CALIFORNIA SAV. BANK OF SANDIEGO v. AMERICAN SURETY CO. OF NEW YORK.
(Circuit 'S. D. California. No. 706. A condition In a fidelity Insurance bond ,that Imy claim thereunder shall be made as soon as IJracticable after discovery of the loss, and with. in six montQs after the eXIJiratlon of the bond, Is a roaterial stipulation. and a condition precedent to recovery thereon. 2. SAME. The fact that an Insurer In a bond of fidelity insurance has actual knowledge of, a loss does not excuse the Insured from giving notice thereot within the time prescribed by the condItions of the bond.l
1. FJDEI,ITY INSURANOE-CLAur OF Loss-LIMITATION.
April 18, 1898.)
This was an action by the California Bank of San Diego against theAmerican Surety Oompany of New York upon a bond of indemnity insurance. 'The case was heard on a demurrer tothe amended complaint., McDonald & McDonald and Do O. Collier, Jr., for plaintiff. 'Allen & Flint, for defendant. WELLBORN, District Judge. A demurrer, to the complaint in this action was sustained OctobeJ,' 18, 1897. Thereafter, by of the court, the plaintiff filed certain amendments, and the present hearing is on a demurrer to the complaint as thus amended. The general nature of the action is shown in, the following extract from my opinion on the former demurrer:
"ThIs action Is upon two -bonds, each of which obligates the defendant. subject to certain provisions, to reimburse any' loss sustained by plaintiff through the ,fraud or dililhonesty (}f the employ therein named; the emls ploye named inone bond beillg John W. Collins, plaintiff's vice president, and in the other Frederick 't'. Hill, plaintiff's cashier. The amounts sueil for an' $18,000 on one of the bonds (that of Collinsl.and $15,OOl' on the other, making a total of $33,000. There-are three counts In'the complaint. The first and second counts are based, respectively, on said bonds. while the tWrd count is virtually a union, of the. causes of action set forth in the two preceding counts. A demurrer on numerous grounds has been interposed to each cOUllt. As the three counts are identical, except as to amounts and names of employes, it will only be necessary to particularly notice the first one." 82 Fed. 866.
The bond sued on in sfl,iq first count contains, among other pro" '. visions, the following: ."
·'Now. therefore, In consideration of the 'Bum of ninety dollars, lawful mone;y the United States of Amel'ica,ln hand paid to theoompany as premium for the term ol'twelve months ending on theflrst day of July, one thousand eight hundred and ninety-two, :at 12 o'clock noon, It is hereby declared and agreed: '1,'hat" subject to the provisions herein contained, the company shall, within three months n'ext after notice, accompanied by satisfactory proof of a loss as hereinafter mentioned, has been -'gi'l'en to the company, make good and reimburse to the employer all and any pecuniary loss sustained by the employer of moneys, securities. or other personal property In the possession of the employ or for the possession of which he Is responsible. l,
1 As to fidelity Insurance generally, and requirements as to notice of loss, see note to Indemnity Co. v. Wood, 19 C. C. A.. 273.
CALIFORNIA SAY. BANK V. AMERICAN SURETY CO.
by anY' act of fraud or dishonesty, on the part ot theemployli, in connection with the duties of the office Of positi9n hereinbefore referred to, or the duties to Which in the employer's service he JPay be subsequently appointed,and occurring during the contl,nuance of this bond, and 'discovered during said continuance, or within six' riaonths thereafter, and within six months from the death or dismissal or retlrement of theemploy6 from the service of the employer. * * * That the company shall be notified in writing, at its, office in the city of New York, of any aot on the part of the employli which may.!nyolye a loss for which the company is responsible, hereunder, as soon as practicable after the occurrence of such act shall have come to the knowledge of the employer. That any claim made in respect of this bond shall be in wrJting, addressed to the company as aforesaid, as, soon as practicable after the discovery of any loss for which the company is responsible hereunder, and within six months after the expiration or cancellation of this bond, as aforesaid; and upon the making of such claim this bond shall wholly cease and determine as regards any liability for any act Of omission of the employli committed subsequent to the making of such claim, and shall be surrendered to the company on payment of such claim. * · · That the employer shall; if required by the company, and as soon thereafter as It can reasonably be done, give all such aid and information as may be possible (at the cost 'and expense of the company), for the purpose of prosecuting and bringing the employli to justice, or for aiding the company In suing for and making effort to obtain reimbursement, by the employ6 or his estate, of any moneys whIch the company shall have paid or become liable ti> pay by virtue of this bond. That no suit or proceeding at law or in equity shall be brought to recover' any sum hereby Insured, unless the. same Is commenced wIthin one year from the time of the making of any claim on the company. That no one of the above conditions, or of the provisions contained In this bond, shall be deemed to have been waIved by or on behalf of the said company, unless the waIver be clearly expressed in writing over the sIgnature of its president and Itssec.retary, and Hs seal thereto affixed."
