Court Opinion

ID: 9560175
Source: CourtListenerOpinion
Date Created: 2023-08-21 17:44:48.050312+00
Date Added: 2024-06-11T09:12:16.771752
License: Public Domain

BENCH, Presiding Judge
(dissenting):
The majority holds that there is a distinction between the phrase “discovery of loss” as it is used to determine coverage and “discovery of loss” as it used to trigger notice requirements. The majority thereby adopts a minority, if not a totally novel, interpretation of discovery bonds and demands a significant departure from current industry practices. I believe that, under the terms of the bond, Aetna is not liable to Home for any loss resulting from the dishonesty of Glad or the Armitage lawsuit. Any coverage for the loss arising from the Armitage lawsuit must be found under the F & D bond, not the Aetna bond. Home is simply seeking recovery from the wrong insurer. I therefore respectfully dissent.
The loss was not discovered during Aet-na’s bond period for any one of three reasons: (1) Rider 6091 expressly provides that discovery includes potential losses; (2) even without the rider, a loss arising from liability created by the dishonesty of an employee may be discovered when the employee’s dishonest conduct is discovered, though the liability has not yet been adjudicated; and, (3) under the majority’s own rule that a loss may not be discovered until it is sustained, the Armitage loss could not have been discovered during the bond period because it was not sustained until after the effective period of the bond.
The loss also was not covered because it fell within the exclusion found in Section 11 of the bond. Section 11 excludes from coverage all employees previously known to have committed a dishonest act.
Home also should be barred from seeking recovery for any damages resulting from the Armitage lawsuit because it did not, as required by statute, disclose in its application the pending Armitage claim, a material fact regarding the hazard assumed by Aetna.
In view of the foregoing arguments, any one of which should be dispositive, I dissent without opinion as to the other issues addressed by the majority with the exception of the offset issue. Even if the loss were covered by the bond, the majority errs in not remanding this case for consideration of the offset of damages issue since the parties had expressly reserved the issue of damages for determination by the trial court rather than the jury. Damages simply may not be determined without addressing any claimed offset.
. I. CONTRACT INTERPRETATION
The majority either misapplies or ignores the following recognized rules of contract interpretation.
“The cardinal rule is to give effect to the intentions of the parties, and, if possible, to glean those intentions from the contract itself.” G.G.A., Inc. v. Leventis, 773 P.2d 841, 845 (Utah App.1989). See also LDS Hospital v. Capitol Life Ins. Co., 765 P.2d 857, 858 (Utah 1988) (applying the same principle to an insurance contract). “A construction which contradicts the general purpose of the contract ... is presumed to be unintended by the parties.” LDS Hospital, 765 P.2d at 859 (quoting Phil Schroeder, Inc. v. Royal Globe Ins. Co., 99 Wash.2d 65, 659 P.2d 509, 511 (1983)).
“In interpreting a contract, we determine what the parties intended by examining the entire contract and all of its parts in relation to each other, giving an objective and reasonable construction to the contract as *367a whole.” G.G.A., 773 P.2d at 845 (citing Sears v. Riemersma, 655 P.2d 1105, 1107-08 (Utah 1982)) (emphasis added). See also Western Surety Co. v. Murphy, 754 P.2d 1237, 1240 (Utah App.1988) (applying the same rule to a surety bond). “Where questions arise in the interpretation of an agreement, the first source of inquiry is within the document itself. It should be looked at in its entirety and in accordance with its purpose. All of its parts should be given effect insofar as that is possible.” Big Cottonwood Tanner Ditch Co. v. Salt Lake City, 740 P.2d 1357, 1359 (Utah App.1987) (citation omitted).
“[I]t is axiomatic that a contract should be interpreted so as to harmonize all of its provisions and all of its terms, which terms should be given effect if it is possible to do so.” LDS Hospital, 765 P.2d at 858 (emphasis added). Courts may not view a sub-paragraph of a policy in isolation to determine if it is ambiguous; all provisions of a policy must be interpreted together as one contract. Village Inn Apartments v. State Farm Fire & Casualty Co., 790 P.2d 581, 583 (Utah App.1990) (citing 2 G. Couch, Cyclopedia of Insurance Law § 15.29 (rev. ed. 1984)); cf. Draughon v. CUNA Mut. Ins. Soc’y, 771 P.2d 1105, 1108 n. 3 (Utah App.1989) (reviewing particular provisions in their overall context often aids interpretation).
“Unless there is some ambiguity or uncertainty in the language of the policy, it should be enforced according to its terms. We presume that the language used ... was included for the purpose stated and [we will] give effect to its usual and ordinary meaning.” Bear River Mut. Ins. Co. v. Wright, 770 P.2d 1019, 1020 (Utah App.1989) (citations omitted).
Contract language may be ambiguous if it is unclear, omits terms, or if the terms used to express the intention of the parties may be understood to have two or more plausible meanings. A policy term is not ambiguous, however, merely because one party assigns a different meaning to it in accordance with his or her own interests.
Village Inn Apartments, 790 P.2d at 583 (citations omitted).
In determining whether a provision is capable of two or more plausible meanings, such interpretations must be based upon the “usual and natural” meaning of the language used and may not be the result of a “forced or strained construction.” Buehner Block Co. v. UWC Assocs., 752 P.2d 892, 896 (Utah 1988) (quoting Auto Lease Co. v. Central Mut. Ins. Co., 7 Utah 2d 336, 325 P.2d 264 (1958)). “Contract terms are not necessarily ambiguous simply because one party seeks to endow them with a different meaning than that relied upon by the drafter.” Buehner Block Co., 752 P.2d at 895. See also Jones v. Hinkle, 611 P.2d 733, 735 (Utah 1980) (“contract provisions are not rendered ambiguous merely by the fact that the parties urge diverse interpretations.”).
An insurance “policy should be interpreted in accordance with the way it would be understood by the average person purchasing insurance.” LDS Hospital, 765 P.2d at 859. See also Draughon, 771 P.2d at 1108. The test for determining the ambiguity of an insurance contract has been stated by the Utah Supreme Court as follows:
Would the meaning [of the language of the insurance contract] be plain to a person of ordinary intelligence and understanding, viewing the matter fairly and reasonably, in accordance with the usual and natural meaning of the words, and in light of the circumstances, including the purpose of the policy.
Id. at 858-59 (quoting Auto Lease Co., 325 P.2d at 266) (emphasis added). See also Wagner v. Farmers Ins. Exch., 786 P.2d 763, 765 (Utah App.1990) (“we examine the language from the viewpoint of the average purchaser of insurance”).
Parties to an insurance policy “are free to define the exact scope of the policy’s coverage and may specify the losses or encumbrances the policy is intended to encompass.” Valley Bank & Trust Co. v. U.S. Life Title Ins. Co., 776 P.2d 933, 936 (Utah App.1989) (quoting Brown v. St. Paul Title Ins. Corp., 634 F.2d 1103, 1107 (8th Cir.1980)).
*368An insurer has the right to contract with an insured as to the risks it will or' will not assume, as long as neither statutory law nor public policy is violated. Thus an insurer may include in a policy any number or kind of exceptions and limitations to which an insured will agree unless contrary to statute or public policy.
Farmers Ins. Exch. v. Call, 712 P.2d 231, 233 (Utah 1985).
Despite the liberal interpretations often' afforded the insured in insurance contracts, “[i]t is not the function of a court to rewrite an unambiguous contract.” Crowther v. Carter, 767 P.2d 129, 132 (Utah App.1989) (citing Provo City Corp. v. Nielson Scott Co., 603 P.2d 803, 806 (Utah 1979)). “In construing fidelity bonds, courts follow the liberal rules applicable to insurance contracts. However, the bond cannot be extended by implication or enlarged by construction beyond the actual terms of the agreement entered into by the parties.” FDIC v. Aetna Casualty & Surety Co., 426 F.2d 729, 736 (5th Cir.1970).
These express contract provisions are not rendered ambiguous merely because appellant claims they should be interpreted other than according to their plain mean-ing_ [W]e will not inject ambiguity into a contract where none exists in order to save [a party] from what, in retrospect, seems an ill-advised agreement.
Crowther, 767 P.2d at 132 (emphasis added). See also Valley Bank & Trust Co., 776 P.2d at 937.
The unambiguous language of the Aetna bond must therefore be enforced as written, even if the result is that the loss is not covered by the Aetna bond.
II. DISCOVERY OF LOSS
While this appears to be the first time Utah courts have been called upon to interpret the effect of a discovery provision, such provisions are not novel.1 The majority nevertheless ignores industry practice and adopts a novel rule of law that a loss may not be discovered until the actual damages resulting from the liability are determined.
The majority’s interpretation of the bond is contrary to the general purpose of the bond which is to cover losses “discovered” during the bond’s effective period.2 The majority improperly limits the definition provided in Rider 6091, rather than view it as a part of the contract as a whole. A purchaser of a discovery bond would reasonably interpret the definition of discovery, attached as new language in Section 4, as the definition of discovery as that term is used throughout the bond. Even if Rider 6091 did not exist, the majority’s interpretation is a clear departure from the established case law which is in fact consistent with the definition of discovery found in Rider 6091.
If, on the other hand, a loss may not be discovered until it is fully adjudicated, as held by the majority, then the loss claimed by Home in this case still could not have been discovered during the Aetna bond period because the Armitage judgment was not entered until after the Aetna bond period had expired. So the Armitage loss was discovered either before the Aetna bond period, as I propose, or after the Aetna *369bond period, as the majority’s analysis dictates, but it was not discovered during the Aetna bond period.
A. Rider 6091
The bond clearly states that both coverage and the procedural requirements of Section 4 are triggered by the discovery of a loss. Discovery is defined in the bond by means of Rider 6091, which states in relevant part:
The attached bond is further amended by inserting the following as the final paragraph of Section 4:
