Case ID: misc_36/html/0578-01.html
Source: Caselaw Access Project
Author: {"author": "Gaynor, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Alexander J. Sullivan, as President of St. Anthony’s Council. No. 104, Catholic Benevolent Legion, Plaintiff, v. The Fraternal Societies’ Co-operative Indemnity Union, Defendant.
    (Supreme Court, Kings Trial Term,
    December, 1901.)
    Indemnity insurance — Conditions precedent and pleading — Words taken most strongly against insurer — Innocent material false statement made to procure insurance when a defence, though not a warranty.
    A stipulation of a one-year indemnity certificate providing that' the surety shall not be liable for embezzlements of the collector of the insured unless committed and discovered within the year and reported within thirty days thereafter is a condition precedent to a right of action on the certificate and, therefore, the defendant need not plead its non-performance as a defence.
    A clause in such a certificate making it obligatory upon the insured, if required so to do by the surety, to “ prosecute the defaulting officer to conviction or judgment ” is of doubtful meaning, must therefore be construed in favor of the insured, cannot be deemed to require a criminal prosecution and conviction of the officer, and is satisfied by a judgment recovered against him by the insured in a civil action.
    A false statement made in an application for a certificate of reinsurance that the officer has always kept just and true accounts, made prompt returns, and is not indebted to the insured, is not a part of the contract of reinsurance where the certificate or policy does not make it such and, therefore, is not a warranty, but, as a false material statement, is a defence, and this although the statement be made by the insured innocently.
    Action on two certificates issued by the defendant to the plaintiff Council by which the defendant became surety to the plaintiff Council against “ the fraud or dishonesty ” of Francis O. T.i-n^ the collector of such Council, “ amounting to embezzlement or larceny.”
    One certificate was issued January 1, 1899, and the other January 9, 1900; and each was to expire with the year in which it was issued; and the said collector’s term of office as such collector expired each, year at the same time, the election of collector in the said Council being for a term of one year.
    The said certificates are in terms that the defendant should pay the amount of such embezzlement or larceny “ provided the same has been committed and discovered during” the year the certificate runs, “ and reported to the Union ” (the defendant) “ within thirty days thereafter, or within thirty days after the default, death, resignation, or expiration of the term of office of such defaulting officer.”
    In the vnitten application of the plaintiff Council for the said certificate for the year 1900, dated January 4, 1900, it is stated that “ we agree ” that the said collector “ is not now indebted to us in any way,” has “ never been in default ” as an officer, and has “ always made' prompt returns and kept just and true accounts between the Supreme Governing Body, this body, and the individual members thereof,” etc. This wass followed by the following, viz.: “We warrant the statements herein made to be full, true and correct.”
    The proof shows that during the entire year 1899 the said collector kept false Books and embezzled moneys collected as benefit assessments from members of his said council amounting to $561.14, and dues amounting to $3.75; and that in the year 1900 prior to July 25, when he was suspended, he in the same way kept false books and embezzled moneys só collected as such benefit assessments amounting to $144.26.
    F. A. Ward for plaintiff.
    Thomas C. Byrnes for defendant.
   Gaynor, J.:

1 — The provision of the certificate that the defendant is to be liable provided embezzlements are committed and discovered during the year covered by the certificate and reported to the defendant within thirty days thereafter, is a condition precedent to the plaintiff’s right of action. Therefore the defendant did not have to plead its non-performance as a defence in order to raise an issue thereon. On the contrary, its performance had to be alleged in the complaint, and proved if denied in the answer; and it was so alleged and denied (McManus v. Western Assurance Co., 22 Misc. Rep. 269; 43 App. Div. 550). The discovery of the embezzlements committed in 1899 was not made until August 14, 1900, and it was reported to the defendant the same day. It follows that there can be no recovery of the sums embezzled in 1899, for such is the contract, i. e., the certificate of 1899.

2 — The certificate of 1900 contains a provision that made it obligatory on the plaintiff Council to “ prosecute the defaulting officer to conviction or judgment ” for the embezzlements if required to do so by the defendant, and makes compliance with such requirement when made a condition precedent to a right of action. The defendant served a written notice on the plaintiff Council requiring it “ to prosecute the said officer and convict him of the embezzlement you claim.” Thereupon the plaintiff brought a civil action against the said collector to recover the amount embezzled and recovered judgment therefor. The defendant claims that the requirement of the policy is that a criminal prosecution and conviction be had. The words of the certificate, prosecute ” to “ conviction or judgment,” being uncertain, and susceptible of two interpretations, to say the least, that of the insured is the one to be adopted (Gough v. Davis, 24 Misc. Rep. p. 247).

3 —-In respect of the certificate for 1900, it is also claimed that the statement of the plaintiff Council in its written application therefor that the official to be re-insured as collector had always .kept just and true accounts, and made prompt returns, and was not indebted in any way to the said Council, and in terms warranted in such application to be true, is a part of the contract; and that such warranty being broken there can be no recovery on such certificate, regardless of the materiality of the fact warranted. This is the rule in respect of a warranty in the contract; but. here it is not a part of the contract, for it is not made such by the certificate, which is the contract (Burritt v. Saratoga Mut. Fire Ins. Co., 5 Hill, 188; Cushman v. United States Life Ins. Co., 63 N. Y. 404).

But such statement though not a warranty was manifestly material, and its falsity is therefore a defence to the action, and has been pleaded as such. It does not matter that it was innocently made; it is not necessary that it should have been fraudulent (Armour v. Transatlantic Fire Ins. Co., 90 N. Y. 450). .

Judgment for the defendant.