setting out said bond in full, and alleging the breaches thereof, said count, as amended, proceeds thus:
"That said Collins commItted suicide on or about the 7th day of March, 1892, and that all of his above-stated fraudulent and dis'honest acts, and the loss thereby occasioned to the plaintiff, were discovered by it within the period of sIx months next ensuing after the death of said OJIlins. That the plaintiff.duly kept and performed all the conditions of said bond' on its part to be kept and performed, and on the 16th day of December, 1895, notified the defendant in writing at its office In the said city of New York of each and all of the above stated breaches of said bond by said Collins, including the date and manner thereof, and the resultant loss to the plaintiff by and from said breaches, and at the same time and place served upon the defendant proof of the loss referred to in said notice, by delivering to it a written itemized statement of such loss, based, upon the accounts of the plaintiff, certified by the president of the plaintiff and tluilerits corporate beal, to be correct and true in every particular, and that the same was based upon the accounts of the plaintiff, and demanded from the defendant payment of the full penalty of the said bond; but to pay the same or any part thereof the defendant then and there failed, neglected, refused, aud has ever since failed, neglected, and refused. But the plaintiff avers that, although it did not notify the defendant of said acts of said Collins and the loss thereby occasioned to the plaintiff, nor make proof of said loss or demand payment thereof, until the 16th day of December, 1895, as aforesaid, that the defend:mt became and was fully advised and informed In the month of May, 1B92, of and concerning all the aforesaid breaches of said bond by said Collins, and tIJe loss thereby occasioned to the plaintiff, and acted upon such knowledge, and in pursuance thereof did every act and thing that it might, would, or could have done to protect its interests in the premises if formal notice of such loss had been given it by the plaintiff ill said month of May, 1892."
Defendant rests its demurrer upon numerous grounds, among them the following: First, that no claim in respect to the bond
sued on was 'made on the company within six monthl!hafter the expiratHniof the bond; second, that the company was not notified of fraudulent and dishonest acts, of the employe, nor was proof of loss furnIshed, as by 1. 'Plaintiff contends that, inasmuch as said bond was executed at San Diego, Cal., it is a California contract, and governed by the laws of said state; citing Wall v. Society, 32 Fed. 275, 276; Berry v. Indemnity ,00., 46 Fed. 441, 442; lndemnity Co. v. Berry, 1 C. O. A. 561, 50 Fed. 511; Insurance 00. v. Robison, 54 Fed. 582, 588; and Society Y. Clements, 140 U. S. 226, 11 Sup. Ot. 822. This contention, doubtless, is well taken. Following out the line of argument indicated; plaintiff quotes" as applicable here, the, following: "A policy may declare that a violation of specific provisions thereof shall avoid it; otherwise the breach of an immaterial provision does not, avoid the policy." eiv. 'Code Cal. § 2611. The implication, ,of course, from this section, is, that the breacll of a material provision does avoid the policy. Conceding the applicability of said section, which, although a local enactment, is simply declaratory of general principles, the question involved in the first of the above-mentioned grounds of demurrer may be stated thus: Is the requirement of the bond, as to the time within which any claim in respect thereto Ihust be presented,a material provision? No case in point has been ,called to my attention, altllough the parties have cited many decisioIls, b,ereinafter referred to, construing the requirements of the bonds or policies respectively involved as to and proof of loss. Under the peculiar terms of the bond in the case at bar,however, I think no other than an affirmative answer to the question above stated is possible. Said bond provides "that no suit or proceeding at law or in equity shall be brought