Discovery occurs when the Insured becomes aware of facts which would cause a reasonable person to assume that a loss covered by the bond has been or will be incurred even though the exact amount or details of loss may not be then known. Notice to the insured of an actual or potential claim by a third party which alleges that the insured is liable under circumstances, which, if true, would create a loss under this bond constitutes such discovery.
I believe the foregoing definition of discovery applies throughout the bond and is dispositive of this appeal. The definition clearly permits the discovery of a potential loss that “will be incurred even though the exact amount or details of loss may not then be known.” The rider also states that mere notice from a third party of a potential claim of liability, such as the Armitage lawsuit, would constitute discovery. There can be no serious dispute, under the definition found in Rider 6091, that Home had discovered its loss prior to the effective period of Aetna’s bond.
The majority, however, improperly strains to limit the effect of Rider 6091 to only Section 4. It does so despite the fact that there is absolutely no indication in the rider that the definition is in any way limited. Not only is the majority’s interpretation contrary to the plain language of the rider, it is contrary to the rules of contract interpretation and the language of the bond.
The majority’s holding is directly contrary to our general rule regarding riders. “[Ejndorsements, riders, marginal references, and other writings which constitute a part of the contract of insurance are to be read and construed with the policy proper.” St. Paul Fire & Marine Ins. v. Commercial Union Assurance, 606 P.2d 1206, 1208 (Utah 1980) (quoting 1 Couch on Insurance 2d, § 15:30).3
In Royal Trust Bank v. National Union Fire Ins. Co., 788 F.2d 719 (11th Cir.1986), the bank tried to limit one part of a bond from applying to language in a rider. The bank claimed that a declaration that the bond covered losses discovered during the bond period should be applied to Section 4, wherein it was located, but should not be applied to a rider that expressly excluded liability for any claim known to the insured prior to the inception of the bond. The court rejected the bank’s claim, pointing out that the rider was merely a more explicit restatement of the presumption that any losses discovered prior to the bond period were not covered. Similarly, the definition of discovery added by means of Rider 6091, like the rider in Royal Trust Bank, is a consistent, but more explicit, statement of what constitutes discovery as it is used throughout the whole bond.
Rider 6091 amends “[t]he attached bond” to include new and additional language under Section 4. The majority erroneously assumes that the rider is limited to the notice provision found in Section 4 because the instructions on the bottom of the rider indicate that the rider is to “revise sections 12 and 4.” The fact that the rider “revis*370es” Section 4 to add a new paragraph, however, in no way indicates that the effect of the new paragraph is limited to Section 4. The reference is merely to the location, not to the effect. There is absolutely no indication in Rider 6091 that the definition is a purely procedural provision, as assumed by the majority. The definition of discovery becomes a new and additional part of the bond’s Conditions and Limitations which, by the express terms of the bond, determine the extent of coverage offered.4 Thus, by the bond’s own consistent internal references to applicability, the discovery definition added to Section 4 applies to both the procedural aspects of Section 4, and the substantive aspects of coverage. See, e.g., Home Life Ins. Co. v. Clay, 13 Kan.App.2d 435, 773 P.2d 666, 677 (1989) (“The definition of discovery clearly acts as a limitation on coverage”).5
Given the fact the bond contains only one definition of discovery, and there is no limitation of that definition, a purchaser of the bond would reasonably interpret Rider 6091 as providing the definition of “discovery” to be used throughout the bond. The majority presents no other plausible interpretation of the bond that would render Rider 6091 and its application ambiguous. The definition of discovery found in Rider 6091 should therefore be applied to questions of coverage as an unambiguous term of the bond.
The language of Section 4 itself supports such a conclusion. First of all, the discovery definition was added as a new and separate paragraph to Section 4 which covers several topics, including notice of loss, proof of loss, and legal proceedings. It is not limited to notice provisions as represented by the majority. Each of the time periods relating to these topics begin when a loss is “discovered.” For example, the insured must (1) provide the insurer with notice of the loss as soon as practicable after it is discovered, (2) file a proof of loss within six months of the discovery of loss, and (3) bring suit under the bond within twenty-four months after the loss is discovered. Section 4 also grants an extension of time to begin legal proceedings to recover under the bond if the insured is attempting to recover on account of a judgment against the insured. If an insured seeks recovery on account of a judgment, as does Home, the insured has twenty-four months following the final entry of the judgment before it must begin legal proceedings against Aetna. If, as the majority holds, a loss could not have been discovered prior to the entry of the Armitage judgment, then why does the bond expressly provide an *371extension for claims arising on account of such a judgment?
In order to hold Aetna liable, the majority ignores our obligation to enforce unambiguous terms and reads ambiguity into the contract by adopting an unprecedented rule of contract interpretation. For the- first time in this state, a court has held that if a definition is not contained in a specific section outlining general definitions, the definition will only affect the section of the contract where it is located. The majority offers absolutely no support for this new and obviously flawed rule. Such a rule will create disharmony in contracts by requiring more than one definition of key terms that are used in more than one section of a contract, but which are not defined in a general definition section. It would create confusion in interpreting contracts if the contractual definition agreed to by the parties would be effective only within a single section while a different common-law definition would be effective throughout the remainder of the contract.6
The correct rule is that a definition given to a term in one section of a contract, even though it is not in the general definition section, applies throughout the contract so that the term will be interpreted consistently throughout. See, e.g., Wagner v. Farmers Ins. Exch., 786 P.2d at 765 (applying definitions found in various sections of the insurance contract to other sections of the contract). Cf. Draughon, 771 P.2d at 1108 n. 3 (reviewing particular provision in overall context often aids interpretation); Western Surety Co., 754 P.2d at 1240 (“the primary rule ... is to determine what the parties intended by looking at the entire contract and all of its parts in relation to each other_” quoting Sears, 655 P.2d at 1107-08).
The usual and natural meaning of the term “discover,” as it applies to the present case, is “to obtain for the first time sight or knowledge.” Webster’s Third New International Dictionary (Unabridged) 647 (1986). The majority, however, concludes that the loss may be discovered twice, thereby contradicting the plain meaning of the word “discover.” Contrary to the majority’s blanket assertion that it is harmonizing the terms of the bond, it is clear that the majority has created considerable disharmony and confusion where none had previously existed.
The majority errs in not applying to the question of coverage the definition of discovery provided in Rider 6091. The clear intention of the parties as set forth in the insuring clause, the rider, and throughout the remainder of the bond is that the definition apply throughout the entire bond. By limiting the effect of Rider 6091 to Section 4, the majority has, in effect, rewritten the bond in order to create coverage under Aetna’s bond when, by the express agreement of the parties, none exists.7
*372B. Majority’s Departure From Established Case Law
Even in the absence of Rider 6091, the majority’s interpretation of Aetna’s bond is contrary to the well-established case law holding that a loss is discovered on “the date the fraud was discovered by the bank — not the date the bank was called upon to make the loss good.” FDIC v. Aetna Casualty & Surety Co., 426 F.2d 729, 739 (5th Cir.1970) (quoting Mount Vernon Bank & Trust Co. v. Aetna Casualty & Surety Co., 224 F.Supp. 666, 670 (E.D.Vir.1963)). In general, a loss is deemed discovered when “the insured acquires knowledge of any fraudulent or dishonest act resulting in loss.” USLIFE Sav. & Loan Ass'n v. National Surety Corp., 115 Cal.App.3d 336, 171 Cal.Rptr. 393, 399 (1981). See generally, American Surety Co. v. Pauly, 170 U.S. 133, 18 S.Ct. 552, 557, 42 L.Ed. 977 (1898); American Surety Co. v. Pauly, 170 U.S. 160, 18 S.Ct. 563, 564, 42 L.Ed. 987 (1898); Perkins v. Clinton State Bank, 593 F.2d 327, 333-34 (8th Cir.1979); United States Fidelity & Guar. Co. v. Empire State Bank, 448 F.2d 360, 366 (8th Cir.1971); Hidden Splendor Mining Co. v. General Ins. Co. of America, 370 F.2d 515, 517 (10th Cir.1966); Alfalfa Elec. Co-op. v. Travelers Indem. Co., 376 F.Supp. 901, 906 (W.D.Okl.1978); National Newark and Essex Bank v. American Ins. Co., 76 N.J. 64, 385 A.2d 1216, 1224 (1978); Jefferson State Bank & Trust Co. v. Central Surety & Ins. Corp., 408 S.W.2d 825, 831 (Mo.1966).
The majority strains to distinguish the foregoing cases without presenting any cases in support of its position. No other case has taken the approach that a loss may be discovered more than once. The majority must strain to distinguish the case law because it misunderstands the term “loss.”8
There are two types of loss covered by fidelity bonds: (1) when an insured immediately parts with its property as a direct result of employee dishonesty as in cases of theft or embezzlement; and (2) when an insured incurs liability due to the dishonesty of an employee which eventually causes an insured to pay damages, such as the liability incurred by Home in this case. See Jefferson Bank & Trust Co. v. Central Surety & Ins. Corp., 408 S.W.2d 825, 830-31 (Mo.1966). The Aetna bond indemnifies Home against both types of losses. See id. (notice provisions regarding potential losses and provisions for handling of defense indicate that a bond covers liability).
