PIONEER NAT. T. INS. CO. v. American Cas. Co. of Reading, Pa., 72-1131 Summary Calendar.

• Decision Date: 01 May 1972
• Docket Number: No. 72-1131 Summary Calendar.,72-1131 Summary Calendar.
• Citation: 459 F.2d 963
• Parties: PIONEER NATIONAL TITLE INSURANCE COMPANY, formerly Guaranty Title Insurance Company, Plaintiff-Appellee-Cross Appellant, v. AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, Defendant-Appellant-Cross Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

459 F.2d 963 (1972)

PIONEER NATIONAL TITLE INSURANCE COMPANY, formerly Guaranty Title Insurance Company, Plaintiff-Appellee-Cross Appellant, v. AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, Defendant-Appellant-Cross Appellee.

No. 72-1131 Summary Calendar.^*

United States Court of Appeals, Fifth Circuit.

May 1, 1972.

Sam F. Lowe, Jr., Atlanta, Ga., for defendant-appellant; Smith, Cohen, Ringel, Kohler, Martin & Lowe, Atlanta, Ga., of counsel.

William H. Major, Thomas Henry Nickerson, Atlanta, Ga., for plaintiff-appellee.

Before GEWIN, AINSWORTH and SIMPSON, Circuit Judges.

SIMPSON, Circuit Judge:

Pioneer National Title Insurance Company (Pioneer), formerly Guaranty Title Insurance Company (Guaranty), brought suit against American Casualty Company of Reading, Pennsylvania (American), to recover upon a fidelity bond issued to Guaranty by American and to recover a statutory penalty and attorney's fees pursuant to Georgia Code Annotated § 56-1206.¹ On cross-motions for summary judgment, the district court entered judgment in favor of Pioneer on the fidelity bond in the amount of $48,012.00 ($40,072.00 on the bond plus legal interest in the amount of $7,940.00) with interest thereon at the legal rate and judgment in favor of American on Pioneer's claim for a penalty and attorney's fees under § 56-1206. We affirm as to American's liability under the bond and reverse and remand for further proceedings as to Pioneer's entitlement to recovery under § 56-1206.

On June 11, 1959, American issued to Guaranty a fidelity bond covering Guaranty's employees. As a result of detailed discussions between officials of American and Guaranty, the following definition of "employee" was written into the bond:

"Wherever used in this bond, Employee and Employees shall be deemed to mean one or more of the officers, clerks and other natural persons in the service of the Insured and all attorneys who perform legal services for the Insured or employees of such attorneys while performing such services, or any individual engaged by the Insured for the purpose of representing the Insured at real estate closings while such individual is performing the usual functions of the Insured at such closings; including, but not limited to, all the Insured\'s approved attorneys." (Emphasis supplied)

Suit below was based on the failure of one of Guaranty's approved attorneys, John M. Hames, to remit the proceeds of three real property sales to his client in transactions as to which Guaranty issued title binders at Hames' request.

The district court's ruling on the motions for summary judgment accurately summarizes the underlying facts:

"In 1965, John M. Hames represented his long time client Advance Mortgage Corporation at three real estate closings in which property previously foreclosed by Advance was resold to new purchasers and contemporaneously refinanced. In each transaction, Hames requested from Guaranty a title binder which was issued upon a certificate made by him. Advance instructed Hames to close each transaction by transferring title from Advance to the purchaser by warranty deed, taking back from the purchaser a security deed running in favor of Advance, insured by a title insurance policy as the first lien on the property as security for the loan, and remitting to Advance the net proceeds of the sale after closing costs, real estate commissions, and other expense.

"Because Advance was both selling the property and financing the purchases, the loans it made represented the purchase price to be remitted to Advance. This loan-sell transaction was performed by Hames handing the purchaser a check which the purchaser endorsed and handed back to Hames as payment for the property. In each of the three closings, Hames failed to remit all of the property payment funds to Advance.

"Relying on a letter in which Guaranty had promised to protect Advance from loss, if one of Guaranty\'s approved attorneys during a closing converted to his own use money due Advance, Advance brought suit against Guaranty. American Casualty refused to defend Guaranty, since American Casualty denied Hames was an employee of Guaranty within the meaning of the fidelity bond; and the suit ended in a judgment on January 31, 1969 (Civil Action No. 10,161, Northern District of Georgia) against Guaranty. Now Guaranty claims that American Casualty is liable to it under the terms of the fidelity bond and under a Georgia statute providing for penalty and attorney fees against an insurer who in bad faith has refused to pay its insured."

The district court concluded:

1. The action was not barred by the twenty-four month limitations period provided for in the fidelity bond.

2. Attorney Hames was an employee of Guaranty, within the bond\'s definition of that term, at the time he failed to remit the funds from the closings to Advance Mortgage Corporation.

3. Guaranty\'s denial, in the suit brought against it by Advance Mortgage, that Hames, at the defalcation, was a Guaranty employee, did not preclude Pioneer in this suit against American on the fidelity bond, from asserting that Hames was such an employee as defined in the bond.

4. As a result of Hames\' misconduct, Guaranty suffered a loss for which Pioneer was entitled to recover under the terms of the fidelity bond.

5. There was no evidence that American\'s refusal to defend and indemnify Guaranty in the action instituted by Advance Mortgage was in bad faith because the Georgia courts had not previously construed a "really similar insurance policy".

6. American was entitled to summary judgment dismissing the claim by Pioneer for penalty and attorney fees under Georgia Code Annotated, § 56-1206.

On this appeal, American challenges the district court's entry of summary judgment against it with respect to liability under the fidelity bond by the following reasoning: Guaranty was held liable to Advance Mortgage on the basis of Guaranty's letter; Hames, when he improperly converted the proceeds of the closings, was acting solely in his capacity as attorney for Advance Mortgage; and the district court, in granting Pioneer's motion for summary judgment with respect to American's liability under the bond, improperly resolved material issues of disputed fact concerning Hames' inclusion within the category of covered employees of Guaranty for purposes of the fidelity insurance policy issued by American.

Our review of the record persuades us that the district court correctly concluded, upon motion for summary judgment, that Hames was a Guaranty employee at the time of his defalcation for purposes of the fidelity bond. The above-quoted excerpt from the bond defining the term "employee" was inserted at the insistence of Guaranty for the express purpose of providing protection to Guaranty in the event that one of its approved attorneys, acting in a transaction involving title binders issued by Guaranty at the attorney's request, breached his fiduciary duties to his own client. The record...