Summary
holding insured's payment to third party of damage caused to third party by insured's employee was not a direct loss covered by insured's fidelity bond
Summary of this case from City of Burlington v. Western Surety CompanyOpinion
No. 38707.
Filed June 8, 1973.
Insurance: Contracts: Bonds. The insurer under a fidelity bond is liable only for losses sustained by the insured and of the type described in the insurance contract.
Appeal from the District Court for Dawson County: HUGH STUART, Judge. Affirmed.
Joseph F. Chilen of Denney Chilen, for appellant.
Maupin, Dent, Kay, Satterfield, Girard Scritsmier, for appellee.
Heard before WHITE, C. J., SPENCER, BOSLAUGH, SMITH, McCOWN, NEWTON, and CLINTON, JJ.
This is an action on a fidelity bond to recover losses allegedly suffered by the plaintiff KAMI Kountry Broadcasting Company, a corporation, through fraudulent and dishonest acts of its general manager, Dean L. McLain, whose fidelity was insured by the bond.
The defendant insurer filed in the District Court a motion to strike, on the grounds of immateriality and their conclusionary nature, certain specific allegations of the plaintiff's sixth cause of action, which is the only cause involved on this appeal. The District Court sustained the motion, ordered the allegations stricken, and dismissed the sixth cause of action without prejudice. The plaintiff appeals and we affirm.
The pertinent allegations of the petition are the following: The execution and delivery by the plaintiff to the defendant of the bond which insured the plaintiff against ". . . any loss of money or any other property which the insured shall sustain . . . through any fraudulent or dishonest act or acts committed by any of the employees, acting alone or in collusion with other, while in any position at any location in the service of the insured. . . .
"2. That while said employee was in charge of said radio station, and between March 11, 1970 and July 6, 1970 without permission or authorization of the Plaintiff or George Powers, its president, forged the president's signature on a promissory note in the amount of Four Thousand Dollars ($4,000.00) to the First National Bank, Cozad, Nebraska; and wrongfully appropriated the proceeds thereof to his own use.
"3. That the First National Bank of Cozad was one of the largest advertisers of the Plaintiff; that the Plaintiff was incorporated during the month of February of 1970.
"4. That the First National Bank of Cozad intimated that it would no longer advertise with the Plaintiff unless the Plaintiff paid the note to the First National Bank.
"5. That the Plaintiff paid to the First National Bank of Cozad, Nebraska the sum of $4,000.00 with interest of $37.84 in payment of said promissory note which was illegally and wrongfully forged by said employee by executing to the Bank a new promissory note."
In its order striking the allegations of paragraphs numbered 2 to 5 inclusive and dismissing the sixth cause of action, the court found that: "there was no legal liability on the part of plaintiff KAMI Kountry Broadcasting Company to pay the First National Bank of Cozad the sum of $4,000.00 plus interest as set forth in the Sixth Cause of Action contained in the plaintiff's Amended Petition." The court also in its order striking and dismissing included an order adjudging that there was no liability by KAMI to pay the bank the sum of $4,000.
KAMI does not on this appeal complain that it was not permitted to amend its sixth cause prior to dismissal, and the briefs of both parties are directed to the question of whether or not the plaintiff is entitled to recover if the facts of the pleaded but stricken allegations are true. Accordingly we look at this matter the same as if a demurrer had been sustained and the plaintiff had elected to stand on its petition and dismissal had followed.
The pleadings present the concise issue of whether the defendant is liable on the bond because KAMI, in order to avoid the loss of a customer, paid the note forged by its manager and on which it was not legally liable and from which it did not receive the proceeds.
Section 3-404, U.C.C., provides: "(1) Any unauthorized signature is wholly inoperative as that of the person whose name is signed unless he ratifies it or is precluded from denying it; . . . ." See, also, Farmers Union Coop Assn. v. Commercial State Bank, 187 Neb. 376, 191 N.W.2d 168. Section 1-201 (43), U.C.C., states: "`Unauthorized' signature or indorsement means one made without actual, implied or apparent authority and includes a forgery." Comment 4 to section 3-404, U.C.C., is as follows: "The words `or is precluded from denying it' are retained in subsection (1) to recognize the possibility of an estoppel against the person whose name is signed, as where he expressly or tacitly represents to an innocent purchaser that the signature is genuine; and to recognize the negligence which precludes a denial of the signature."