The trial court and the majority treat this case as if the loss were an immediate parting with property. In such cases, it is obvious that the parting must occur in order to be discovered. This case, however, does not involve an immediate parting with property — it involves a loss arising out of Home’s liability to the borrowers created by Glad’s dishonesty. The Armitage court voided the trust deeds and promissory notes and forgave the debts because Home violated the securities laws and the truth-in-lending laws. In other words, Home was liable to the borrowers for their losses because of the manner in which Home granted the loans.9
The majority seems puzzled that the cases merely “assume” that the loss has been sustained, even if damages were not yet established. The cases seem merely to assume that the loss has been sustained because a loss that arises from liability created by a dishonest employee is, in fact, sustained when the misconduct occurs, not *373when the actual damages are determined. See, e.g., FDIC v. Aetna, 426 F.2d at 735 (FDIC disposed of nonconforming notes after the termination of bond period and suffered a net loss of $408,362.97). The loss is sustained when the dishonest act is committed, not when a court makes the factual and legal determination that the act was committed and the insured is therefore liable for damages. The misconduct that creates a covered loss is complete when it is performed, not when the damages from such misconduct are adjudicated. Liability is therefore “sustained” at the time of the misconduct, not at the time of final judgment. The loss/liability may therefore be “discovered” at any time following the occurrence of the misconduct.
The receipt of a claim against the insured, or the discovery of misconduct that may subject the insured to a claim, constitutes discovery of a loss.
Whether the Bank actually discovers dishonesty or actually incurs a loss is, however, completely irrelevant. A loss is “discovered” within the meaning of the loss provisions of the Bond when the insured party discovers facts sufficient to create a condition in which the insured might be subjected to a claim against which it is indemnified by the Bond.
First Nat’l Bank of Bowie v. Fidelity & Casualty Co. of New York, 634 F.2d 1000, 1005 (5th Cir.1981).
The cases clearly establish that it is the receipt of a claim against the insured based upon employee dishonesty, not the adjudication of that claim, that constitutes discovery of the loss. See Jefferson Bank, 408 S.W.2d at 831 (“the time of discovery of loss mentioned in the bond is not intended to be the time when a claim of the depositor or customer is established ultimately by entry of judgment.”); see also Perkins v. Clinton State Bank, 593 F.2d 327, 336 (8th Cir.1979) (bank discovered loss when served with complaint).
Once employee misconduct is discovered, or a claim is presented against the insured based on the misconduct, the loss has been discovered. “[T]he time of discovery of the risk insured against is when the bank must reasonably have known and recognized that [the claimant] had suffered a loss and that [the claimant] apparently intended to attempt to hold the bank liable for such loss.” Jefferson Bank, 408 S.W.2d at 832. See also FDIC v. Aetna, 426 F.2d at 739 (the well established rule is that discovery occurs when the insured has “acquired knowledge of some specific fraudulent or dishonest act which might involve the [Insurer] in liability for the misconduct”).
The majority correctly reasons that the loss element cannot be satisfied by means of a “possible loss” and that a possible loss is not compensable. What the majority fails to realize, however, is that the two preconditions to coverage as established in the insuring clause by the phrases' “sustained at any time” and “discovered during the bond period,” each relate to a separate and distinct condition of recovery. “Sustained at any time” is the requirement that there must in fact be an actual out-of-pocket loss before any compensation will be paid. “Discovered during the bond period,” on the other hand, determines who out of the possible insurers will pay compensation if an actual loss in fact occurs. The two inquiries are totally separate and distinct.
The majority erroneously concludes that the issue of who will indemnify an insured cannot be determined before the issue of whether the insured is entitled to indemnification is decided. This is simply inconsistent with the insurance industry practice that the policy in effect at the time the event occurs provides coverage, even though the extent of that coverage is still unsettled. For example, if a car driver causes an accident and then changes to a new insurance company, there would be no question that the insurance policy in effect when the accident occurred would be the one to provide coverage, even though liability had not been adjudicated when the new policy was purchased.
A fidelity insurer whose policy is in place when a lawsuit is filed has the right to step in and assume the defense against the suit because it is that insurer who must indemnify the insured for any actual damages *374resulting from the suit. See generally First Nat’l Bank of Bowie, 634 F.2d 1000. If no actual damages result from the lawsuit then the insured and the insurer breathe a collective sigh of relief. See, e.g., id. The possibility that no damages may actually result from a lawsuit simply does not prevent an earlier determination of which of the possible insurers will indemnify an insured for those damages if and when they are awarded.
Coverage is triggered by receipt of a claim against the insured or by discovery of dishonest conduct because such events are not prone to manipulation. If a loss will not be covered until its liability and damages are adjudicated by a court, it does not take a great deal of imagination to see how parties will seek to time that litigation to their own benefit. Even without any such manipulation, there is a great risk that coverage may lapse after the misconduct has been discovered; but before the case has been fully adjudicated. The insurance company could then simply refuse to renew the bond and avoid ever paying for the loss. No other insurance company would then step forward and agree to insure against that pending loss absent a large premium to compensate for the dramatically increased risk. In such a situation, the insured would, in all probability, become uninsured under the majority’s approach.
In this case, Home incurred liability, and thereby “sustained” a loss, when it granted the loans without complying with the truth-in-lending laws and the securities laws.10 Once the loans were closed, no further action occurred to alter that liability. In fact, there was nothing that Home could have done to escape liability. The “loss” was therefore sustained before Home purchased the Aetna bond. It was only the judicial determination of liability and extent of the loss, i.e., the actual damages, that remained unknown and required adjudication to settle. Inasmuch as Home knew of the Armitage claim, as well as Glad’s alleged dishonest involvement, Home must be deemed to have discovered the loss before it purchased the Aetna bond. Since the loss was discovered during the F & D bond period, and not the Aetna bond period, Aetna is not liable to Home for the Armitage loss.
C. Coverage Under Majority’s Approach
If a loss could not be discovered until it is “sustained” by becoming an actual loss, as held by the majority, there still could be no recovery in this case because the actual damages were ascertained after the effective period of Aetna’s bond. The bond extension itself makes it clear that the Ar-mitage loss was not covered.
Pursuant to the option granted to Home in Section 12 of the bond, the parties extended coverage from August 20, 1985 until August 20, 1986. This extension, however, was limited in its scope and only covered the discovery of losses “sustained” prior to August 20, 1985. It did not extend coverage for losses sustained during the extension period.11
*375Since the majority holds that a loss cannot be “sustained” until the final adjudication, Home “sustained” its loss at the earliest when judgment was entered in the Ar-mitage case rescinding the loans. Home’s counsel made the following statement at oral argument before this court:
In August 1984 the jury returned a verdict adverse to Home Savings. In March 1986 that verdict was reduced to a judgment that resulted in the avoidance of the notes and trust deeds, establishing a loss to Home Savings. Now, all parties in this litigation agree, in the briefs, in writing, that that is the point at which Home Saving’s loss was established. At that point it could not recover from the borrowers, it could not collect from the trust deeds, and that established the loss.
(Emphasis added.)
Under the majority’s approach, the loss was sustained after the termination of the original bond period. The loss, therefore, was not covered under the limited extension.
III. EFFECT OF GLAD’S DISHONESTY UNDER SECTION 11
Even if the loss was discovered within the bond period, it fell under the exclusion provided in Section 11 of the bond which provides: “This bond shall be deemed terminated or cancelled as to any Employee— (a) as soon as the insured shall learn of any dishonest or fraudulent act on the part of such Employee.... ” As is evident by the foregoing language, the clear purpose of the bond is to insure only those employees not known to be dishonest. At issue is whether the Aetna bond ever covered Larry Glad.
The first question, which the majority totally ignores, is whether this language is even ambiguous.12 A purchaser of a fidelity bond would reasonably interpret the foregoing provision to mean that the bond will not cover any employee known to be dishonest at the time the bond takes effect. Home’s bond application supports this interpretation. Glad was not even listed as an employee intended to be covered. If a reasonable purchaser of the bond were to read Section 11 as a bar to coverage for any employee already known to be dishonest, the purchaser logically would not include his name among the employees to be covered. The majority proposes no other plausible meaning to render Section 11 ambiguous. The parties agreed that the bond would not cover employees known to be dishonest. That agreement should be enforced as written. I would therefore hold that Section 11 unambiguously provides that the bond does not cover any misconduct by Glad because Home had already learned of Glad’s dishonesty before it purchased the bond.13
