Court Opinion

ID: 6872135
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:02:40.240894+00
Date Added: 2024-06-11T16:05:25.667948
License: Public Domain

AUGUSTUS N. HAND, Circuit Judge
(dissenting in part).
I agree with the court below that the defendants are liable under subdivision 2 (e) of the bond of indemnity for the losses arising under the Bowles and Ferguson accounts conducted by Cochran for himself with their permission and in their names. The prevailing opinion holds that liability under 2(e), supra, only extends to losses caused by frauds of employees upon genuine customers and does not extend to frauds upon the insured perpetrated by means of trades conducted by employees in the names of such customers. Certainly it does cover the latter trades unless the provisos under 2(e) and 1 and 2 with regard to notice and verification limit liability to situations where the customers are defrauded. It is true that the provisions for notice and verification would afford little protection to customers who were not themselves operating. Yet this would not invariably be true, for customers who allowed Cochran to operate in their names, but for his own benefit, would be warned by the notices of the state of the accounts he conducted, and because of the warning would have a chance to have the accounts closed out and to prevent their losses from becoming any greater. Primarily the bonds were to indemnify the insured against losses to them. The insured had no direct concern as to whether the losses they suffered affected their customers or not. Subdivision 2 (e) literally covers losses to the insured through trades' conducted by an employee in the name of a genuine customer and requires notice to that customer as a safeguard and such a notice was given here. I think the bond ought to be construed as covering the cases it literally describes, even though in some instances the notices would afford little or no protection to the insurer. If the indemnity furnished the insured under 2(e) was intended to extend only to losses .sustained “through trades fraudulently conducted by an employee in the name of a genuine customer” without the knowledge of the customer, it would have been easy to insert such a limitation in the bond. In the absence of such a limitation, the bond written by the insurance company ought to be broadly construed and, if thus construed, the judgment below should be affirmed.