KAMI has not pleaded any acts which would indicate it was precluded from asserting the defense of forgery as against the bank. Estoppel, if it constitutes the foundation for a cause of action, must be pleaded. Robins v. National Life Acc. Ins. Co., 182 Neb. 749, 157 N.W.2d 188; Nebraska Mortgage Loan Co. v. Van Kloster, 42 Neb. 746, 60 N.W. 1016; Diehl v. Johnson, 123 Neb. 699, 243 N.W. 901.
The alleged facts disclose KAMI suffered no direct loss as a result of the fraudulent acts of its manager. The pleadings indicate this fraud was directed at the bank and that it was the one defrauded by the acts of KAMI's manager. KAMI lost only when it determined to pay the bank.
The parties cite no Nebraska case in point. We believe the reasoning of the Supreme Court of Kansas in Ronnau v. Caravan International Corp., 205 Kan. 154, 468 P.2d 118, applies in this case. There the plaintiff suffered damage by reason of the fraud of employees of the indemnitee in the bond. The indemnitee became insolvent. The plaintiff obtained a default judgment against the indemnitee and then brought garnishment proceedings against the indemnitor insurance company. The Supreme Court of Kansas approved the holding of the lower court denying liability, saying: "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 loss to Caravan within the coverage of the bond. . . .
"The appellant maintains that, in support of Claim One, the focal point of this issue is the fact the Blanket Honesty Bond is, at least in part, a policy of liability insurance, which insures against liability of Caravan to third persons, including himself. He contends that one policy of insurance may indemnify against both direct loss and against liability. He asserts the policy indemnifies or insures against four conditions, and that the third coverage — loss of money or other property for which the insured is legally liable — in consequence of fraudulent and dishonest acts of Caravan's employees, indemnifies against both direct loss and against liability. He argues that INA, as garnishee under the policy, agreed to insure Caravan for any loss of money or their property for which it was `legally liable'; that Caravan sustained a loss by the fraudulent conduct of its employees, and legal liability therefor was established by the judgment below in favor of appellant; that to hold otherwise would be to eliminate the words `for which the Insured is legally liable' from the policy, which cannot be done; that the words are clear and unmistakable and are to be construed in their natural and ordinary meaning; that no other provisions of the policy control their meaning, and the indemnity being against liability under the third coverage of the policy, INA became liable to appellant upon determination of Caravan's liability to him by reason of the judgment rendered on Count II of the petition.
"We cannot agree with appellant's construction of the bond. The insuring clause and other pertinent provisions of the bond have been set forth. In clear and unambiguous terms, INA agreed to indemnify Caravan against loss of money or other property caused by `fraudulent or dishonest' acts of its employees. The category of insurance contracts into which the Blanket Honesty Bond falls is termed fidelity guaranty insurance. 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. It is direct insurance procured by him in favor of himself, as contrasted with bonds running to the benefit of members of the public harmed by the misconduct of the covered individual, which bonds are third-party beneficiary contracts (13 Couch on Insurance 2d 446:1, 446:2.)"
It is true that in this case the action is brought by the indemnitee. However, the reasoning in the cited case applies and the situation here would be the same had the bank not been paid by KAMI and the bank sought recovery on the bond.
Another and older decision of the Supreme Court of Indiana in accord is National Surety Co. v. Fletcher Sav. Trust Co., 201 Ind. 631, 169 N.E. 524. In that case, insofar as it is applicable here, the Indiana court held the conduct of the manager of a corporation in making false representations to banks as to the financial condition of the corporation in order to secure corporate loans did not afford a basis for the bank to recover from the insurance company on the fidelity bond since the loss was not sustained by the corporation.
The original loss suffered by the bank in this case is not, under the facts alleged, converted into a direct loss by the insured because it determined to pay the bank on an obligation for which it was not liable.
AFFIRMED.