Court Opinion

ID: 9701468
Source: CourtListenerOpinion
Date Created: 2023-08-25 22:20:20.729172+00
Date Added: 2024-06-11T15:05:10.353375
License: Public Domain

McCown, J., dissenting.
The majority opinion, holds that the coverage of a banker’s blanket bond indemnifying the insured bank *792against any financial loss through any dishonest, fraudulent, or criminal act of any employee or through the failure of any employee to properly or faithfully perform the duties imposed upon or entrusted to such employee by the named insured does not insure against the consequences of its own torts.
The majority opinion now extends that rule to a case in which the employee’s representations which constituted the tort were made knowingly and intentionally; were fraudulent as to the employer insured as well as the third party; were unauthorized and beyond the scope of the employee’s actual authority and in violation of the employer’s specific policy; and where the conduct of the employee constituted a failure to properly and faithfully perform the duties imposed upon him by the insured. Any tort liability to the third party in this case rests solely on the knowing, willful, fraudulent, unauthorized, and unfaithful actions of the individual employee, and the tort liability of the insured is strictly vicarious because of the employee-employer relationship. The trial court specifically found that the employee failed to faithfully perform his duties and the majority opinion does not dispute the finding but simply holds that a loss resulting through a failure of an employee to faithfully perform duties is not a loss covered by the policy if it is based on a tort liability to a third party, whether the liability is vicarious or otherwise.
The majority opinion rests that holding upon the cases of KAMI Kountry Broadcasting Co. v. United States F. & G. Co., 190 Neb. 330,208 N.W.2d 254 (1973); Foxley Cattle Co. v. Bank of Mead, 196 Neb. 587, 244 N.W.2d 205 (1976); and Bank of Mead v. St. Paul Fire & Marine Ins. Co., 202 Neb. 403, 275 N.W.2d 822 (1979). Those cases do not support the conclusion. In KAMI this court said: “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 *793on which it was not legally liable and from which it did not receive the proceeds.” Id. at 332, 208 N.W.2d at 255. The final paragraph of that case reads: “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.” Id. at 335, 208 N.W.2d at 257.
In the present case there can be no doubt that legal liability on the bank arose from the judgment, and the trial court specifically found that if any judgment on Siouxland’s claim becomes final and is paid by the bank, the bank will sustain a financial loss. The record supports those findings.
The Bank of Mead cases are clearly distinguishable. In the Bank of Mead cases the fraudulent representations made by the bank officer were fraudulent only with respect to the third party but were not fraudulent with respect to the employer bank and the bank received the proceeds resulting from the misrepresentations. In fact, the parties in the Bank of Mead cases stipulated that at the time the representations were made the officer was acting within the scope of his employment with the bank. There was no evidence that the officer did not have actual authority to do what he did nor that he knowingly exceeded his actual authority.
Courts have held that under a blanket indemnity bond against loss sustained due to dishonest, fraudulent, or criminal acts of employees, an employer insured may recover where the fraudulent misrepresentations made by its employee to a third party were fraudulent as to the employer insured as well as to the third party. See National Surety Corporation v. Rauseher, Pierce & Co., 369 F.2d 572 (5th Cir. 1966).
An analysis of the cases indicates that where the dishonest or fraudulent acts of an employee as to a third party are authorized or permitted by the employer, and the loss arises out of the employer’s liability to the *794third party created by the acts, indemnity is not allowed. The cases also indicate that where unauthorized acts of an employee are dishonest or fraudulent as to a third party and such acts are also dishonest or fraudulent as to the employer insured, and loss results, indemnity may be allowed, even in the absence of a faithful performance provision.
Typical of similar statements elsewhere, Couch on Insurance § 46:101 at 190 (2d ed. 1965) states: “The loss covered by an employee’s fidelity bond is not necessarily limited to loss directly resulting from the employee’s act, such as embezzlement. To the contrary, it may include liability on the part of the insured resulting from the application of the principles of vicarious liability. In other words, a bond insuring against loss sustained by reason of dishonesty, fraud, embezzlement, etc., covers losses imposed by the creation of liability to third persons. To illustrate, it has been held that a loss may be suffered by the insured through being required to make good an obligation to a third person created by the fraud of its employee perpetrated on such third person.”
In addition to all of the foregoing, in the KAMI and the Bank of Mead cases there was no policy coverage for losses resulting through the failure of an employee to properly or faithfully perform the duties imposed on or entrusted to such employee by his employer. The majority opinion does not dispute the finding but dismisses the issue on the ground that cases cited by the appellant “did not hold that the surety was liable to third parties because of unfaithful performance of duty by the insured’s employee.” Neither does the present case involve an attempt to hold the surety liable to a third party because of unfaithful performance of duty by the insured’s employee. The present case is simply a declaratory judgment action by the insured against the insurance company to determine whether or not the insured has coverage if a loss is finally incurred in this case. In *795addition, it should be reiterated that the trial court specifically found that Zuber not only committed fraudulent acts but that he specifically failed to faithfully perform his duties.
Fidelity bonds conditioned upon the faithful performance of duties by a bank officer have been held to be broken by his violation of any valid bylaw which the bank may adopt, and has also been held not only to guarantee the personal honesty of the officer but also his competency, efficiency, and diligence in the discharge of his duties. See, 10 Am. Jur. 2d Banks § 87 (1963); 35 Am. Jur. 2d Fidelity Bonds and Insurance § 21 (1967). See, also, Thurston County v. Chmelka, 138 Neb. 696, 294 N.W. 857 (1940); Fiala v. Ainsworth, 63 Neb. 1, 88 N.W. 135 (1901).
Finally, the majority opinion holds that an indemnity insurance policy in which any ambiguity is to be construed against the insurer which provides coverage for “any financial loss through any dishonest, fraudulent, or criminal act of any employee ... or through the failure of any employee to properly or faithfully perform the duties imposed upon or entrusted to such employee by ... the named insured ...” does not insure against the consequences of the insured’s own vicarious tort liability in any case. The bank paid an additional premium for the faithful performance coverage; there was an indisputable failure to perform; and the insured had reasonable expectations of coverage under such circumstances. “The contract of a surety for compensation receives an interpretation in favor of objectively reasonable expectations of the obligee.” Cornett v. White Motor Corp., 190 Neb. 496, 501, 209 N.W.2d 341, 344 (1973). The interpretation in this case was quite the contrary.
The District Court’s order granting summary judgment to the defendant insurance company should have been reversed.
White, J., joins in this dissent.