Court Opinion

ID: 5327454
Source: CourtListenerOpinion
Date Created: 2022-01-08 04:58:07.850476+00
Date Added: 2024-06-11T08:29:24.076539
License: Public Domain

Townley, J.
This action is one of many brought by the Superintendent of Insurance, as liquidator of the Equitable Casualty *183and Surety Company, against its officers and directors to compel them to account for their official acts and to recover a judgment for damages sustained by the corporation as a result of the waste, malfeasance, misfeasance and nonfeasance which caused the insolvency of the corporation. Defendant Cohen was one of the directors of the corporation.
In the second defense the three-year Statute of Limitations provided in subdivision 4 of section 49 of the Civil Practice Act is set up. We have recently held that this section is applicable to this type of action. The second defense is, therefore, sufficient. (See Van Schaick v. Cronin, 237 App. Div. 7, Merrell, J.)
The paragraphs “ three ” to “ seven ” of the answer, pleaded as a separate and distinct defense, set up that the then Superintendent of Insurance, James A. Beha, in person or through his agents, made periodic inspections and constant visitations upon the Equitable Casualty and Surety Company and after hearing the reports of bis agents “ did make no complaint or criticism nor did he call upon the defendant, Arthur Cohen, to do anything in connection with the affairs, business or operations of the said Equitable Casualty and Surety Company.” The answer then goes on to plead:
“ Sixth. That the said James A. Beha, as Superintendent of Insurance, was satisfied with the business and method of business and the operations of the Equitable Casualty and Surety Company, and the conduct of its officers and directors and made no criticism in connection therewith except when criticism and suggestions were made by him was satisfied that the cause of criticism had been eliminated and that his suggestions had been adopted.
“ Seventh. That such acts of nonfeasance as were committed by the said defendant were committed by him in reliance upon the facts set forth in paragraphs ' third,’ ' fourth,’ ' fifth ’ and ‘ sixth ’ hereof.”
Both appellant and respondent interpret the defense as pleaded to mean that the Superintendent of Insurance ratified the acts of the directors of the Equitable Casualty and Surety Company. Rebanee on the failure of the Superintendent of Insurance to criticize is ab that is set up in the answer before us.
We find nothing in the nonfeasance of the Superintendent of Insurance to protect the defendant Cohen from the consequences of his own nonfeasance. The duties of directors of financial institutions are well settled. As the Court of Appeals said in Kavanaugh v. Commonwealth Trust Co. (223 N. Y. 103, 105): “ They are summoned to the same degree of care and prudence that men prompted by self-interest generaby exercise in their own affairs. (Hun v. *184Cary, 82 N. Y. 65; Cassidy v. Uhlmann, 170 N. Y. 505; Hanna v. Lyon, 179 N. Y. 107, 110; General Rubber Co. v. Benedict, 215 N. Y. 18; Campbell v. Watson, 62 N. J. Eq. 396; Warner v. Penoyer, 91 Fed. Rep. 587.) They should know of and give direction to the general affairs of the institution and its business policy, and have a general knowledge of the manner in which the business is conducted, the character of the investments and the employment of the resources. No custom or practice can make a directorship a mere position of honor void of responsibility, or cause a name to become a substitute for care and attention. The personnel of a directorate may give confidence and attract custom; it must also afford protection.”
A director of a moneyed corporation cannot rest entirely upon the vigilance of the Superintendent of Insurance. Such reliance constitutes no answer to a charge of nonfeasance.
The order appealed from should be modified by granting the motion to strike out the first defense, and as so modified affirmed, with twenty dollars costs and disbursements to the appellant.
Finch, P. J., O’Malley and Sherman, JJ., concur; Merrell, J., dissents and votes for affirmance.