
    Ohio Farmers Insurance Co. v. Clinton County National Bank and Trust Co.
    
    (No. 19695
    Decided September 9, 1965.)
    Common Pleas Court of Clinton County.
    
      Messrs. McN amara & McN amara, for plaintiff.
    
      Mr. Charles R. Kirk, for defendant.
    
      
       Affirmed by the Court of Appeals April 25, 1966.
    
   Baynes, J.

(sitting by assignment). Plaintiff brings suit to reform a banker’s blanket bond issued by it to the defendant on October 19, 1961. Clause “E” of Standard Form No. 24, was not excluded by a “Eider.” The petition alleges that the failure to exclude clause “E” was a mutual mistake of the parties.

The answer of defendant denies an agreement that clause “E” was to be excluded or that it agreed to pay the premium (as charged and paid), based on the exclusion of that clause from the policy.

The action was brought after the defendant notified plaintiff of a forgery loss sustained by it in August of 1963 by reason of its acceptance of and extension of credit on two notes which contained a forged signature of a co-maker.

Clause “E” provides coverage for forgery loss on “any securities, documents or other written instruments” acquired for its own account and where acting in a representative or agency capacity, but excepts, “checks, drafts, acceptances, withdrawal orders or receipts for the withdrawal of funds or property, certificates of deposit, letters of credit, warrants, money orders, or orders upon public treasuries.”

In many particulars the evidence is not in controversy. It is only where quality of communication, interpretation of the English language or the meaning of words, or acts of omission and commission that relate to or are the basis of intent or knowledge that make it a hard case.

The bank received notice from the insurer of the previous blanket bond, that because of two losses unless certain action was taken that the bond would be cancelled. The bank contacted plaintiff’s local agent who in turn contacted the company. Two agents from the home office, a Mr. McGhee and a Mr. Wavrek together with the local agent Mr. Smith conferred with Mr. Davids who is president, director and secretary of the board and a stockholder. A Mr. Williams, who is vice president and cashier of the bank participated in the discussion from time to time. Mr. Williams ’ testimony added little, if anything to the issue.

The bank did not have clause “E” coverage under the previous blanket bond. Mr. Davids was unfamiliar with the particular provisions of that bond, he stated, “that time the bond was purchased from your insurance company was the first one I negotiated.” (R. 6, 90.)

We have carefully read and re-read the record consisting of 100 pages of testimony and most particularly analyzed the testimony of Mr. Davids consisting of 27 pages. While it is true that the heading above clause “E” is “securities,” it is also true that Mr. Davids had never read the policy or bond, prior to the claim made to plaintiff. He failed to read the one sheet — two-page standard form of questionnaire for a banker’s blanket bond presented to him on October 31, 1961, by Mr. Smith on the front of which appears, among other things, the following:

Present Coverage Change Desired, if any

(a) Amount of Bonds $250,000.00 (a) $..........

(b) Amount of Clause (D) $250,000.00 (b) $..........

(c) Amount of Clause (E) Nil (c) $..........

On or shortly after October 25, 1961, Mr. Smith delivered the original of a letter written by Mr. McGhee, dated October 24, 1961, to Mr. Davids which he admitted he had read which pointed out that the bank did not have clause “E” coverage either on the former bond or the one written by plaintiff. The letter quoted from the language of the clause. It also quoted cost of $10,000 and $25,000 of coverage. The letter closed with the statement: “I am sure you will want to present this quotation to the bank, in accordance with our understanding. Then if they suffer a loss that was not otherwise covered, we have pointed out that this coverage is available.

Mr. Smith made a survey of defendant’s various insurance coverages in December 1961, which was presented to Mr. Davids on the 30th. Among other things it recommended purchase of clause “E” coverage, “for indemnity from forgery to securities.” Mr. Davids made notes as to some recommendations but none as to this nor did he make further inquiry. Mr. Smith had never previously sold a banker’s blanket bond. His testimony is clear that he did not understand that clause “E” covered promissory notes. There is no testimony that this in any way affected Mr. Davids’ action or inaction.

Clause “D” of both the former and plaintiff’s bond covered forgery or alteration for orders of various kinds for the payment of money paid by the bank and charged to its customers’ accounts. This included the payment of promissory notes payable at the insured from funds on deposit with it.

It is uncontradicted that the plaintiff did not charge a premium for clause “E.” This inferentially appears from the invoices rendered by plaintiff to defendant under dates of October 23 and November 9, 1961. Whether Mr. Davids saw these is unclear.

From the foregoing and the whole of the testimony there can be no doubt by clear and convincing evidence that it was a unilateral mistake, at least, on plaintiff’s part that a rider excluding clause “E” was not attached to the bond. Further plaintiff makes a strong prima facie case that the mistake was mutual in that the bond issued, accepted and paid for did not reflect the agreement of the parties.

Mr. Davids’ testimony is clear that he wanted forgery coverage on those items covered by clause “D” in the former bond and the plaintiff’s bond. This he got on behalf of the defendant. He also by implication or inference, but not directly, claims he wanted coverage for forgery of promissory notes acquired for the bank’s account. But it is inconsistent to claim, on the one hand, that this question was not specifically discussed and on the other that Mr. Davids intended to have it covered, when, in fact, it had not been covered by the former bond. At the same time he said that he did not want clause “E” coverage because, “we didn’t deal in securities except on our own accounts and there was a slight possibility of getting forgeries on these.” (R 87 and 100.)

