Transamerica Premier Ins. Co. v. Miller

• Decision Date: 17 November 1994
• Docket Number: No. 93-35119,93-35119
• Citation: 41 F.3d 438
• Parties: TRANSAMERICA PREMIER INSURANCE COMPANY, Plaintiff-Appellant, v. Ray MILLER; Earl Robert Brown, Jr.; et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 438

41 F.3d 438

TRANSAMERICA PREMIER INSURANCE COMPANY, Plaintiff-Appellant, v. Ray MILLER; Earl Robert Brown, Jr.; et al., Defendants-Appellees.

No. 93-35119.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 8, 1994.

Decided Nov. 17, 1994.

Ronald F. Waterman and Michael S. Lattier, Gough, Shanahan, Johnson & Waterman, Helena, MT, for plaintiff-appellant.

Joe Bottomly, Kalispell, MT, for defendants-appellees.

Appeal from the United States District Court for the District of Montana.

Before WRIGHT, WIGGINS, and THOMPSON, Circuit Judges.

OPINION

WIGGINS, Circuit Judge:

Transamerica Premier Insurance Company ("Appellant") appeals from a district court's affirmance of a bankruptcy court's summary judgment holding Appellant liable to the customers of an escrow agent to whom Appellant had issued a bond. We affirm.

FACTS AND PRIOR PROCEEDINGS

E. Robert Brown and his wife, Montana residents, owned an escrow business named Guaranty Escrow Services, Inc. ("GES"). GES purchased insurance through Cogswell Agency and agent Bill Gue. GES had a blanket fidelity bond from 1982-85 covering employee theft. GES dropped this bond in 1985. In 1985 Brown told Gue he wanted some insurance allowing him to say he "was bonded." Brown wanted each escrow account to be covered. He wanted to protect his customers and believed Gue had authority to get insurance that would do so.

Gue assigned Brown's request to John Leaf, another Cogswell agent. Leaf obtained Appellant's bond from Western States Bonding Agency, through agent Thomas Sauer. The bond read as follows, in pertinent part:

[T]he Transamerica Premier Insurance Company, Insurer, in consideration of an annual premium, agrees to reimburse the persons, firms or corporations, hereinafter called "Owner" whose names appear on the attached schedule and those whose names may be added to the schedule by endorsement, to the extent of Ten Thousand Dollars and 00/100 Dollars ($10,000.00), for direct loss of property including property for which the Owners are responsible, through any act of larceny or embezzlement established by criminal prosecution and conviction during the term of this insurance by ... [GES], while performing the duties of a[n] Escrow Agent in the service of the Owners.....

This insurance is subject to the following conditions: 1. The aggregate liability of the Insurer to any one Owner covered hereunder shall not exceed the sum of Ten Thousand Dollars.

Appellant supplied the bond, a form contract. No schedule naming the owner or owners was ever attached. The bond became effective November 15, 1985, for a one-year term, and was extended for two additional, one-year terms in 1986 and 1987.

Leaf does not remember seeing the bond or discussing the bond provisions or limits with Brown. Nor did Leaf discuss with Brown the schedule or the need to update it. Sauer had no actual authority to issue an indemnity bond with a penalty greater than $10,000. The annual premium for the bond was $125.00, some of which was retained by Cogswell.

On November 7, 1988, eight days before the bond period ended, Brown pleaded guilty to approximately 90 counts of felony theft for embezzling funds from his escrow clients from 1985 through 1988. Brown sometimes stole the entire amount of a prepaid lump-sum payoff that was entrusted to him by the buyer of real property for a payment to the seller. In such case, Brown would continue to pay monthly installments to the seller on behalf of the buyer, trusting that the seller would remain unaware of the payoff. Sometimes Brown simply wrote himself checks from the trust account. Brown tried to hide his embezzlement by floating some payments and by not paying some charges, such as taxes or insurance. The scheme eventually collapsed when Brown's cash flow needs exceeded his resources. Judgment of conviction was entered and Brown was sentenced on February 3, 1989.

After Brown was convicted and filed bankruptcy, the customers from whom he stole ("Appellees") looked to the bond for compensation. Appellant filed an adversary complaint in Brown's bankruptcy requesting a declaration of Appellant's obligations under the bond. The court certified Appellees as a class, whereupon Appellees answered and counterclaimed for compensation under the bond.

Appellees moved for summary judgment on the counterclaim. Appellant also moved for summary judgment, contending that it owed nothing under the bond or, alternatively, that its maximum liability was $10,000. The bankruptcy court, Judge John L. Peterson, granted Appellees' motion and denied Appellant's motion. The district court affirmed.

After conducting a settlement conference on the issue of damages, Judge Peterson recused himself. His successor, Judge Donald MacDonald IV, directed pursuant to stipulation that sums owed under the bond be proved by deposition. The court also held that Appellees were entitled to prejudgment interest. Later, the court entered judgment against Appellant for $759,413.19, including $183,382.83 in prejudgment interest. Following cross-motions for amendment, the court in an amended judgment set damages at $699,626.58, including $172,774.98 in prejudgment interest. The district court affirmed. Appellant timely appealed.

