Whinfield v. Massachusetts Bonding & Insurance

The following opinion was filed October 26, 1915: Siebeckee, J. The circuit court awarded recovery on the bond upon the ground that it was a binding contract made by the parties; that its conditions and stipulations had not- been — 6 — breached by tbe plaintiff; and that plaintiff was entitled to be indemnified for tbe losses sbe sustained on account of Sallade’s defalcations during tbe period of time it was in force. It is tbe contention of tbe defendant that it is not liable because tbe bond recites that tbe “employer’s statement” in her written application for tbe bond is a part thereof; that tbe bond was issued in consideration of tbe premium paid and “upon tbe faith of tbe said statements as aforesaid, by tbe employer, which employer hereby warrants to be true,” and that if these written statements of tbe plaintiff “shall be found in any respect untrue, this bond shall be void.”. Tbe question resolves itself to tbe proposition, Were tbe answers in tbe written statement, to tbe effect that Sallade’s accounts were last examined by her personally tbe “last of September in 1910. Amount of securities, $159,831.61, as per list examined and checked at that time, a copy of which is hereto attached,” and that they were “. . . at that time in every respect correct, and proper securities and funds on band to balance,and that there was not nor bad there been at tbe time of tbe application any shortage in bis accounts with her, and that be was not then in debt to her, express warranties % If these written statements which were made a part of tbe bond were agreed by tbe parties to be express warranties, then there can be no doubt, under tbe facts shown, that they were breached and plaintiff is barred of any recovery on tbe bond. We are of tbe opinion that tbe circuit court correctly held that these statements are not express warranties in this contract. In tbe law tbe contract is an insurance contract and its provisions must be construed in tbe light that provisions in insurance contracts are interpreted. As stated in tbe opinion of tbe court in American S. Co. v. Pauly, 170 U. S. 133, 144, 18 Sup. Ct. 552: “If, looking at all its provisions, tbe bond is fairly and reasonably susceptible of two constructions, one favorable to tbe — 7 — bank and the other favorable to the Surety Company, the former, if consistent with the objects for which the bond was given, must be adopted, and this for the reason that the instrument which the court is invited to.interpret was drawn by the attorneys, officers, or agents of the Surety Company. This is a well established rule in the law of insurance. (Citing.) . '. . There is no sound reason why this rule should not be applied in the present case. The object of the bond in suit was to indemnify or insure the bank against loss arising from any act of fraud or dishonesty. . . . That object should not-be defeated by any narrow interpretation of its provisions, nor by adopting a construction favorable to the company, if there be another construction equally admissible under the terms of the instrument executed for the protection of the bank.” This court, in dealing with a similar bond in the case of United Am. F. Ins. Co. v. American B. Co. 146 Wis. 573, 131 N. W. 994, in speaking of the nature of the contract states: “It has all the essential features of-an insurance contract and should be subject to the rules of construction applicable to such contracts. (Citing.) It being apparent that the bond sued on was prepared by the defendant, as to any ambiguity therein the provisions, conditions, and exceptions of the bond which tend to work a forfeiture should be construed most strongly against the party preparing the contract.” Citing French v. Fidelity & C. Co. 135 Wis. 259, 265, 115 N. W. 869, and American S. Co. v. Pauly, supra. In the case of First Nat. Bank v. U. S. F. & G. Co. 150 Wis. 601, 137 N. W. 742, it is repeated that such a bond “has all the essential features of an insurance contract, and that it is not to be construed according to the rules of law applicable to the ordinary accommodation surety.” (Citing.) In Redman v. Hartford F. Ins. Co. 47 Wis. 89, 1 N. W. 393, it is held that the use of the word “warranty” in stipulations does not control the construction, for the reason that parties may make representations without employing the word “warrant” — 8 — wbicb amount to warranties in law, and on the other hand the use of the word “warrant” may be no more than an agreement against false and fraudulent statements. The written statement furnished plaintiff by the company informed her that “The company desired to have answers to the following questions and that the answers will be taken as the basis of the bond if issued,” and “it is agreed that the above answers are to be taken as conditions precedent and as -the basis of the bond applied for. ...” After 'having answered questions 13 and 14 that Sallade’s accounts in September, 1910, were in every respect correct as to amount and proper securities as per schedule attached, she is asked by question 17, “Have you any reason to know of or suspect any previous defalcation or shortage hy the applicant, or any circumstances tending to indicate'that he is not a proper person to bond ? If so, give particulars,” which plaintiff answered “No.” The reasonable and natural inference from these questions is that the company demanded and plaintiff understood that she was undertaking to give to the company true and correct statements of fact to the best of her knowledge on the matters embraced in the questions. Looking at the contents of these written statements in connection with the provisions of the bond to the effect that any defaults of Sallade committed prior to the giving of the bond were not to be indemnified, and the provision “This bond is issued on the express understanding that the employee has not, within the knowledge of the employer, at any former period been a defaulter,” the inference is reasonably clear