He claims that the bank was buying coverage and not clauses. Further that securities to him meant stocks and bonds, despite the fact he had notice clause “ E ” covered, ‘ ‘ documents or other written instruments” at least on receipt of the McGhee letter of October 24, 1961, plaintiff’s exhibit “4,” when the discussions of October 19, 1961, should have been fresh in Mr. Davids’ mind.

In any event his testimony was that he was not interested in forgery of securities coverage. There is no testimony that the coverage provided by clause “E” is severable. We conclude from all of this that it constitutes an admission, in fact, that the bond issued by plaintiff and accepted by defendant did not reflect the agreement of the parties when it failed to contain a rider excluding clause “E” from its standard printed provisions as was intended by the parties. It follows, beyond question, that the mistake was mutual,

It is argued on defendant’s behalf that even if Mr. Davids had read the bond he would not have known, without specific reference to promissory notes, that clause “E” covered notes received by the bank on its own account. The converse of this argument is that if Mr. Davids had read the bond he would or should have known that such notes were not covered by clause “D,” in which event he would not have found this item covered in any other provision of the standard form.

It is true that Mr. Smith, plaintiff’s local agent was under the same misconception as to the meaning of clause “E,” as Mr. Davids claims he was, on December 30, 1961, when Smith made his insurance recommendations. But, there is no evidence that Mr. Smith had directly any part with making of the agreement for or understanding of coverage entered into between the plaintiff and defendant on October 19, 1961.

We do not find defendant’s unplead argument of laches persuasive. There is no evidence of by what means the failure to attach a rider might have come to plaintiff’s attention except by a demand as was made by the defendant in this case. This is so even though it is inferrable that no such rider was ever prepared prior to the delivery of the bond to defendant.

In case of a mutual mistake in a policy of insurance it may be reformed if such mistake is established by clear and convincing evidence. Wagner, Trustee, v. National Fire Insurance Company (1937), Syllabus 3, 132 Ohio St. 405, 8 N. E. 2d 144, 8 O. O. 216. On behalf of defendant it is concluded that plaintiff has failed to establish its right by even a preponderance. Further that if plaintiff was mistaken in not deleting clause “E” the weight of the evidence is that the defendant wanted coverage as to promissory notes provided by the clause, assumed it had such coverage and made no error in accepting the policy and claiming under it. As we have previously indicated Mr. Davids’ testimony in our view falls far short of supporting such conclusion and the documentary evidence, the exhibits, virtually destroys inferences that otherwise might flow from his testimony.

Whatever conceptions or misconceptions as to the meaning of the words of clause “E” Mr. Davids had, it is clear, beyond all doubt, that there was no meeting of the minds as to the clause “E” coverage as between the parties.

In a case under these facts plaintiff believed the bond as executed was a correct integration of that to which, through its agent, its assent was expressed. Whereas Mr. Davids has affirmatively stated that he did not, as agent for the defendant, desire clause “E” protection. The bond as executed and delivered to the defendant, was not therefore, a correct integration of the agreement of the parties. In such case reformation is a proper remedy, even if it can be said the mistake was unilateral and not mutual. 3 Corbin on Contracts 669, 692, at 730-1, Sections 608, 610, 614.

We conclude that plaintiff is entitled to a decree in accordance with the prayer of its petition, which is concurrently made and entered by the court.

Entry

This cause came on to be submitted on the pleadings, the evidence, and the briefs of counsel. On consideration thereof the court finds the facts to be:

1. That the bond issued was a printed standard form including and excluding certain coverages for protection of the insured.

2. That exclusion of clauses or additions of clauses are made by attaching to the bond appropriate “riders.”

3. The premium rate charged is based on the limit of the several coverages, for which the insured contracts.

4. That clause “ E ” of the bond, among other things covers forgery loss on promissory notes acquired by an insured for its own account and where acting in a representative or agency capacity.

5. That the parties, on October 19, 1961, agreed that the bond to be issued should exclude clause “E” and the premium charge rendered to and paid by the insured did not include a premium for said coverage, but that the bond issued and accepted by the insured failed to have attached a “rider” excluding said clause from said bond.

6. That the mistake in the execution of the bond in failing to exclude clause “E” and the acceptance and retention of the same was a mutual mistake of the parties.

7. That from the whole of the evidence the court finds the facts proved, necessary to maintain the issues raised by the petition, by clear and convincing evidence as demonstrated by the opinion filed concurrently herewith.

Further the court concludes as a matter of law that the said bond should be reformed by the exclusion of clause “E” coverage; that an injunction be issued against action for recovery on any claim made under or by reason of said clause; and that the cross-petition ought to be dismissed.

It Is Therefore Ordered, Adjudged And Decreed that the banker’s blanket bond contract by and between the Ohio Farmers Insurance Company, the insurer, and the Clinton County National Bank, the insured, be and the same hereby is reformed to exclude from the provisions thereof any and all coverage set out in clause “E” on page two thereof from October 19, 1961, to the date of termination thereof.

And Further that the defendant, the Clinton County National Bank be and it hereby is permanently enjoined from commencing or attempting to commence any action in any court upon any claim which has arisen or which may arise under clause “E” from October 19, 1961, to the date of termination of said contract.

And Further that the cross-petition herein filed the same having no warrant in law or equity, be denied and dismissed.

That the cost of $......be taxed one-half to plaintiff and one-half to defendant.

To all of which respective exceptions are noted.

Judgment accordingly.  