The case law on provisions such as Section 11 indicates that the bond is void ab initio as to Glad. Ritchie Grocer Co. v. Aetna Casualty & Sur. Co., 426 F.2d 499 (8th Cir.1970), stands for the proposition that a bond is void ab initio as to any employee known to be dishonest before being hired. In Verneco, Inc. v. Fidelity & Casualty Co. of New York, 253 La. 721, 219 So.2d 508 (1969) the employee was known to be dishonest when hired and was already working for the insured when the bond was purchased. In holding that the employee was never covered by the bond, *376the Vemeco court gave the following reasoning that is especially appropriate for the present case:
We think it is implicit in these situations that the parties approach the installation of the policy assuming that all employees are honest until they are known to be otherwise. Thus, if the insured then has knowledge of a dishonest person in his employ, he is aware, by the terms of the exclusion clause, that he is not insured for the dishonest acts of that employee. A contrary view of the exclusion clause such as the plaintiff urges us to adopt would permit the insured to obtain insurance against the dishonest acts of employees he knows were dishonest ... although the exclusion clause plainly indicates there can be no coverage after the insured “shall have knowledge” of dishonesty of his employees:
Id. at 510-11.
Not only can an individual be excluded by Section 11, but whole transactions might not be covered. When an insured knows prior to the purchase of a bond that a transaction previously entered into by the insured is tainted with dishonesty, the entire transaction is not covered. See St. Joe Paper Co. v. Hartford Accident & Indent. Co., 359 F.2d 579 (5th Cir.1966) cert. denied 389 U.S. 828, 88 S.Ct. 91, 19 L.Ed.2d 86 (1967).
The proper inquiry to be derived from these cases is whether an employee is known to be dishonest at the time the bond is supposed to cover the employee. If any dishonesty is known, the bond never covers the employee. Because Glad was known to be dishonest at the time Home desired Aet-na’s bond to apply to Glad, Aetna’s bond did not cover Glad.
The majority nevertheless seeks to invalidate Section 11 as a matter of public policy.14 It strains to distinguish this case from C. Douglas Wilson & Co. v. Insurance Co. of North America, 590 F.2d 1275 (4th Cir.) cert. denied 444 U.S. 831, 100 S.Ct. 59, 62 L.Ed.2d 39 (1979), which is directly on point. In Wilson, the insured learned during a routine audit that a vice president had been falsifying the dates and the amounts of advances on standard HUD forms, a clear act of dishonesty. The vice president indicated to the insured that the practice was common in the industry. The practice was immediately stopped. Sometime later, the insured changed insurance carriers and purchased fidelity bonds from Insurance Company of North America (INA) and Hartford.15 After the INA and Hartford bonds became effective, the insured discovered that the same vice president had not secured letters of credit which the insured was required to secure. The vice president had nevertheless falsely certified that he had secured the letters of credit. The court held that since the insured had known of the vice president’s dishonesty in falsifying the HUD forms “before the inception” of the INA and Hartford policies, and since the insured did not notify INA and Hartford of the vice president’s previous dishonesty, INA and Hartford could not be held liable for the losses caused by the vice president’s failure to secure the letters of credit.
The Wilson court directly addressed the argument accepted by the majority in this case and rejected it. “[T]he dissent would have INA and Hartford assume liability for losses resulting from acts committed before the inception of their respective policies by an employee who was never within the coverage of the policies. This is an untenable result.” Id. at 1279 n. 6 (emphasis in original).
In refusing to follow Wilson, the majority selectively quotes parts of the Wilson court’s regrets as if that court felt it had *377rendered a poor decision. The full text reveals otherwise.
The unfortunate position in which Wilson finds itself was occasioned in part by sheer bad luck in timing as to the change in insurers and in part by the poor judgment of its own officers. However, mindful of Justice Holmes’ admonition, we cannot use this hard case as a vehicle to make bad law.
Id. at 1280.
The Wilson court did not rely upon “sheer luck” as asserted by the majority. It simply recognized that the timing of the change in insurers, along with poor business judgment, rendered the insured uninsured. Had the insured simply revealed its knowledge of the vice president’s dishonesty to INA and Hartford when applying for the new bonds, it could have still been covered.
In the present case, the majority’s apparent need to stretch in order to find coverage for Home simply is not justified given the fact that Home was insured under the F & D bond at the time of Glad’s dishonesty. For reasons unknown to us, Home never pursued indemnification under the F & D bond. Aetna attempted to bring F & D into the suit, but Home blocked that effort. There has been no showing that Home will not be able to recover under the F & D bond, but even if Home is unable now to recover on its F & D bond, that is Home’s fault, not Aetna’s. In its efforts to find coverage in the present hard case, the majority makes bad law.
The majority relies on Fidelity & Casualty Co. of New York v. Central Bank of Houston, 672 S.W.2d 641 (Tex.App.1984), in creating a novel and truly erroneous legal theory that a successor insurer assumes all liability incurred by a predecessor insurer simply because they both use the same standard form. The majority’s analysis contains several serious flaws. When Aetna indicated that it would provide Home with the same coverage previously provided by F & D, it was referring to the type of coverage.16 It was not in any way assuming the liability incurred by F & D during the previous period. “Where a bond contains no language to the effect that it is a continuation of a prior bond, it is an independent contract and will not be deemed to provide continuing coverage from a prior bonding period.” USLIFE Sav. & Loan Assoc., 171 Cal.Rptr. at 400.
In order for Aetna to be liable for Glad’s dishonest acts, Aetna would have had to expressly agree to continue F & D’s coverage of Glad as it existed during the F & D bond period.17 There simply was no such assumption of coverage by the Aetna bond. In fact, Aetna’s bond clearly states in Rider 6059 that “coverage under this policy or *378bond shall not become effective until such other coverage [as provided by the F & D bond] has terminated.” Contrary to the majority's assertion that there is no evidence as to the issue of continuation, Rider 6059 shows that the parties expressly agreed that the Aetna bond was not a continuation of the coverage provided under the F & D bond. The majority’s holding is therefore directly contrary to the express agreement of the parties.
The insurance policy in the present case clearly states that it only provides fidelity coverage for employees not known to have previously been dishonest and it expressly provides that there is no continuation of coverage provided by the F & D bond. Since Home knew on the effective date of the Aetna bond that Glad had performed a dishonest act, Glad was never insured under the Aetna bond.
IY. DUTY TO DISCLOSE
Aetna claims that the inquiry in the insurance application regarding losses “sustained” during the last six years required the disclosure of the Armitage lawsuit which was already pending against Home, and that Home’s failure to disclose the lawsuit now bars any recovery. If a loss arising from liability is “sustained” when the misconduct occurs, as I propose, then the Armitage loss had in fact already been sustained when Home filled out the application. I also believe that, even under the majority’s reasoning, the request for information concerning losses was sufficiently clear to place Home on notice that Aetna wanted information about pending or potential claims. I would therefore hold under either approach that Home’s response was clearly inaccurate and should bar recovery.18
The majority, however, rejects Aetna’s claim by effectively rewriting Utah Code Ann. § 31-19-8(1) (1974) which provides:
Misrepresentations, omissions, concealment of facts, and incorrect statements shall not prevent a recovery under the policy or contract unless:
(a) fraudulent; or
(b) material either to the acceptance of the risk, or to the hazard assumed by the insurer; or
(c) the insurer in good faith either would not have issued the policy or contract, or would not have issued, reinstated, or renewed it at the same premium rate, or would not have issued, reinstated, or renewed a policy or contract in as large an amount, or would not have provided coverage with respect to the hazard resulting in the loss, if the true facts had been made known to the insurer as required either by the application for the policy or contract or otherwise.
As the majority correctly indicates, the issue is whether Home had a duty under the statute to disclose in its application for the Aetna bond the material fact that it was being sued for over one million dollars because of the dishonest conduct of an employee. The majority erroneously concludes that Home had no such duty because Aetna failed to explicitly inquire about pending cases.
By focusing only on the duty to provide information specifically requested in the application, the majority only considers *379“misrepresentations,” “concealments of fact,” and “incorrect statements.” These are the possible types of affirmative responses to inquiries in an application covered by the statute. The majority, however, totally ignores “omissions” which the statute also covers. By including omissions, the statute indicates that an applicant has a duty to disclose more than what the application specifically requests. The statute clearly provides that Home may be barred from recovery if it omits facts that are “material ... to the hazard assumed by the insured.” The majority today holds, however, that an applicant for insurance may omit critical and obviously relevant information if the insurer fails to explicitly request such information. In other words, the majority removes the term “omission” from the statute by holding that an omission is a legal impossibility. I believe such rewriting of an unambiguous statute is contrary to the legislative intent and outside of the ambit of our judicial authority.
An applicant for fidelity insurance has a duty to provide material information in its application, such as pending claims against the insured, even if not directly requested to provide such information. It is true that, in general, the insurer is the expert in risk assessment and therefore has a duty to make inquiries that it feels are relevant to the assessment of risk. That does not mean however, that a sophisticated purchaser of insurance, such as Home, may turn a blind eye to the obvious. This case is not in a gray area where the Armitage suit might have been relevant.
