Sugarman v. Federal Insurance

HERNDON, J. This is an appeal from a judgment declaring that appellants as the successors to Walker Mining Company are the owners of certain stocks and cash presently held by respondent Federal Insurance Company, but that appellants are not presently entitled to delivery of this property because it serves as collateral to offset all liability for workmen’s compensation claims to which Federal may be exposed by virtue of a guaranty bond which its predecessor had furnished Director of Industrial Relations to enable Walker Mining Company to operate as a self-insured employer.

Appellants’ complaint against respondent Federal sought delivery of the bonds and cash and a declaration by the court that Federal has no further reason to retain possession of this collateral. Federal filed an answer and cross-complaint asserting, in essence, that it should be permitted to retain its security unless it be judicially determined that it would never be liable thereafter by reason of its status as surety upon the guaranty bond.

The respondent Director of Industrial Relations answered the complaint and the cross-complaint and asserted that Federal should not be declared free of future liability. We have concluded that the declaration made by the trial court was correct and sufficient to decide all of the issues presented.

The determinative facts are not in dispute. Walker Mining Company was engaged in mining operations and was a self-[565]insured employer under the California Workmen’s Compensation Law from February 1937, to January 1943. United States Guarantee Company, respondent Federal’s predecessor in interest, was the surety on a guaranty bond effective during this period whereby Walker, as principal, and Guarantee, as surety, bound themselves to the People of the State of California for the benefit of each and all of Walker’s employees. This bond provided, inter alia, that in the event Walker became insolvent Guarantee would pay any award made in favor of its employees. In consideration for Guarantee’s assumption of suretyship liability, Walker executed an indemnity agreement and delivered certain securities to Guarantee to be held by it as collateral. This agreement provided for the return of the collateral securities “. . . if said Indemnitor [Walker] shall furnish said Surety [Guarantee] with competent written legal evidence of its discharge from said surety-ship and from all liability by reason thereof ...”

Walker’s mining operations were shut down in October of 1941, and it was adjudicated a bankrupt in September of 1945. By orders of the bankruptcy court appellants have acquired the assets of Walker, including the collateral given to Guarantee. Federal has succeeded to the rights and obligations of Guarantee. Throughout the years and up to July 27, 1966, Guarantee and its successor, Federal, have incurred losses, costs and expenses totaling $22,295.74, arising out of eighteen claims of industrial injury occurring during the term of the bond. Of this number, four were filed in the Industrial Accident Commission in 1960, one was filed in 1961, and the most recent known claim was filed May 29, 1964. The former employees of Walker are so numerous as to make their joinder as parties to this action impracticable and their identities and whereabouts are not known or ascertainable. Therefore, the People of the State of California and Ernest E. Webb as Director of Industrial Relations of the State of California appeared in a representative capacity on behalf of themselves and each and all of Walker’s employees.