Ronnau v. Caravan Intern. Corp., 45609

• Decision Date: 11 April 1970
• Docket Number: No. 45609,45609
• Citation: 205 Kan. 154,468 P.2d 118
• Parties: Philip L. RONNAU, Appellant, v. CARANVAN INTERNATIONAL CORPORATION and John T. Doyle, Defendants, Insurance Company of North America, Garnishee, Appellee.
• Court: Kansas Supreme Court

Page 118

468 P.2d 118

205 Kan. 154

Philip L. RONNAU, Appellant, v. CARANVAN INTERNATIONAL CORPORATION and John T. Doyle, Defendants Insurance Company of North America, Garnishee, Appellee.

No. 45609.

Supreme Court of Kansas.

April 11, 1970.

Syllabus by the Court

1. A Blanket Honesty Bond issued by the insurer to indemnify the insured against any loss of money or other property, Belonging to the insured, or in which the insured has a pecuniary interest, or for which the insured is legally liable, or held by the insured in any capacity whether the insured is legally liable therefor or not, which the insured shall sustain through fraudulent or dishonest act or acts committed by any of its employees, is held to be a contract of indemnity against loss, not against liability, and the insurd's judgment creditor, not being named therein, cannot recover in garnishment proceedings against the insurer for indebtedness it may owe the defendant-insured.

2. A fidelity bond is an indemnity insurance contract whereby one for consideration agrees to indemnify the insured against loss arising from the want of integrity, fidelity or honesty of employees or other persons holding positions of trust. Such a contract is considered to be one on which the insurer is liable only in the event of a loss sustained by the insured.

3. In order for a garnishee to be subject to a judgment, the indebtedness which he may owe the defendant on a claim not arising out of contract must be liquidated as to amount. (K.S.A. 60-724(2).) Tort claims are liquidated only by judgment or settlement.

4. The record in garnishment proceedings to subject the judgment debtor's insurer to the payment of the judgment rendered against such debtor, is examined, and it is held the fidelity indemnity bond issued by the insurer-garnishee was in the nature of a personal insurance contract and did not insure against the judgment debtor's liability to third parties, nor is it a third-party beneficiary contract. It is further held the district court did not err in concluding the appellant's judgment against the appellee's insured was not a loss under the coverage of the Blanket Honesty Fidelity Bond, and the appellant's claim as judgment creditor, being unliquidated and not arising out of contract, was not subject to garnishment by the appellant.

Park McGee, of Haskin, Noonan & McGree, Olathe, argued the cause, and Lawrence D. Munns, of Russell, Johnson, Munns & Sterrett, Topeka, was with him on the brief for appellant.

Charles N. Henson, Jr., of Lillard, Eidson, Lewis & Porter, Topeka, argued the cause and was on the brief for appellee.

FATZER, Justice:

The appellant, Philip L. Ronnau, obtained a default judgment against defendant Caravan International Corporation (Caravan), and then obtained an order of garnishment directed to the appellee, Insurance Company of North America (INA), which denied indebtedness or liability to Caravan. The garnishment proceedings involved the construction of an indemnity policy issued by INA in favor of Caravan and styled Blanket Honesty Bond No. S-345794, and two claims by appellant under that policy. Following trial by the district court, it made findings of fact and conclusions of law, and entered judgment discharging INA, as garnishee. This appeal followed. We affirm.

The facts are undisputed. On December 3, 1965, the appellant commenced this action against Caravan and one John T. Doyle, former president of Caravan. The petition was drawn in two counts: Count I sought damages against Caravan for breach of contract, and Court II sought compensatory and punitive damages against Caravan and Doyle for fraudulent representations allegedly made by Doyle and other employees of Caravan. On or about December 10, 1965, INA received a copy of the petition from the appellant.

On June 8, 1966, the district court entered default judgment against Caravan and in favor of appellant on Count I in the amount of $101,874.22 with interest, and on Count II in the amount of $32,019.22 compensatory and $25,000 punitive damages, together with interest. The costs were taxed to Caravan. The judgment was entered pursuant to K.S.A. 60-237(b)(2)(III), as a sanction against Caravan for its failure to produce documents as a part of discovery.