and certain that the plaintiff understood that the company required of her as a condition precedent to the giving of the bond that she in good faith answer all the questions honestly and without concealment. These provisions of the statement and bond are out of harmony with the other provisions declaring that the statements of plaintiff are warranted by her to be true. Under these conditions of the transaction it is the well established — 9 — rule that the statements in the application will not be treated as warranties if the writings do not clearly show that such was the intent of the parties. Hart v. Niagara F. Ins. Co. 9 Wash. 620, 38 Pac. 213; Wheaton v. North British & M. Ins. Co. 76 Cal. 415, 13 Pac. 758; Ætna Ins. Co. v. Simmons, 49 Neb. 811, 69 N. W. 125; Legler v. U. S. F. & G. Co. 88 Ohio St. 336, 103 N. E. 897. The rule deduced from the authorities is stated as follows in vol. 2 of Cooley’s Briefs on the Law of Insurance, on page 1147: “Erom these principles we may deduce the rule that statements will not be regarded as strict warranties, if qualified by other stipulations which by fair inference show a contrary intent.” We consider that the provisions of the bond declaring plaintiff’s answers in the written statement to be warranties are qualified by the above stipulations in the bond and written statement, and hence her answers are not to be held to be warranties but are to be regarded as representations. The circuit court found that the answers in the statement were truthfully and honestly made by the plaintiff and that she was not guilty of any fraudulent misrepresentation. We are of the opinion that the plaintiff is entitled to recover under the provisions of sec. 4202m, Stats. 1913, which provides: “1. No oral or written statement, representation, or warranty made by the insured or in his behalf in the negotiation of a contract of insurance shall be deemed material or defeat or avoid the policy, or prevent its attaching unless such statement, representation, or warranty was false and made with actual intent to deceive or unless the matter misrepresented or made a warranty, increased the risk or contributed to the loss. “2. No warranty incorporated in a conttaet of insurance relating to any fact prior to a loss shall defeat or avoid such policy unless the breach of such warranty increased the risk at the time of the loss, or contributed to the loss, or unless such breach existed at the time of the loss.” — 10 — This is a general law, and by section number tbe legislature made it a part of cb. 116 of tbe statutes dealing witb evidence, under tbe title “Provisions common to actions and proceedings in all courts.” Tbis indicates a legislative intent that tbe act is to apply to all contracts of insurance. We bave shown that tbe bond in question is, by adjudications of tbis and other courts, regarded as an insurance contract, and hence tbis statute applies to tbe contract here in question. Similar statutes of Kentucky and Tennessee bave been held to apply to fidelity contracts. Warren D. Bank v. Fidelity & D. Co. 25 Ky. L. Rep. 289, 74 S. W 1111, and First Nat. Bank v. Fidelity & G. Co. 110 Tenn. 10, 75 S. W. 1076. Under tbe provisions of sec. 4202m, Stats. 1913, tbe statements of plaintiff made by her to tbe written questions could not defeat tbe bond unless they were “false and made witb actual intent to deceive.” Tbe trial court has found that, though tbe answers were not in fact true, tbe plaintiff honestly believed them to be true and she was not guilty of fraudulent misrepresentation. An examination of tbe record has led us to the* conclusion that tbe evidence supports these findings of fact. Tbe fact that some of tbe securities enumerated in tbe list attached to plaintiff’s answer to question 13 were not in fact plaintiff’s, and tbe answer was in fact untrue, did not, under tbe facts shown and found, increase tbe risk or contribute to tbe loss and avoid tbe contract, because tbe defendant did not rely on tbe written statement as to tbe correctness of tbe list of securities and Sallade’s having them in bis possession for tbe plaintiff. Tbe court found that defendant refused to issue tbe bond on plaintiff’s statement and required of its local agent, Boreham, to check up tbe list and securities inventoried in tbe list, and that it issued tbe bond to plaintiff upon its agent’s' report that tbe list of securities held by Sal-lade as plaintiff’s property were in fact in Sallade’s possession, and that tbe list was correct, and that an arrangement for joint control of tbe safety deposit box and tbe securities — 11 — therein bad been made by defendant’s local agent and Sallade. It appears that defendant’s agent had the same information as the plaintiff as to the correctness and ownership of the listed securities exhibited by Sallade as plaintiff’s property, and that defendant relied on its agent’s information as the inducement of issuing the bond. Under the facts shown it is clear that the plaintiff’s written statements did not form the basis of issuing the bond, and hence cannot he considered as misrepresentations or warranties which increased the risk, or as being relied on and therefore contributing to the loss. Under such circumstances the defendant cannot assert that the untrue statements, innocently made by plaintiff, constitute a forfeiture, because it acted on its own knowledge, and plaintiff’s statements did not contribute to the loss as contemplated by the statute governing the rights of the parties as to the alleged breaches of the contract. We are of the opinion that the trial court properly awarded judgment for the plaintiff. By the Court. — The judgment appealed from is affirmed. WiNsnow, C. J., and TimxiN and BarNes, JJ., dissent. A motion for a rehearing was submitted for the appellant on a brief by Quarles, Spence & Quarles, attorneys, and I. A. Fish, of counsel, and for the respondent on a brief by Thompson, Thompson, Allen & Cruenewald, of counsel. The motion was denied, with $25 costs, on January 11, 1916.