In interpreting section 31-19-8(1), the Utah Supreme Court has indicated that a misrepresentation is “material if it diminishes the insurer’s opportunity to determine or estimate its risk.” Berger v. Minnesota Mutual Life Ins. Co., 723 P.2d 388, 391 (Utah 1986). It is blatantly obvious that a potential claim for over one million dollars, already known of by the applicant, affects the “hazard assumed by the insured.” Insurance companies set their premiums based on the possibility of an event occurring. One of the assumptions an insurer makes when issuing a fidelity bond is that the applicant does not already have claims pending against it. The fact that there is already a million dollar claim pending against an applicant obviously skews the probabilities of there being a. claim against the policy. Not knowing about the possible claim prevents the insurer from accurately determining or estimating its risk. Inasmuch as pending claims obviously affect the hazard being assumed by the insurer and there is no need to “speculate” whether a pending lawsuit is relevant, I would hold that applicants for fidelity insurance have a duty under section 31-19-8(1) to disclose any pending claims or be barred from recovery on such claims.
The majority’s conclusion is also contrary to the common law duty of disclosure as it relates to fidelity bonds.
[I]t may be said to be' a fundamental principle of the law of fidelity guaranty that if dishonesty of an agent, whose fidelity was guaranteed under a bond, exists before or at the time the surety bond becomes bound thereby, and the principal conceals it from the surety at the time of obtaining the fidelity bond, the surety is not liable for the losses resulting therefrom; ... [T]he mere nondisclosure of the circumstances affecting the situation of the parties which are material for the surety to be acquainted with and are within the knowledge of the person obtaining the surety bond, is undue concealment even though not willful or intentional or with a view to any advantage to himself.
West Am. Fin. Co. v. Pacific Indemnity Co., 17 Cal.App.2d 225, 61 P.2d 963, 968 (1936).
One who becomes surety for another must ordinarily be presumed to do so upon the belief that the transaction between the principal parties is one occurring in the usual course of business of that description, subjecting him only to the ordinary risks attending it; and the party to whom he becomes a surety must be presumed to know that such will be his understanding, and that he will act upon it, unless he is informed that there are some extraordinary circumstances af*380fecting the risk. To receive a surety known to be acting upon the belief that there are no unusual circumstances by which his risk will be materially increased, well knowing that there are such circumstances, and having a suitable opportunity to make them known, and withholding them, must be regarded as a legal fraud, by which the surety will be relieved from his contract.
American Surety, 170 U.S. 133, 18 S.Ct. at 559 (quoting Bank v. Cooper, 36 Me. 179, 197 (1850)).
Th[e] rule imposes an absolute duty upon the obligee to volunteer disclosure of all facts materially affecting the risk to the surety on a fidelity bond. Irrespective of motive or intent, mere non-disclosure of facts known by the obligee which materially affect the surety’s risk, such as a prior dishonesty of the principal on the fidelity bond, therefore discharges the surety.
Sumitomo Bank of California v. Iwasaki, 70 Cal.2d 81, 73 Cal.Rptr. 564, 568, 447 P.2d 956, 960 (1968) (citations omitted).
The majority misinterprets the cases upon which it relies in holding that Home had no duty to disclose the pending lawsuit. In United States Fidelity & Guar. Co. v. Howard, 67 F.2d 382 (5th Cir.1933) cert. denied 291 U.S. 663, 54 S.Ct. 439, 78 L.Ed. 1054, reh. denied 291 U.S. 648, 54 S.Ct. 457, 78 L.Ed. 1043 (1934), the insurer asked how much money a vice president owed the bank, but did not ask whether the vice president had endorsed any loans made by the bank. The bank later collapsed and it was discovered that the vice president had systematically siphoned off bank assets through bogus loans he had endorsed. It was determined that at the time the bond was applied for the vice president had endorsed over $42,000 worth of valueless loans. The insurer claimed the bank could not recover because the bank did not disclose the endorsements in the application. The court rejected the argument, reasoning that the information could not be deemed material by the insurer because no such information was ever requested in the application. In the Howard case, however, there was no indication that the bank knew of the dishonest conduct or knew of any pending loss when it applied for the loan. The endorsements, in and of themselves, were not dishonest on their face. At best, the large amount of loans endorsed by the vice president was an indication that there might have been an excessive amount of risk attached to the bond that warranted additional investigation. The holding of Howard is simply that neutral information that might indicate something may be amiss and that further inquiry might be necessary before issuing the bond, must be expressly requested before its omission would bar recovery. In the present case, however, Home knew of both the alleged dishonesty and the Armi-tage lawsuit and that the lawsuit could lead to a large claim against the bond.
In State v. United Pacific Ins. Co., 26 Wash.App. 68, 612 P.2d 809 (1980), the insured school district did not disclose that an employee had previously been charged with first-degree forgery as a result of a non-work incident. Contrary to the majority’s characterization of the holding in that case, the Washington Court of Appeals expressly refused to adopt an absolute rule that there was no duty on the part of the applicant to have provided the information. Instead, it held that the employee was covered despite the nondisclosure because the insurance company had not relied on the application and therefore had not been misled by the nondisclosure. (The insurance company did not even require the application form to be completed.) In the present case there is no serious question that Aet-na was misled by the nondisclosure of a major potential claim.
A duty to disclose pending claims simply ensures that there will be a true meeting of the minds. If Home’s expectation was that the Armitage loss, if any, would be covered by the policy, and if Aetna charged a premium based on a belief that there were no claims already pending that would need to be covered under the policy, then there was no meeting of the minds. If there was no meeting of the minds, there could be no coverage.
*381I do not accept the majority’s conclusion that a rule requiring disclosure would “re-, quire an insurance applicant to affirmatively convince an insurer to not issue the applied-for policy.” The fact that there is a claim pending against the insured is a “material fact” upon which an insurer is “clearly entitled to be informed before it could intelligently decide whether under the existing conditions it would assume the risk to be imposed upon it by the fidelity bonds.” West Am. Fin. Co., 61 P.2d at 968. The disclosure of pending claims would simply facilitate a meeting of the minds. As a matter of public policy, we should encourage full disclosure rather than permit a party to benefit from its own silence.
By including the term “omissions,” section 31-19-8(1) merely codifies this contractual principal as a statutory duty. I would therefore hold that Home’s failure to disclose the pending lawsuit violated its duty to disclose all facts material to the hazard assumed by Aetna and therefore bars Home from seeking recovery under the bond.
V. OFFSET OF DAMAGES
Before entering into the loans with the borrowers, Home had granted a loan to Affleck/AFCO directly. Affleck, however, was not repaying the loan. Home therefore instructed Affleck that once the borrowers gave the loan proceeds to him, he was to immediately return the proceeds to Home as payment against his original loan. Home even went so far as to place restrictive endorsements on the back of the loan proceed checks thereby preventing Affleck from cashing the checks and guaranteeing the return of the proceeds to Home. Aetna claims that by requiring Affleck to use the loan proceeds to pay off his already defaulted loan, Home effectively shifted the loss it was bound to incur under Affleck’s loan to the borrowers’ loans. Since a loss under the Affleck loan would not have been covered by this bond, Aetna claims it was entitled to offset the amount of loss sought by Home by the amount of loan proceeds actually returned to Home. Home therefore did not suffer any actual loss when it had in fact received the very loan proceeds it claimed were lost.
The majority erroneously dismisses Aet-na’s claim because it mischaracterizes the offset issue as a question of liability that the jury should have determined. The parties expressly reserved the determination of damages for the trial court. Whether there is an offset relates directly to the issue of the amount of damages, not to the issue of liability. In order for the trial court to make such a determination, it must consider any claimed offsets. The trial court declined to hear the claim, however, because it felt the issue involved questions of fact properly reserved for the jury. The trial court, along with Home and the majority, have failed to identify any questions of fact that the jury needed to determine before the trial court could have addressed the offset claim. In fact, there is no factual dispute as to what happened with the proceeds. The only issue was whether Aet-na was entitled to an offset as a matter of law. Since no jury findings were needed to make such a legal ruling, it was perfectly logical and acceptable for Aetna to wait and pursue the offset claim after the jury had rendered its special verdicts and the trial court had found Aetna liable. To have addressed the offset issue to the jury would have been fruitless since there was no factual dispute.
Inasmuch as the trial court refused to even address the offset issue because it erroneously viewed it as the duty of the jury, that issue should be remanded for consideration by the trial court.
VI. CONCLUSION
Any loss incurred by Home was discovered while the F & D bond was in place. The Aetna bond was never intended to cover employees that were known at its inception to have been dishonest. The Aetna bond also did not cover pending claims known to Home before the inception of the bond, but not disclosed to Aetna in the application. Aetna should not, therefore, be required to *382indemnify Home for its loss in the Armi-tage case.