to recover any sum hereby insured unles,s the same is commenced within one year from the time of the making of any claim on the company." This provision, without doubt a material one, is valid. Riddlesbarger v. Insurance Co., 7 Wall. 386; Davidson v. Insurance Co., 7 Fed. Cas, 37; 2 May, Ins. (3d Ed.) § 478. In order to be effective, however, according to the obvious intent of the parties, it must be aided by the other requirement, now under consideration, that any claim in respect to the bond shall be made as soon as practicable after the of the loss, and within six months after the expiration of the bond. Thus the parties, by their contract, have made the requirement, as to the time within which the claim for a loss shall be presented, a material provision. To hold that. said requirement is immaterial would, in effect, annul the former unquestionably material clause, limiting the time for the commencement of suit. The bond expired June 30, 1892. No claim was made upon the company until December 16, 1895, so that the only claim made upon the company was made more than three years after the time when, by the contract, it should have been presented. The failmeof the plaintiff to make claim within the time prescribed by the bond I think fatal to its case. 2. The bond in the case at bar does not prescribe any time within which the proof of loss shall be furnished, but simply that the
right of action shall not accrue until 90 days after such proof is furnished. The bond, however, does expressly provide "that the company shall be notified in writing, at its office in the city of New York, of any act on the part of the employe which may involve a loss for which the company is responsible hereunder, as soon as practicable after the occurrence of such act shall have come to the knowledge of the employer." The fraudulent acts of the em· ploye, as alleged in the amendments to the complaint, were discovered by plaintiff within six months next after March 7, 1892,-that is, not later than September 7, 1892, or, construing the allegations most strongly against the pleader, March 8, 1892,-and yet the written notice of such acts was not given to the defendant until December 16, 1895, more than three years after the time within which, according to the terms of the bond, it should have been given. Was this such a failure of performance on the part of the plaintiff as will defeat a recovery? Plaintiff contends that the requirement of the bond, as to notice, was "formal,"-that is, "immaterial,"-in the sense of the section of the California Code hereinbefore quoted, citing the following authorities: 7 Am. & Eng. Enc. Law, pp. 1048, 1049, subd. 8; Ostrand. Ins. (2d Ed.) p. 523; Insurance Co. v. Downs (Ky.) 13 S. W. 882; Insurance Co. v. Brown (Ky.) 29 S. W. 313; Tubbs v. Insurance Co. (Mich.) 48 N. W. 296, 29S; Hall v. Insurance Co. (Mich.) 51 N. W. 524, 526; Vangindertaelen v. Insurance Co. (Wis.) 51 N. W. 1123; Steele v. Insurance Co. (Mich.) 53 N. W. 514, 515; Rynalski v. Insur· ance Co. (Mich.) 55 N. W. 981, 982; Peninsular Land Transp. & Mfg. Co. v. Franklin Ins. Co. (W. Va.) 14 S. E. 240; Association v. Evans, 102 Pap St. 281; Kahnweiler v. Insurance Co., 57 Fed. 562, 563. All of these cases, except Peninsular Land Transp. & Mfg. CO. V. Franklin Ins. Co. and Association v. Evans, relate to proof, not notice, of loss, and are inapplicable. Notice of the fraudulent acts of an employe, involving a loss, is quite a different thing from proof of the loss; and, as shown by the terms of the contract in the case at bar, the parties themselves deemed such notice "rna· terial," although they may have intended otherwise as to proof of loss. 'With reference to the latter,-that is, proof of loss,-the bond merely provides that the company's liability shall accrue 90 days after the proof has been furnished; and this provision, according to many authorities, does not require proof to be furnished within any particular period, but merely postpones the right of action until such proof is furnished. Notice, however, of the fraudulent acts of the employe, is placed upon an entirely different footing. The contract or bond expressly provides that. such notice shall be given as soon as practicable after the occurrl:mce of the fraudulent acts comes to the knowledge of the employer, and the importance-the materiality--of prompt notice, as a matter of pro· fection to the company, is clearly suggested in a subsequent provisiono! the bond, as follows:
