The Star Insurance Company of America v. Carey

• Decision Date: 09 June 1928
• Docket Number: 27,916,27,917
• Citation: 267 P. 990,126 Kan. 205
• Parties: THE STAR INSURANCE COMPANY OF AMERICA, Appellant, v. H. J. CAREY, Appellee. THE CALIFORNIA INSURANCE COMPANY OF SAN FRANCISCO, California, Appellant, v. H. J. CAREY, Appellee
• Court: Kansas Supreme Court

267 P. 990

126 Kan. 205

THE STAR INSURANCE COMPANY OF AMERICA, Appellant, v. H. J. CAREY, Appellee. THE CALIFORNIA INSURANCE COMPANY OF SAN FRANCISCO, California, Appellant, v. H. J. CAREY, Appellee

Nos. 27,916, 27,917

Supreme Court of Kansas

June 9, 1928

Decided January, 1928

Appeal from Reno district court; WILLIAM G. FAIRCHILD, judge.

Reversed, with instruction to enter judgment.

SYLLABUS

SYLLABUS BY THE COURT.

1. PRINCIPAL AND SURETY--Validity of Surety's Obligation--Special Findings--Evidence. Certain informal findings of fact made by the trial court considered and held that those which were material and might have aided in supporting the judgment were wholly without support in the evidence.

2. SAME--Validity of Surety's Obligation--Duty of Obligee to Inform Surety of Agent's Delinquency. In an action by the obligee against the surety on a fidelity bond of a local recording insurance agent, where the obligee had no part in the matter of inducing the surety to sign the bond, the fact that the agent was behind time with his remittances of moneys belonging to his principal, the obligee of the bond, at the time the bond was required, and that the obligee did not volunteer to inform the surety of that fact, did not constitute a fraud upon the surety nor was such nondisclosure sufficient to release the surety from his obligation.

3. SAME. A local agent of an insurance company was dilatory negligent and behind time in the matter of making remittances to his company of its share of the premiums collected by him. The company required him to give bond for the faithful performance of his duties in the future. The agent induced the defendant to sign the bond as surety and mailed the bond to the company. Two months later the agent died, being indebted to his company at the time. In an action against the surety a defense based on the fact that the company had not apprised him that the agent was delinquent in his remittances at the time he was induced to sign the bond, and that he had no knowledge of the fact, held such defense was insufficient to vitiate the bond or to defeat a recovery thereon.

Robert Stone, Geo. T. McDermott, James A. McClure, Robert L. Webb, Beryl R. Johnson, all of Topeka, F. Dumont Smith, Eustace Smith and Arthur T. Symns, all of Hutchinson, for the appellants.

C. M. Williams, D. C. Martindell and W. D. P. Carey, all of Hutchinson, for the appellee.

OPINION

Dawson, J.

These cases, which were consolidated for trial, were actions to recover on separate bonds executed by the defendant H. J. Carey, to insure the fidelity of the late Claude B. Carey, of Hutchinson, in his capacity as local soliciting and recording agent for the plaintiff insurance companies. The agent died about two months after the bonds were given, at which time he was in arrears in his remittances to plaintiffs for insurance premiums collected by him for insurance policies issued to various persons through the local agency of Claude B. Carey.

Typical of both petitions was that of the Star Insurance Company, which alleged that on February 9, 1922, Claude B. Carey was its local recording agent in Hutchinson; that it was his duty to solicit the writing of insurance and to collect premiums thereon; that on February 9, 1922, Claude B. Carey as principal and this defendant H. B. Carey as surety entered into an undertaking with plaintiff whereby they bound themselves to pay all premium moneys due plaintiff which Claude B. Carey should collect on its behalf and that he would well and truly perform all his duties as plaintiff's agent. The fact of Claude B. Carey's death in April, 1922, was pleaded; and it was alleged that between February 9, 1922, and the time of his death two months later he effected the writing of insurance policies and collected premiums thereon for which he had made no remittance to the extent that he was indebted to plaintiff in the sum of $ 1,087.75. Plaintiff also alleged that in due time its claim for this sum was presented to the administrator of Claude B. Carey's estate, but it was not paid because the estate was insolvent. Wherefore plaintiff prayed judgment against H. B. Carey, surety on the fidelity bond.