. “A discovery provision in a bond limiting liability to losses discovered [during the term] of the bond is valid and enforceable. The contract must be construed the way the parties have plainly written it.” Wachovia Bank & Trust Co. v. Manufacturers Casualty Ins. Co., 171 F.Supp. 369, 375 (M.D.N.C.1959).
A provision of a fidelity bond which clearly limits the liability of the insurer to losses discovered within a certain specified period must be enforced according to its terms, so that there can be no recovery on a fidelity bond if the loss is not discovered within the time specified therein.
13 Couch on Insurance 2d, § 46.191 (1982 ed.).

. The insuring clause, which establishes the general purpose of the bond, provides as follows (with my emphasis):
The Underwriter, in consideration of an agreed premium, and subject to the Declarations made a part hereof, the General Agreements, Conditions and Limitations and other terms of this Bond, agrees with the insured ... with respect to loss sustained by the Insured at any time but discovered during the Bond Period, to indemnify and hold harmless the Insured for [the following losses].

. Riders to insurance policies constitute an integral part of the contract of insurance. 1 Couch on Insurance 2d, § 4:27 p. 386 (1984). This is true even if the rider adds a new and different meaning to the standard contract, as is asserted by the majority. Id. at 386-87.
Standard policy laws sometimes expressly authorize the attachment of slips or riders to contracts of insurance in a form provided thereby, so as to modify the provisions in the body of the policy, and where such a rider is properly attached, pursuant to such provision, it forms a part of the contract and supersedes the original provisions to which it applies.
1 Couch on Insurance 2d § 4:29, p. 391 (1984).

