Court Opinion

ID: 9454342
Source: CourtListenerOpinion
Date Created: 2023-08-04 18:43:57.731221+00
Date Added: 2024-06-11T17:34:04.963081
License: Public Domain

WISDOM, Circuit Judge
(dissenting).
I respectfully dissent.
F & D denied liability on the bond on the stated ground that “F. Wylly Clarke, Jr. was never covered”. In the complaint F & D alleged that Clarke was “the sole stockholder and alter-ego of each of the assured”; that his fraud was therefore attributable to the assureds. This .position, basic to the complaint, rendered the bond worthless to the persons for whom it was primarily issued— the owners of the premium money in the pool.
*78The law of contracts is not so encrusted with form that we cannot, in this case, cut through the shell of a two-party contract and give effect to the three-party arrangement all of the parties understood and on which the third party beneficiaries, to their detriment, relied. We do not have to prostrate ourselves before Clear and Unambiguous Words when in their natural setting the words mean something more than they say.
The Court’s error lies in its assumption that the intervenors’ case depends on showing “that it was the underwriting intent of F & D that the inter-venors were to be beneficiaries of the bond”. This is not a case involving only the formal contracting parties where the Court’s task is to determine the parties’ expressed intention. When third parties rely on a bond, and the bond is primarily for the protection of the third parties, a court is not justified in looking only to the underwriting intent of the insurer. As Williston points out in discussing contracts for the benefit of a third person, “There is no requirement of a mutual intent, as to right of enforcement, on the part of the contracting parties; instead, it is the intent or purpose of the promisee who pays for the promise that has generally been looked upon as governing”. 2 Williston on Contracts § 356. See also 4 Corbin on Contracts §§ 774, 770C and Restatement of Contracts § 133(b), 136(1) (a).
Here the promisee was Clarke (through his corporations). Although a purpose of the bond may have been to protect his companies from the defalcations of other employees, there is no doubt that the primary purpose was to protect the Pool Participants to whom the premium money belonged. As Mes-singer, head of F & D’s Underwriting Department testified, a severe loss could result only from Clarke’s defalcation. Business obligations to the Pool Participants compelled him to take out the bond to insure his own fidelity. He, of course, knew that the intervenors were relying on the bond for protection of the pool. The correspondence shows that F & D was fully aware of all the facts and of the intervenors’ reliance on the bond. No one contends that the Pool Participants were Join Insureds (for their employees would then be covered). The contention is that the object of the bond was to protect the Pool Participants; performance of the bond would satisfy the promisee’s obligation to pay the Pool Participants; the insurer received premiums to perform its promise. The Pool was in the nature of a trust fund beneficial title to which was in the participants.
I would analogize the relationship between Clarke and the Pool Participants to the relationship between a bailor and bailees. Clarke was in the business of holding premium money for others and managing it as a pool. If Clarke’s companies had been in the business of storing furs, and if the furs had been destroyed by fire, the bailors could have maintained a direct action against the bailee’s insurer. Aetna Insurance Co. v. Eisenberg, 8 Cir. 1961, 294 F.2d 301. If Clarke had been holding rolls of paper rejected after delivery and cancellation of the purchase order, the owner of paper would have taken the place of the insured and recovered on a fire loss. Exton & Co. v. Home Fire and Marine Insurance Co., 1928, 249 N.Y. 258, 164 N.E. 43, 61 A.L.R. 718. If the insureds here had been storing for others distilled spirits, the owners could have sued the insurer for the value of the spirits destroyed by fire. Lewis v. Home Insurance Co., 199 App.Div. 556, 192 N.Y.S. 170.
In United States Fidelity & Guaranty Company v. Slifkin, N.D.Ala.1961, 200 F.Supp. 563, the pertinent policy clause was similar to Section 5 of the F & D bond: “The money, securities and other insured property (except the Premises) may be owned by the Insured or held by him in any capacity whether or not the Insured is liable for the loss thereof.” *79The court, in construing this clause, stated:
Generally, such a clause is held to insure the bailor’s insurable interest under a third party beneficiary theory, it being necessary only that there be an expression in the bailee’s policy of an intent to insure the bailor’s interest. * * * The express language of this clause gives to the bailor a right to be indemnified under the bailee’s policy irrespective of the bailee’s legal liability for the loss. * * * Elsewhere, moreover, it has been held that the bailor may maintain independently an action against the bailee’s insurer in such a case, even where the bailee had deliberately omitted the bailor’s claim from proofs of loss. B. N. Exton & Co. v. Home Fire & Marine Ins. Co., 249 N.Y. 258, 164 N.E. 43 (1928). See Stillwell [Stilwell] Frozen Foods, Inc. v. North British & Mercantile Ins. Co., 184 F.Supp. 629 (W.D.Ark.1960) ; Globe & Rutgers Fire Ins. Co. v. United States, supra. In Alabama, the general principle has been applied in other contexts: A third party beneficiary’s right to bring an action directly against the obligor for enforcement of his rights under a contract to which he was not a party has been upheld repeatedly.
In Globe & Rutgers Fire Insurance Co. v. United States, 5 Cir. 1953, 202 F.2d 696, the United States .brought suit against six insurance companies for loss by fire of cotton seed belonging to the Commodity Credit Corporation in the custody of a cotton gin company, the named insured. Each of the insurance policies provided: “ * * * this policy shall also cover property sold but not delivered, held in trust or on consignment or for storage.” This Court held that the United States was protected by the policy provision and could bring a direct action against the insurers.
The Court seeks to distinguish the Globe & Rutgers case on the basis of the conceptual difference between insurance against fire losses and insurances against losses due to employee dishonesty. The insurer in the latter instance, it says, acts as an indemnitor and becomes liable only after the insurance has suffered a “proven loss”. At this stage of the litigation, of course, losses due to Clarke’s dishonesty must be taken as “proven”. Beyond that, whether the insurance is called “property” or “indemnity” should not matter. The only distinction between the Globe & Rutgers situation and ours is that the cause of the loss there was natural rather than human. I am unable to understand how the Court finds that difference meaningful.
In all of these cases and many others that might be cited the third party is treated as if he were the beneficiary of a fiduciary relationship or the real party at interest. This is because the basic contract is for the benefit of the third party. Here, as to Clarke’s misappropriations, the bond would have been meaningless — unless the parties had intended to protect the Pool Participants against Clarke’s own defalcation.