reorganization with Liberty Loan. Pursuant to this plan General Contract¹ transferred substantially all of its assets to Liberty Loan, including the capital stock of Oklahoma Morris Plan Company and its other subsidiaries. Thereafter, in January of 1968, the loss in question was discovered.² On January 19, 1968, Security Mutual was notified of this loss. In response Security Mutual served notice of cancellation of the bond effective March 2, 1968, thirty days from the date of receipt of this notice by the insured. The unearned premium was refunded, but the insurer retained the full premium for the period preceding the effective date of the cancellation. This period included the date of discovery of the loss.

The district court held that coverage of Oklahoma Morris Plan did not terminate by reason of the merger; that the bond was not ambiguous in its specific coverage of Oklahoma Morris Plan as a named insured and not as a member of a class; and that Security Mutual was estopped to deny the continuation of coverage by reason of its prior knowledge of the transfer of assets and its retention of premium. Oklahoma Morris Plan Company v. Security Mutual Casualty Company, 323 F.Supp. 1057 (E.D. Mo.1970). We affirm the judgment awarded to Oklahoma Morris Plan Company on the basis of Judge Meredith's findings and conclusions of law.

Security Mutual urges that the bond covered only companies which were associated, subsidiaries or affiliates of the General Contract Finance Corporation and that when Oklahoma Morris Plan ceased to be a member of that class coverage of that company terminated. We agree with the district court that the bond itself was not ambiguous. It undertakes to insure "General Contract Finance Corp. and only the following Associated, Subsidiary or Affiliated Company . . . ." (Emphasis ours.) Forty-seven companies were so named on the schedule of Assureds, including Oklahoma Morris Plan Company. We think it clear, as the trial court pointed out, that the undertaking does not condition coverage upon membership in a stated class.³ Coverage of Oklahoma Morris ensued from the fact that it was specifically named as an assured on the bond.

The trial court further held that Liberty Loan acquired an insurable interest in the subsidiary by reason of the assignment of such interest from General Contract at the time of the merger. As a result, it was found Liberty Loan could sue on the bond. We do not rest Liberty Loan's right to recover on this reasoning.

The Bond provides:

"The first named Assured General Contract shall act for itself and for each and all of the Assured for all the purposes of the attached Bond."

Additionally the bond expressly reads:

"If the first named Assured ceases for any reason to be covered under the attached Bond, then the Assured next named shall thereafter be considered as the first named Assured for all the purposes of the attached Bond."

After the transfer of assets to Liberty Loan the General Contract Finance Company remained on the bond until August 1968 when it was dissolved. Under the provisions of the bond General Contract was the designated party to act on behalf of any of the other named assured. This suit was commenced on January 17, 1969. At this time General Contract had been dissolved and Liberty Loan, who had previously acquired its assets, stepped into General Contract's shoes and assumed the right to act on its behalf under the terms of the merger. We think it clear under the transfer Liberty Loan succeeded to General Contract Finance Corporation's right under the bond to sue for the loss on behalf of Oklahoma Morris. Cf. Ocean Accident & Guar. Corp. v. Southwestern Bell Tel. Co., 100 F.2d 441, 444 (8 Cir. 1939). In resolving this question we are not dealing with any change in the insurer's risk as it related to the personal characteristics of the assignor or assignee. We do not pass on the question whether the merger could effect coverage for Liberty Loan as an additional assured. In view of the personal nature of the fidelity bond this would be highly doubtful. New Amsterdam Casualty...