. The bond’s insuring clause is explicit with regard to the general applicability of the contract’s Conditions and Limitations, of which Section 4 is a key provision. The insuring clause reads in part, with my emphasis: "The Underwriter, in consideration of an agreed premium, and subject to the Declarations made a part hereof, the General Agreements, Conditions and Limitations and other terms of this Bond, agrees with the insured_’’
The bond reiterates the foregoing incorporation at the top of page four which contains the conditions and limitations of the bond. Page four reads, again with my emphasis: "THE FOREGOING INSURING AGREEMENTS AND GENERAL AGREEMENTS ARE SUBJECT TO THE FOLLOWING CONDITIONS AND LIMITATIONS."
Rider 5538 also provides, with my emphasis, that “the attached bond shall be subject to all its agreements, limitations and conditions except as herein expressly modified." The majority points to no "express modification” of the discovery definition added to Section 4 that would prevent it from applying to the insuring clause.

. The majority attempts to distinguish Royal Trust Bank and Home Life Insurance by claiming that the Section 4 in those cases differed substantially from the Section 4 in the present bond. The language used in those cases, however, is virtually identical to the language used in the present case if one looks at the insuring clause and Section 4 together, as we must when looking at the Aetna bond as a whole. The majority asserts that the language regarding coverage immediately preceding the definition of discovery in the Royal Bank bond enlarged the context in which the definition was given, whereas the location of the definition in the present case, i.e., in a section discussing procedural aspects, limited the definition to its immediate context. Section 4 in its entirety, however, by the express terms of the bond, must also be interpreted in the greater context of what constitutes discovery for purposes of coverage. See note 3. The definition therefore applies throughout the bond and is not limited to its immediate context. See Draughon, 771 P.2d at 1108 n. 3 (review provisions in overall context).

. In the present case, "discovery of loss” means discovery of a possible loss in Section 4, but by virtue of the majority’s holding, it means discovery of the actual damages throughout the rest of the bond. The problem in this approach is readily recognized when one considers that even as the majority pronounces the rule, it violates it. Despite its express rejection of the possibility of discovering a potential loss under the case law, the majority interprets "discovery of loss” to mean the discovery of a potential loss when considering indemnification for attorney fees. But in the present case, the provision regarding attorney fees is located in Section C of the General Agreements, not Section 4 of the Conditions and Limitations where the "potential loss” definition of discovery is located.

