Court Opinion

ID: 9684229
Source: CourtListenerOpinion
Date Created: 2023-08-24 13:51:22.729783+00
Date Added: 2024-06-11T09:00:38.568237
License: Public Domain

VANDE WALLE, Chief Justice, concurring in part and dissenting in part.
I join in the majority’s Part I analysis and conclusion that Employers Reinsurance Corporation (ERC) has no obligation to indemnify or defend Bert Holvik or his defunct sole proprietorship in Edean Landmark’s lawsuit.
I dissent to Part II, wherein the majority concludes that ERC has an obligation to indemnify and defend Holvik Halvorson Insurance, Inc., (HHI). Where, as here, the *541one who is deceitful holds a substantial ownership, 50%, of the corporation, the imputation of Holvik’s knowledge to the corporation is required as a matter of public policy. To do less is to encourage the dishonest owner to launder ownership in order that his or her deceit will be excused because of the innocent good-faith purchaser. The courts should provide no vehicle to accomplish that purpose to the benefit of the wrong doer. This is, after all, not a transaction in negotiable instruments which, because of commercial expediency, excludes the “good faith” holder from certain defenses. See, e.g., NDCC § 41-03-31. When the operator and holder of 50% of the stock in the corporation has knowledge, it should be imputed to the corporation. When or how else will a corporation ever be charged with knowledge?
The misrepresenting shareholder is not the only focus. Halvorson chose Holvik as his associate. The insurance company relied on the statements of the former sole owner and still 50% owner of the business. As between ERC and Holvik there is no question that the law and the equities favor ERC. To require ERC to defend and indemnify HHI has little basis in law and is unsound on equitable principles as well. The effect is to keep whole HHI, of which Holvik owns 50%, because of Halverson’s 50% ownership.
The majority says ERC can seek indemnity from Holvik. That right to seek indemnity is viable only if Holvik and, in the future, others like him have the resources to indemnify. The court-concocted scheme to require ERC to defend and indemnify and then to seek indemnification from Holvik is founded in this Court’s majority opinion in Continental Cas. Co. v. Kinsey, 499 N.W.2d 574 (N.D. 1993). That decision involved a liability insurer’s obligation to an injured third party, an ambiguity in the insurance policy and public policy. Those elements are not present here. If Kinsey was good law in those circumstances, I would not apply it here.
The majority also concludes that Holvik is an “employee” within the meaning of the policy. This construction is contrary to McIntosh v. Dakota Trust Co., 52 N.D. 752, 204 N.W. 818 (1925) notwithstanding the majority’s attempt to finesse that decision by speculating the decision “might well have been decided differently if only one of the directors and shareholders had been involved in the embezzling and had made the misrepresentations on the application for the bond.”
In McIntosh, the directors owned 80% of the stock; 20% was held by persons not involved in the deceit. Here Holvik owned 50% and participated in running the business. Now, under the result of the majority opinion, it seems to me that all directors are employees and all officers are employees. Because a corporation can only act through its officers and agents, it will always' be shielded against their fraudulent misrepresentation under a fidelity endorsement such as present here. I cannot agree that is the purpose of that endorsement. The majority takes a skewed view of the term “employee” to arrive at what it believes is an equitable result, i.e., between an insurer and a group of insureds, some of whom misrepresent, the insurer should always pay.
Finally, I dissent to Part III of the majority opinion concerning attorney fees. I adhere to my dissent in State Farm Fire and Cas. Co. v. Sigman, 508 N.W.2d 323, 327 (N.D.1993) [VandeWalle, C.J., dissenting]. To award attorney fees to HHI is to again award Holvik for his deception. Holvik should pay the fees for all parties since it was his actions which caused the law suit.
BERYL J. LEVINE, Surrogate Judge, concurs.