Court Opinion

ID: 9454071
Source: CourtListenerOpinion
Date Created: 2023-08-04 18:35:04.085908+00
Date Added: 2024-06-11T17:33:57.485975
License: Public Domain

WILBUR K. MILLER Senior Circuit Judge
(concurring m part and dissenting in Pari):
I concur in that portion of the foregoing opinion which affirms the judgment against Jorski, but I dissent from *148the affirmance of the judgment against Millers, which gives an undeserved windfall to Farmers. The majority bases its action upon what I think is its erroneous conclusion that Farmers was a supplemental surety for, instead of a cosurety with, Millers Mutual Insurance Association. Whether so or not is the crucial question in the case; for, if Farmers was a cosurety with Millers, it was only entitled to recover from Millers, under the doctrine of contribution, the latter’s proportionate part of the entire loss. In order to demonstrate my reasons for dissenting, it is necessary to restate in more detail the origin and nature of the obligations of the two insurance companies.
On May 23, 1963, Jorski executed to CCC a warehouseman’s bond in the penal sum of $100,000 — later increased to $105,000 — with Millers Mutual as surety, that Jorski would faithfully perform all its obligations as a licensed warehouseman. On June 19, 1963, Farmers executed to CCC a blanket bond in the penal sum of $50,000,000 by which it promised to answer for any failure of a warehouseman to perform fully his obligations. Of this large additional coverage, $947,000 was allotted to Jorski, which paid the premium thereon. Thus, thereafter the total penal sum of $1,052,000 insured the performance of Jorski’s duties under its contract with CCC.
The obligations of the bonds of Farmers and Millers, while not identical in language, are substantially identical in purpose; both undertake to pay CCC for any loss because of Jorski’s failure to perform fully its duties and obligations as a warehouseman under the Uniform Grain Storage Agreement. This is readily seen when the insuring clauses of the two bonds are compared. That of the Millers’ bond reads as follows:
“Now, therefore, if the said licensees) or any amendment(s) thereto be granted and said principal shall faithfully perform all of its obligations as a licensed warehouseman relating to transactions entered into during the period of one year commencing May 29, 1963 under the terms of the said United States Warehouse Act and the said regulations prescribed thereunder, and such additional obligations of the warehouseman as may be assumed by it during the period aforesaid under contracts with the respective depositors of the hereinbefore-named product(s) in such licensed warehouse(s), and any and all modifications of said United States Warehouse Act, regulations, and contracts that may hereafter be made, notice of which modifications of the surety being hereby waived, then this obligation shall be null and void and of no effect, otherwise to be and remain in full force and virtue.”
The Farmers’ insuring clause is as follows:
“1. Liability. The insurer shall pay CCC any and all amounts which CCC shall be entitled to recover from any warehouseman because of any failure of the warehouseman to perform fully its obligations under the Uniform Grain Storage Agreement, Form CCC-25 (5-17-60), and all modifications of such agreement or to perform any other obligations as a warehouseman in connection with commodities stored or handled under such agreement * *. Other insurance or bond coverage is permitted covering the same risks without affecting the liability of the insurer under this policy.” (Emphasis supplied.)
Thus both insurance companies undertook to answer to CCC for any default by Jorski in the performance of its obligation under the Uniform Grain Storage Agreement. There is nothing in the Farmers’ bond, nor is there anything in the record which has been called to my attention, to indicate that Farmers was a supplemental surety for Millers, nor that the bond had any purpose other than to protect CCC from losses occasioned by the defaults of warehousemen. The terms of Farmers’ obligation patently picture it as a surety for Jorski only, and its payment to CCC indicates that it regarded itself as such. It follows, there*149fore, that the execution of Farmers’ contract made it a cosurety with Millers; the fact that they became sureties at different times and by different instruments does not, it is held, prevent the creation of cosuretyship, which is the relation between two or more sureties who are bound to answer for the same duty of the principal, and who as between themselves must share any loss caused by the default of the principal.
The majority opinion admits that
“ * * * The Farmers policy generally, and the Millers policy specifically, covered the same risk, violation of a warehouse agreement, and protected the same obligee, the CCC. The Millers policy covers the default of a named principal, Jorski, and the Farmers policy covers the failure of ‘any warehouseman’ to perform the obligations imposed by the storage agreements. * * * ”
and that “[t]he elements of cosuretyship, same obligee, principal, and risk, are present,” but adds that “the presence of these elements must be considered in connection with other facts.” The only “other fact” stated by the majority as transforming an undoubted cosuretyship into a supplemental suretyship is the following paragraph of the Farmers’ policy:
“10. Subrogation. In the event of any payment under this policy the insurer shall, to the full extent permitted • by law, be subrogated to all of CCC’s rights of recovery therefor against the warehouseman and any ■ other person or other legal entity to the extent of such payment.”
My colleagues infer that this paragraph negated all the indicia of cosuretyship and made Farmers a supplemental surety. If the draftsman of the Farmers’ policy, after investing Farmers with all the attributes of a cosurety, had actually intended to provide that Farmers should only be a supplemental surety for, instead of a cosurety with, existing sureties, he would hardly have been content to leave his attention to be inferred, and particularly from such a doubtful paragraph. The writer of the contract would have been careful to provide in express language that, despite all the indicia of cosuretyship, it was really intended that Farmers should be a supplemental surety, and if CCC had intended the Farmers’ insurance to be only supplemental to existing suretyships, I am sure it would have insisted upon specific language to that effect, which could very simply have been supplied.