On September 26, 1966, the appellant forwarded INA a copy of the journal entry of judgment entered against Caravan and in favor of the appellant, and demanded payment of the judgment rendered on Count II of the petition from INA under the indemnity bond. INA refused to satisfy the judgment.

In this case, the pleadings, the findings and conclusions of the district court, a summary of the evidence, and the judgment are all properly incorporated in the record, and, in addition thereto, a statement is contained of so much of the proceedings as is necessary to present the errors complained of. The parties' pleading framed the issues. As indicated, INA's verified answer, as garnishee, denied indebtedness or liability to Caravan. The appellant's reply alleged INA was obligated and indebted to Caravan on the basis alleged in Claims One and Two of the reply.

Claim One was based on the judgment rendered against Caravan and in favor of the appellant in the amount of $57,019.22 (compensatory and punitive damages) together with interest, based upon the tortious conduct of officers, agents and employees of Caravan as alleged in Count II of the petition, which appellant asserted to be within the coverage of the Blanket Honesty Bond indemnifying Caravan against,

'* * * any loss of money or other property, belonging to the Insured, or in which the Insured has a pecuniary interest, or for which the Insured is legally liable, or held by the Insured in any capacity whether the Insured is legally liable therefor or not, through any fraudulent or dishonest act or acts committed by any of the Employees * * * acting alone or in collusion with others * * * which the Insured shall sustain and discover as provided in Section * * *'

The bond further provided that upon knowledge or discovery of loss under the bond, the insured shall:

'(a) give notice thereof as soon as practicable to the Underwriter or any of its authorized agents, and (b) file detailed proof of loss, duly sworn to, with the Underwriter within four months after the discovery of loss.'

It further provided:

'No action shall lie against the Underwriter unless as a condition precedent thereto, there shall have been full compliance with all the terms of this bond, nor until ninety days after the required proofs of loss have been filed with the Underwriter * * *'

Claim Two was based upon an unliquidated claim and proof of loss which Caravan made under the Blanket Honesty Bond in July, 1965. The claim and proof of loss was in the total sum of $16,394.06 for loss of money or property belonging to the insured, or in which the insured had a pecuniary interest, or which was in the possession of the insured, and alleged that Doyle misappropriated corporate funds to his personal use in the amount of $4,782.96, and that the sum of $11,611.10 was incurred by Caravan for rent and salaries through Doyle's acts in expending corporate funds contrary to specific instructions of, and without the knowledge of, its Board of Directors.

With respect to Claim One, the district court concluded the bond issued to Caravan by INA did not insure Caravan against liability to third parties and imposed no obligation upon INA to indemnify creditors of Caravan, such as the appellant; that the bond was not a third party beneficiary contract, nor a contract of insurance against liability; that the purpose and intent of the bond was to indemnify Caravan against direct losses of money or property through employee dishonesty-not to insure Caravan against liability to third parties; that Caravan had not sustained a direct loss of money or property by reason of appellant's judgment, and that the judgment was not a loss to Caravan within the coverage of the bond.

The court further found that, assuming the appellant's judgment was a loss to Caravan within the coverage of the bond, which it did not so conclude, INA's obligation to Caravan was dependent upon compliance with the bond requirements that it give notice of such loss to INA as soon as practical and file sworn detailed proof of the loss, and that the lack of proof that such requirements were met, or waived by INA, negated its obligation to Caravan on the bond.

We note here the appellant introduced no evidence that Caravan took any steps toward making any claim against INA on the bond by reason of appellant's judgment.

Concerning Claim Two, the district court found and concluded that, among other things, Caravan's claim against INA was unliquidated, and the amount payable to Caravan under the bond, if any, was not measurable by the terms of the bond; that Caravan's claim against INA was not subject to garnishment, and could not become so until such time as INA's liability or indebtedness to Caravan was established and determined as between the parties to the bond; that appellant, as a judgment creditor of Caravan, had no standing in the garnishment proceedings to litigate Caravan's claim against INA on the Blanket Honesty Bond; that Caravan's proof of loss on the claim form was admissible only to prove compliance with policy terms regarding notice and proof of loss-it was not admissible as evidence in the case generally and had no probative value to establish loss, and, further, that item 5 of the Claim (for rent and salaries) was not a claim for loss within the coverage of the Blanket Honesty Bond, since the bond did not insure Caravan against the...