"That the employer shall, it reqUired by the company, and as soon there.after as it can reasonably be done, give all such aid and information as may he possible (at the cost and expense ot the company), tor the purpose of prose-
Qutlng 1;>rlugingthe or tor l1iding the ,companyfn suing f<;r to. otitalll' reJinbursement, by' the employ6 Oi" his estate, molleyswhich thec01hpany Shan have paid or become liable to'pay bY ' l'lttue of this bond." ": ,.,,' ,
Ins,urahJe ,00. v. Downlil, snpra, which is the leading case upon the' that failure to Jllake proof of loss withIn the, time prescribed will not avoid' the expressly so provided, is inappli'Cll,ble to tlle point nowul,lder' consideration, not only because it to but also for other reasons. In that qase the supreme cOllrtof ¥entucky says:
before us, like many otherSj contains stipulation after stipulation renderlng.the polley void aridfoffelting all claim on the part of the Insured to a recovery. * * * The ,contract' then proceeds to specify the manner In which the In9ured shall ptoceed In case of loss: 'Proceedings In case of loss: BeahaU. forthwith give written notice of such loss or damage to this company,an<;l, shall within 30 d\l.Ys a particular account of such loss or damage, signed and sworn tQ.}:>y them,' etc. ... * * It is further provided that tile 10$s sh3,11 not be p!lyable until 60 days after the proof ot loss has lJeen furnished. The contritettben closes with, a; stipulation 'that no suit Or action for the recoverY. of any claim by authority' of this policy shall be rpmmenced until after the amqunt of such claim has been ascertained by arbitration, as provided, nor up.tll all the conditions, provisions, and requir"FePFs,of this pollcy have be,encompUed with by the assured.'
The court there held that tlie action was maintainable-First, because the facts that the polley specifically mentioned numerous make proof of loss was not causes of forfeiture, and that among them, indicated that not intend such failure of forfeiture,; and, second, because the use of the to be a, word "until," in the ,clause that no suit or action on the policy should be until after compliance by the insured with all the of the policy, showed an intention to make proof, of losl!! a prerequisite. to the cOlllmencement of suit, rather :thall, an. intention to make fu,J;'llishing of such proof within the ,specified period ;the essence of; t)le requirement.. Neither of said ,reasons w;hich, were Co. y. Downs exist in the case at: ba.r. ,Here there is,noqll:lu!'\e which, in terms, provides 'for a forfeiture,. nor is there any ,phraseology which implies that the notice to be given the compaIlY of the fraUdulent acts of the elllp1<;yewas,merely a condition precedent to the commencement of suit.' On· tlJ;e contrary, :the giving of such notice is an unquali;fi,ed obligation, }Vhich the contrac.t imposes upon the plaintiff1 and, "as I of vita} to the company's proteotion. Referring, to Insurance, Co. v. Downs, Mr. Ostrander says:
'f'In justice :to the court 'of appeals In Kentucky, who heard that case, it Is ,proOper that we .should mention that", SO ,tar as the report discloses, the polley In that suit. did Pot make it;s conditions and requirements a part of the consldeJ;atlon, nor' ,did It appear that ther'e was any general clause making the liabiUty' of 'the company to pay a loss Qontingent upon the performance by ·the Insured of all or any' of the concerning ,proofs." Ostr. Ins. 'llJfl.) § 838. '
For the reasons above indicated, the case at bar is clearly distinguishable f,r;!>Ul,Insurance Co. v. Downs, and also from most, if not all, of the other cases citeq. py pHlintiffin this connection. Against'the propGsition that notice is material, plaintiff quotes as
CALIFORNIA SAY. BANK. \C. AMERICAN SURETY CO.