. The majority also fails to acknowledge that Home has the burden of proving that the Armi-tage loss was discovered within the effective period of Aetna’s bond rather than the F & D bond. It is only after Home has met its burden that the burden shifts to Aetna if it wishes to raise any exclusions as a defense. When an insured claims a right to recover under a policy. The insured must
bring himself within the field therein defined .... He then has brought himself within the policy, and the terms thereof have been met.... When he brings himself within the insuring clause he has made his case ... and any exceptions or conditions which would then deny him relief, take him out of the indemnity provisions, render them inoperative as to him, are matters of defense, and the burden thereof rests on the insurer.
LDS Hospital, 765 P.2d at 859 (quoting Browning v. Equitable Life Assurance Soc'y, 94 Utah 570, 573-75, 80 P.2d 348, 350-51 (1938)).
The language at issue is found in the insuring clause itself which defines the field within which Home must establish its case. The majority nevertheless treats the definition of dis*372covery as if it were an exclusion. In fact, the definition of discovery is party-neutral. The burden therefore lies upon Home to show that the loss was discovered during Aetna’s bond period. There is no presumption against Aetna on that issue.

. The majority and the trial court repeatedly indicate that the Aetna bond was intended to cover any "loss sustained" or "sustained loss” and yet those terms never appear in Aetna's bond. As is apparent from the insuring clause, the majority and the trial court have selectively combined "loss” with the first word of the phrase following it, i.e., "sustained" and taken the words out of context to create the term "loss sustained.”

. The bond itself indicates that it is the misconduct, not the resulting legal damages, that constitutes the loss. Rider 6041 provides that Aetna is only liable for "direct compensatory damages arising from a loss covered under this bond.” (Emphasis added.)

. The majority’s characterization of this case as a fraudulent/bad loan case is simply erroneous. The loss that Home is seeking to recover is not the result of Glad's dishonesty in falsifying the loan applications and causing Home to lend more to the borrowers than they were able to repay. The loss is the result of Glad’s violations of the truth-in-lending laws and the securities laws which created liability for Home. The majority’s reliance on Pacific-Southern Mortgage Trust Co. v. Insurance Co. of North America, 166 Cal.App.3d 703, 212 Cal.Rptr. 754 (1985), is therefore misplaced.
Even if this claim were the result of the issuance of bad loans, the losses were "sustained” before the Aetna bond was purchased. The Pacific-Southern court held that "the loss occurred when the loan defaulted.” Id. 212 Cal.Rptr. at 759. The loans in this case had all defaulted and were in the process of being foreclosed before the Aetna bond was ever purchased. Inasmuch as Home knew that Glad’s dishonesty was part of the reason why the loans defaulted, one must again conclude that the losses were discovered during the F & D bond periqd.

. The rider by which the parties extended coverage provides:
It is agreed that:
1. In accordance with and subject to the provisions of the Section of the attached bond entitled "Rights After Termination or Cancellation,” the Underwriter hereby grants to the Insured a period of twelve months from 12:01 a.m. of the 20th day of August, 1985, to 12:01 *375a.m. of the 20th day of August, 1986, within which to discover loss sustained by the Insured prior to the date and hour first mentioned.
(Emphasis added.)

. Those courts which have considered provisions like Section 11 have all considered the provisions to be unambiguous in their declarations that employees known to be dishonest at the inception of the bond are not covered. See, e.g., St. Joe Paper Co. v. Hartford Accident & Indemnity Co., 376 F.2d 33, 35 (5th Cir.) cert. denied 389 U.S. 828, 88 S.Ct. 91, 19 L.Ed.2d 86 (1967); Ritchie Grocer Co. v. Aetna Casualty & Surety Co., 426 F.2d 499, 502-03 (8th Cir.1970); Verneco, Inc. v. Fidelity & Casualty Co. of New York, 253 La. 721, 219 So.2d 508, 510 (1969).

. Home discovered on or about December 20, 1981, that Larry Glad had received a $15,000 kickback from Robert Mitchell. The $15,000 payment was part of a $31,000 fee received by Robert Mitchell from AFCO for arranging a $100,000 loan to AFCO. Larry Glad’s employment was terminated effective December 29, 1981.

. The majority is apparently attempting to prevent the risk of coverage lapsing if an insured changes insurance carriers after an employee's dishonesty is discovered and the insured knows it may be liable, but before there is a final judgment establishing any actual loss due to that dishonesty. That risk only arises, however, because the majority refuses to recognize that discovery of the dishonesty, or notice of a claim, triggers coverage. In other words, the majority is seeking to abate a risk that it has artificially created.

. The INA bond contained the same language as contained in the Aetna bond at issue.

. The majority also errs in even considering the bond proposal language since it was not found within the four corners of the contract.
[W]hen the parties have reduced to writing what appears to be a complete and certain agreement, it will be conclusively presumed, in the absence of fraud, that the writing contains the whole of the agreement between the parties. Also, that parol evidence of contemporaneous conversations, representations or statements will not be received for the purpose of varying or adding to the terms of the written agreement.
State Bank of Lehi v. Woolsey, 565 P.2d 413, 418 (Utah 1977). The majority has improperly used the bond proposal language to add a new term to the written agreement.

. This court recently held in Perkins v. Great-West Life Assurance Co., 814 P.2d 1125 (Utah App.1991), that a new insurer does not automatically cover all employees that may have been insured under a predecessor policy. In that case, Mrs. Perkins was an employee of Southwest Health Management, Inc. when she became disabled and was no longer able to work full time. Southwest kept her on its records as a full-time employee, awarding her sick leave, vacation, time, and so forth. After she became disabled, Southwest negotiated a new group insurance policy with Great-West Life Assurance Co. Great-West’s policy expressly limited coverage to full-time employees and defined full-time employment. When Mrs. Perkins passed away, her husband sought to recover on Great-West’s life insurance policy. Great-West then discovered that Mrs. Perkins was not a full-time employee at the inception of the policy and had never returned to full-time employment. Her premiums were returned and her husband’s claim against the policy was denied. This court upheld the denial of coverage, reasoning that "[sjince Mrs. Perkins was not an active employee on the effective date of the Great-West policy, or any time thereafter, she was not insured under that policy.” Id. at 1129 (emphasis added).

. The application contained the following warranty by Home that it did not know of any dishonesty committed by any of the employees listed in the application.
The present officers and employees of the insured, of whom a complete list at this time, with positions held, is given above, have to the best of the insured’s knowledge and belief, while in the service of the insured always performed their respective duties honestly. There has never come to its notice or knowledge any information which in the judgment of the insured indicates that any of the said officers and employees are dishonest.
The facts in this case indicate that Home knew prior to the application for insurance that Elaine Reese, one of the employees listed in the application, had committed dishonest acts by backdating the loan documents at Glad’s direction. "A fraudulent misrepresentation in such an application that the insured’s employees have been faithful is deemed material to the risk undertaken by the insurer and renders that bond void ab initio.” Phoenix Sav. & Loan, Inc. v. Aetna Casualty & Surety Co., 427 F.2d 862, 870 (4th Cir.1970) (interpreting same warranty). Inasmuch as Aetna did not pursue a claim of misrepresentation based on this provision, we have not addressed it on appeal.