We know, however, that CCC did not so intend. It did not obtain the Farmers’ contract in order to have a surety for the sureties on the existing warehouse-men’s bonds. It merely wanted more protection dollarwise than that afforded by the warehousemen’s bonds, the penal sums of which it concluded were inadequate. Fortunately, we have in the record, in CCC’s own words, its reason for taking the Farmers’ policy: not to obtain a surety for the sureties on its existing warehousemen’s bonds, but to obtain additional coverage, because an extensive study had convinced it that the warehousemen’s bonds did not provide enough coverage to protect its financial interest in grain stored under Uniform Grain Storage agreements. CCC said it chose the Farmers’ blanket coverage arrangement because “[t]o increase this coverage on the basis of individual bonds would result in substantially increased cost to most warehousemen.” The blanket coverage affords CCC, it said, “the substantial increased coverage at a very reasonable cost.”
This is amply evidenced by the following quotation from a letter of December 19, 1963, addressed to Jorski by CCC:
“Enclosed is the statement for your proportionate share of the cost of the premium on the blanket insurance policy. The charge in the enclosed statement has been computed in accordance with the formula set forth in the amendment to the Uniform Grain *150Storage Agreement which you recently executed in connection with the blanket insurance policy.
“About a year and a half ago an extensive study was conducted of the bond requirements of the Commodity Credit Corporation under its Uniform Grain Storage Agreement and our claims experience with respect to warehouse-stored grain. The conclusions reached in the study showed a need for a substantial increase in bond coverage to protect CCC’s financial interest in grain stored under its Uniform Grain Storage Agreement. To increase this coverage on the basis of individual bonds would result in substantially increased cost to most ware-housemen. In addition, many ware-housemen who have not been required to furnish bond to CCC in the past, either because they were licensed under the U. S. Warehouse Act or the bonds required for State licensing were equal to or exceeded CCC’s requirements, would have been required to do so based upon the results of the study. The blanket coverage affords CCC the substantial increased coverage at a very reasonable cost.”
In order to appraise the effect of the subrogation clause of the Farmers’ bond, above quoted, it is necessary, to determine what form of subrogation is provided therein. There are two kinds of subrogation recognized by the courts: (a) true subrogation, which is often called “legal” or, by reason of its origin and basis, “equitable” subrogation; and (b) so-called “conventional” or contractual subrogation. True subrogation does not depend upon contract and arises only when the equities of the party seeking it are superior to the equities of the party against whom it is sought. Hartford Accident & Indemnity Co. v. First National Bank & Trust Co. of Tulsa, 287 F.2d 69 (10th Cir. 1961). In Pearlman v. Reliance Ins. Co., 371 U.S. 132, 136-137, 83 S.Ct. 232, 235, 9 L.Ed.2d 190 (1962), the Supreme Court said:
“ * * * Traditionally sureties compelled to pay debts for their principal have been deemed entitled to reimbursement, even without a contractual promise such as the surety here had.12 And probably there are few doctrines better established than that a surety who pays the debt of another is entitled to all the rights of the person he paid to enforce his right to be reimbursed. This rule, widely applied in this country and generally known as the right of subrogation, was relied on by the Court of Appeals in this case. * * * ”
This was a clear holding by the Supreme Court that the right of subrogation of the surety in the Pearlman case arose, not from the contractual promise it had, but from the equities of the situation:- the fact it had been compelled to pay the debt of another. The Court reiterated its statement made more than 80 years ago that the “right of subrogation * * * is independent of any contractual relations between the parties.”
So-called “conventional” subrogation, unlike true equitable subrogation, arises only from contract and necessarily must be different from equitable subrogation; if it is not different, there is no occasion for a contract. Measured by this standard, it is clear that Farmers’ contractual subrogation theory fails because the provisions of its contract with CCC, upon which it relies, gave it no right beyond that of true equitable subrogation. The latter right, if it existed at all, existed regardless of the contract, as shown by the Pearlman case.
For convenient comparison, I again reproduce the contractual provision which the majority opinion says gave *151Farmers the right of subrogation against Millers:
“10. Subrogation. In the event of any payment under this policy the insurer shall, to the full extent permitted by law, be subrogated to all of CCC’s rights of recovery thereof against the warehouseman and any other person or other legal entity to the extent of such payment.” (My emphasis.)
This provision confers no right of sub-rogation upon Farmers beyond or above any such right it might have, in appropriate circumstances, under the equities of the situation. Indeed, it does not even purport to enlarge for Farmers’ benefit the right of subrogation that arises from equitable considerations. For, in the language I have emphasized, the draftsman of the contract restricted the provisions to those instances where sub-rogation would arise as a matter of law, even in the absence of a contract.
So the provision that Farmers shall be subrogated to CCC’s rights “to the full extent permitted by law” limits its subrogation to that granted by the law to the party having superior equities, for in no other way and to no other extent does the law permit subrogation; anything beyond that must be by contract. This paragraph of the contract, because of its limiting language, is nothing more than a gratuitous endorsement of the ordinary principle of true subrogation. Why the draftsman of the contract inserted it, I cannot say. He may have wanted to comfort Farmers, which was undertaking a liability of $50,000,000, by assuring it that in proper circumstances it would have the right of subrogation — that is, in cases where it might have superior equities.
From the foregoing, I think the judgment against Millers is erroneous and that Farmers, an undoubted cosurety, is entitled to judgment against Millers only for its share of the loss calculated on the proportion of its coverage of $105,000 to Farmers’ coverage of $947,-200.

“12. ‘The right of subrogation is not founded on contract. It is a creature of equity; is enforced solely for the purpose of accomplishing the ends of substantial justice; and is independent of any contractual relations between the parties.’ Memphis & L. R. R. Co. v. Dow, 120 U.S. 287, 301-302 [7 S.Ct. 482, 488, 489, 30 L.Ed. 595] (1887).”