Pacific Coast Adjustment Bureau v. Indemnity Insurance

WARD, J., pro tem.

This is an action based upon a bond issued by the appellant Indemnity Insurance Company of North America to the respondent whereby appellant bound itself to pay to the respondent “any direct financial loss, that it may sustain by reason of any act of larceny, embezzlement, theft or any other fraudulent or dishonest act, wrongful abstraction or wilful misapplication”, committed during the term of the bond by any employee covered by the schedule attached to the bond. A jury returned a verdict for plaintiff. Judgment was entered with certain interest and defendant appealed. The bond provided: “When the Assured discovers a loss hereunder, written notice of same shall be delivered to the Company and within ninety (90) days thereafter an itemized statement of claim shall be furnished to the Company. . . . This bond shall terminate, as to any employee, upon the discovery by the Assured of a loss through or on account, of such employee.”

Respondent is engaged in the adjustment of losses for insurance companies. Its main office is in San Francisco, but it has branch offices located at points throughout the western states. Each branch office is in charge of a branch manager, and at each branch are located one or more adjusters and clerical help. The method of financing the branches was as follows: The branch manager had authority to draw drafts upon the head office of respondent, whereby he obtained the necessary funds for operating the branch office. Each branch manager was permitted to draw what he thought would be needed for the operation of his branch, and he was instructed not to draw too heavily in the early part of the month. The funds so obtained were used to pay all the expenses of the branch, including the branch manager’s salary. The funds drawn were charged to each branch manager personally, and it was not required that they be kept in bank in the name of respondent. At the end of each month each branch manager would submit to

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the head office an account wherein would be shown the amount of money received from the head office through the medium of drafts, a detailed itemization of all expenditures, and the balance due to the head office. A check for this balance payable to respondent was required to accompany the statement of account.

An employee, Pixler, was the agent of respondent at Boise, Idaho, from December, 1924, until July of 1926. Pixler was covered by the schedule attached to the bond. In the early part of 1925 Pixler, to meet certain payments on his property, etc., was permitted by the respondent to draw on his salary for the succeeding month. In June of the same year, Pixler drew a draft for $1,000 after having drawn one for $350. The home office withheld payment pending explanation by Pixler. It subsequently developed that $400 was used for Pixler’s personal use, which was returned at the end of June. In April, 1926, Pixler drew a draft for $1200, part of which was used for Pixler’s doctor’s and hospital expenses. This brought from the home office a wire to Pixler that he had exceeded his authority and that no consent would be forthcoming for use of money beyond business requirements and necessities. Pixler accounted for the money at the end of the month. The adjustment company did not give notice to the bonding company of this transaction. During the first twelve days of July, 1926, Pixler drew on respondent for $2,450, upon which the verdict of the jury for $1943 in favor of respondent was based. Respondent notified the bank at Boise City that a certain draft, a part of the $2,450, would not be honored, pending satisfactory advices from Pixler. Subsequently Pixler resigned. An accountant examined the books; appellant was notified of the result of the examination and the filing of this action followed.