follows: "In case of loss UpQIl ail insurance against fire, an insurer i.s exonerated, if notice thereof be not given to him .by some person insured or entitled to the benefit of the insurance, without unnecessary delay." Civ. Code Cal. § 2633. Plaintiff's argument is that, because the provisions of this section are limited to fire insurance, therefore, under the maxim, "Expressio unius," etc., the failure to give notice without unnecessary delay in the case of any other kind of insurance does not exonerate the insurer, and, consequently, that in all other kinds of insurance policies the requirements as to notice of loss, etc., are immaterial provisions. This last part of the argument, as shown in defendant's reply brief, is a non sequitur. Said section does not purport to construe or deal with contracts which expressly require notice to be given, but it makes notice obligatory upon the insurer, in fire insurance, where the contract fails to provide therefor. Whether or not in other kinds of insurance notice is essential depends upon the contracts which the parties make. Said section, however, does emphasize, iu the strongest possible manner, the materiality of notice in the case of fire in/3urance; and it is believed that in fidelity insurance, which is of recent origin, notice of the fraudulent acts of the employe is of equal, if not greater, importance, for the reason that prompt notification may often enable the insurer to avoid, or secure indemnity for, losses which otherwise would be inevitable or irremediable. The authorities cited by· defendant, to the effect that the requirement as to notice of loss is a material provision, and must be strictly complied with in order to enable the employer to recover, are numerous. Ermentrout v. Insurance Co. (Minn.) 65 N. W. 635; Quinlan v. Insurance Co., 133 N. Y. 356, 31 N. E. 31, affirming Id. (Sup.) 15 N. Y. Supp.317; Insurance Co. v. M:cGookey, 33 Ohio S1. 555; Ostr. Ins. (2d Ed.) §§ 221-223; 2 Wood, Ins. §§ 436, 437; 2 May, Ins. § 461; Tayloe v. Insurance Co., 9 How. 403; Riddlesbarger v. Insurance Co., 7 Wall. 390; 4 Enc. PI. & Prac. 640. Appended to Ermentrout v. Insurance Co., supra, there is a note as follows:
"The above case is said by counsel to be the only one that covers the precise point in regard to notice, although there are many cases in respect to proofs of loss."
In Riddlesbarger v. Insurance Co., supra, the supreme court of the United States says:
"The conditions in policies requiring notice of losses to be given, and proofs of the amount, to be furnished the insurers within certain prescribed periods, must be strictly complied with to enable the assured to recover. And It is not percer,ed that the CQndition under consideration stands upon any different footing. The contract of insurance Is a voluntary one, and the insurers have the right to designate the terms upOn wblch they will be responsible for losses."
In Quinlan v. Insurance Co. (Sup.) 15 N. Y. Supp. 317, the policy provided, among other things, that if a fire occurred the assured should in writing to the company of any loss thereby. give It also contained the following provision: . .
"This policy is made and accepted subject to the foregoing stipulations and conditions; * * * and no officer, agent, or other representative of this company shall have power to waive any provision or condition of this policy
87 FEDERAL REPORTER.
except sueh as by the terms of this policy may be the subject of agreement indol;Sed hereon or added hereto; and, as to such. provisions and condltlons,noolllcer, agent, Or repre$e.nta'tlve shall have such power, or be deemed or held to have' waived such provisions or conditions, unless 'such waiver, If any, shall be written upon or attached hereto, nor shall anyp,rlvllege or permission affecting the insurance under this policy exist or be claimed by tbe insured unless so written or attached."
It. will be observed that the first clanse of the above qnotation, "Tills policy is made and accepted subject to the foregoing stipulations and conditions," and also the clause as to the waiver of such stipulations and conditions, are substantially identical with the provisions bar on the same subjects, and, in the former case, the in the court held that the requirement as to notice was a condition precedent, and its nonperformance a barto plaintiff's recovery. From the opinion of the court I extract the following:
"The condition in the pollcy requiring Immediate notice of loss was a precedent one, and its nonperformance was a bar to the plaintiff's recovery. Sherwood v. Insurance Co., 10 Hun, 693, 595; Insurance Co. v. McGookey, 33 Ohio St. 555. If It were admitted, which It Is not, that the letter of Kelsey to the defendant constituted a notice of loss, still, as It was not written until 33 days after the fire occurred, It was not a compllan'Ce with the reQuirements of the, policy to give Immediate notice. Inman v. Insurance Co., 12 Wend. 460; Brown v. Assur. Corp., 40 Hun, 101; Trask v. Insurance Co., 29 Pa. 81. 198; Edwards v. Insurance, Co., 75 Pa. St. 378; Roper v. Lendon. 1 El. &El. 825; Cornellv. Insurance Co., 18 Wis. 387; Whitehurst v. Insurance Co., 52 N. C. 433; Assurance' Co. v. Burwell. 44 Ind. 460. In most of the cases' cited the provision In the policy was that the insured should 'forthwith' give notice of loss, while in the policy In suit the insured was reo qulred to giVE! 'Immediate' notice; yet It was held In tllOse cases that an omission, to) give 'such notice for a time varying from 6 to 40 days was not a compliance with the requirements of the policy, and barred a recovery. We think the to give the defendant the notice Of its loss required by the policy, and that such a failure was a bar to this' action."