DISCUSSION

A grant of summary judgment is reviewed de novo. Jones v. Union Pac. R.R. Co., 968 F.2d 937, 940 (9th Cir.1992).

1. Conviction

Under the bond, a "larceny ... established by ... conviction during the term of [the bond]" is prerequisite to reimbursement. Appellant argues that because judgment of conviction and sentence in Brown's criminal case was entered February 3, 1989, after the period of the bond had ended, the conviction prerequisite was not met. In support, Appellant notes that under a Montana statute, "conviction" is "a judgment of conviction or sentence entered upon a plea of guilty or upon a verdict or finding of guilty." Mont.Code Ann. Sec. 45-2-101(15). State v. Fisher, 190 Mont. 295, 620 P.2d 1215 (1980), held that a guilty plea "cannot be equated with" conviction, at least for purposes of enhancing a later sentence. Id. at 1217. Appellant also notes that the bankruptcy court determined prejudgment interest from the date of judgment of conviction and sentencing, reasoning that Appellees' right to recovery "vested" under the bond on that day under Montana's prejudgment interest statute and section 45-2-101(15).

We are not persuaded. The bond does not define conviction. "The word 'conviction' is susceptible to two meanings--an ordinary or popular meaning which refers to the finding of guilt by plea or verdict, and a more technical meaning which refers to the final judgment entered on a plea or verdict of guilty." State v. Wagenius, 99 Idaho 273, 277, 581 P.2d 319, 323 (1978); State v. Dassinger, 294 N.W.2d 926, 927-28 (S.D.1980); Summerour v. Cartrett, 220 Ga. 31, 136 S.E.2d 724, 725 (1964). Even with reference to criminal cases, in which a technical meaning might be expected, sometimes "[a] plea of guilty is tantamount to conviction." Forstner v. INS, 579 F.2d 506, 507 (9th Cir.1978), cert. denied, 439 U.S. 1071, 99 S.Ct. 841, 59 L.Ed.2d 36 (1979); see United States v. McCroskey, 681 F.2d 1152, 1153 (9th Cir.) (holding that a plea of guilty in state court followed by imposition of probation (but withholding of judgment of conviction) constitutes a conviction), cert. denied, 459 U.S. 1019, 103 S.Ct. 383, 74 L.Ed.2d 515 (1982); United States v. Benson, 605 F.2d 1093, 1095 (9th Cir.1979) (holding that a plea of guilty, accepted by the trial court, constitutes a conviction for purposes of 18 U.S.C. Sec. 922(h)(1)); see also Boykin v. Alabama, 395 U.S. 238, 242, 89 S.Ct. 1709, 1711, 23 L.Ed.2d 274 (1969) ("A plea of guilty ... is itself a conviction....").

Further, a guilty plea fulfills the purposes of the bond's "conviction" requirement. The purpose is to ensure that the thief or embezzler is guilty; his sentence is of no consequence to the insured or insurer. Moreover, holding that a judgment of conviction is required might pose obstacles to a bond's enforcement. Rarely would a person be found guilty and sentenced within a bond's year-to-year period. Presentence reports and other procedures might delay judgment until a bond has expired, foreclosing liability in many cases.

Ambiguities in a bond should be construed in favor of the assured and against the entity that drafted the bond. Kohles v. St. Paul Fire & Marine Ins. Co., 144 Mont. 395, 396 P.2d 724, 725 (1964); Farmers Alliance Mut. Ins. Co. v. Miller, 869 F.2d 509, 511 (9th Cir.1989). Appellant supplied the bond. The ambiguous word "conviction" ¹ is to be construed against Appellant.

Finally, Judge MacDonald's holding regarding the date from which prejudgment interest accrued did not address "conviction" as a condition of the contract. Judge Peterson resolved the "conviction" condition issue against Appellant earlier in the proceedings, and Judge MacDonald did not disagree with Judge Peterson in this regard. Moreover, Appellees have not appealed the district court's use of the date of sentencing as a date from which prejudgment interest may accrue.

2. Lack of a Schedule of Owners

Appellant contends the lack of a schedule identifying an "owner" or "owners" renders the bond indefinite and void. The bankruptcy court indicated (and the district court affirmed) that Appellant had waived this defense. Appellant claims the district erred in this regard because estoppel and waiver "cannot be invoked to expand insurance coverage or the scope of an insurance contract." ABCD ... Vision, Inc. v. Fireman's Fund Ins. Cos., 304 Or. 301, 744 P.2d 998, 1001 (1987). Here, Appellant claims, waiver supplied a missing element to the bond-owners (several hundred of them). Appellant argues that the bond says nothing about customers, just owners. Because fidelity bonds usually protect owners of businesses from defalcations by employees, the more reasonable interpretation is...