Defendant answered, admitting the matters not fairly susceptible of controversy, and alleged that prior to February 9, 1922, the date of the execution of the fidelity bond sued on, Claude B. Carey had written policies of insurance for which he had failed to remit to the plaintiff its proportionate share of the premiums, and that he was in default thereof at the time the bond was executed. Defendant alleged that the plaintiff's representative came to Hutchinson and required Claude B. Carey to give bond for the future collection of premiums and the proper management of his recording agency; that defendant was induced to sign the bond; and that plaintiff's representative and Claude B. Carey canceled outstanding policies and issued new ones, giving credit to the policyholders for the unearned premiums and collecting premiums for the terms specified in the new policies; and that the purpose of these cancellations and renewals was to make it appear that the defendant surety was liable for the defalcations of Claude B. Carey which had occurred prior to the giving of the bond.

After issues were joined, but before the trial, defendant was permitted to amend his answer by interlineation thus:

"That the effect of such transactions was to carry forward the defalcations to a time after the execution of said bond, thus fraudulently making said Howard J. Carey liable for said prior defalcations of said Claude Carey."

After the trial another amendment to defendant's answer was permitted:

"That by reason of concealing from the said H. J. Carey, and withholding from the said H. J. Carey, information of the previous defalcations of the said Claude B. Carey, [no concealment or withholding pleaded] this defendant was defrauded into signing said bond; the said H. J. Carey having no knowledge of said previous defalcations of said Claude B. Carey."

At the trial the plaintiffs established their prima facie actions along the lines pleaded in their petitions. On behalf of defendant the testimony was that prior to February 9, 1922, Claude B. Carey had collected various sums as premiums for which he had made no remittances, and that he was delinquent in the sum of $ 1,506.84 due the Star Insurance Company. A similar delinquency of $ 428.66 due the California Insurance Company was likewise shown. After the giving of the bond sued on, February 9, 1922, Claude B. Carey collected certain premiums on newly written policies less certain credits allowed policyholders for unearned premiums on policies canceled on or about February 9, 1922. Carey, the agent, used the moneys thus raised to pay the insurance companies part or all of what was then overdue them prior to the giving of the bonds under which they sued the defendant surety.

The record is clear that neither the plaintiffs nor their representatives had any communication with the defendant surety. The representatives merely told Claude B. Carey that he would have to give bond, and he went and procured his kinsman, this defendant, to sign the required bonds as surety, and the bonds so executed were mailed to the plaintiffs.

The evidence is somewhat equivocal as to whether the surety, H. J. Carey, knew or had any intimation that Claude B. Carey was delinquent in his remittances to plaintiffs at the time he signed the bonds. He testified:

"Q. Mr. Carey, did you meet some agents of the California Insurance Company here about the time this bond was executed? A. I don't recall that I met them at that time. I know that they were here at that time. They were in conference with Claude Carey. . . .

"Q. What relation is Claude Carey to you? A. An uncle. . . .

"Q. Do you know whether or not this is the first time that any bond had been required of him in his agency? A. Apparently so. He had been writing without a bond up to that time.

"Q. Did you know at that time that Claude B. Carey was indebted to the company for premiums received? A. No, sir. . . .

Cross-examination:

"Q. Who asked you to sign the bond; Claude Carey or somebody from his office? A. Claude Carey. . . .

"Q. Did he tell you why they wanted the bond? A. He didn't have to tell me why.

"Q. You knew why--you knew he was slow in his payments or in arrears or something? A. Yes, sir. . . ."

The trial court rendered judgment for defendant, supplementing it with informal findings which in part read:

"I further find that Claude B. Carey obtained the defendant, H. J. Carey, to execute the bonds required by the state agents for the above named plaintiffs, and that the defendant was not informed, nor had he any knowledge, of the shortage or default of Claude B. Carey in the payments of premiums collected by him.

"It is also very apparent that Claude B. Carey, for the purpose of raising money to square up with plaintiffs, canceled paid-up policies and issued new ones to the Carey companies receiving additional premiums above the cancellation rebates, and from these extra premiums paid the past due and defaulted premiums on other policies, and failed and neglected to pay the premiums on the new policies; that is, the various policies mentioned and sued on herein as being taken out on the 9th day of February and subsequent thereto. By this scheme Claude B. Carey was able to transfer his past due and defaulted premiums over to futures and to bring apparently under the terms of the bond a liability which was in fact a prior liability, which, had it not been for this switching or kiting, there would have been no liability under the bond, and this kiting or switching process must have been known to the plaintiff...