This decision, made by the supreme court of the state of New York, was affi,rme9 by the court of appeals of said state. In Iris. § 221, above cited, it is said:
"It iS,almost without exception a requirement of the Insurance polley that, on the occurrence of a loss, the insured shall give Immediate notice in writ'Ing. In some policies, a definite time Is specified within which the notice must be given, as 'five days' or 'ten days.' If the Insured neglects to comply with the terms of ,this condition, it will ):Ie at his perU. 'rhe requirement Is as reasonable 1t Is Imperative, and has been enforced with great strictness by the courts."
The allegations of thecomplaillt,. that the defendant was, ill the month of May, 1892, fully advised and informed of the breaches of the bond, and the loss resulting therefrom, do not, in my opinion, excuse plaintiff's failure to giYe the prescribed written notice of the fraudulent acts of the employe, and said failure is such nonperformance of the contract ()n the part of the plaintiff as to defeat its recovery. The conclusions. above announced make it unnecessary for me to pass upon the other objections to the complaint. Demurrer will be sustained, and leave granted to the plaintiff to amend within 10 days, if it shall be so advised.
DAY V. UNITED STATES.
DAY et aI. v. UNITED STATES. (Circuit Court of Appeals, Eighth Circuit. No. 981.
CONTRACTS-BREACH-RIGHT OF PROMISEE TO COMPLETE.
May 9, 1898.)
Where a contract to furnish horses for the United States cavalry Is not completed, and the contract gives the government the right to complete It at the contractor's expense, If sufficient suitable horses cannot be obtained at the Btipulated place of performance the government may purchase wherever it can secure the best terms.
EVIDENCE-COMPETENCY CF WITNESS-PURPOSE OF OBTAINING INFORMATION.
Upon an issue as to how many horses arriving at a certain place during a specified time satisfied the requirements of a contract, It was error to reject the testimony of a witness who examined such horses with sutficient care to know whether they complied with the requirements, on the ground that his examination was not made with a view of ascertaining whether such requirements were satisfied. The test of the competency of a witness Is the extent of his knowledgE.. not the purpose with which he acquired it.
In Error to the District Court of the United States for the Eastern District of Missouri. J. D. Johnson, for plaintiffs in error. Walter D. Coles, for the United States. Before SANBORN and THAYER, Circuit Judges, and SHIRAS. District Judge. SANBORN, Circuit Judge. John J. Day, Thomas T. Rubey, and Charles G. Knox, the plaintiffs in error, sued out this writ of error, to reverse a judgment against them on a bond which they gave to the United States, on September 12, 1895, conditioned for the faithful perforJ:1lunce by Day ofa contract he had made with the government to furnish it. 78 cavalry horses, possessing the qualifications named in specifications, at the city of St. Louis, in the state of Missouri, on or before November 9, 1895. He failed to furnish a sufficient number of the specified horses, and the contract provided that, in case of his failure to perform it, the United States might supply the deficiency by purchase in open market or otherwise, and that the contractor should be charged with any loss whiC'h the government sustained by his failure. Pursuant to this provision of the contract, the. glivernment purchased in the state of Kentucky and in the city of Chicago 76 horses to supply the deficiency caused by the failure of the contractor, and charged him with the excess of their cost above the contract price, which was $3,063.50. The United States then sued the plaintiffs in error on their bond to recover this amount, and set forth in their petition the facts we have stated. The plaintiffs in error answered that the contractor, Day, had tendered to the horses of the character described in the contract, but that the United States had refused to accept them, and denied that they hadbeen compelled to expend $3,063.50 above the contract price in order to obtain the horses which he had agreed to furnish.