APPEAL from the Circuit Court of Cook County; the Hon. MINOR
K. WILSON, Judge, presiding.
MR. JUSTICE GOLDBERG DELIVERED THE OPINION OF THE COURT:
Rehearing denied July 26, 1973.
The legal problems to be unraveled here stem from a most unfortunate series of defalcations from a credit union by a trusted fiduciary and officer. Suit was originally filed by Sante Fe General Office Credit Union (plaintiff) against its former treasurer, Gottar A. Gilberts (defendant), and also against National Surety Corporation (National) which had acted as surety on his official bonds. In addition, National filed a counterclaim seeking indemnity against defendant.
Plaintiff filed motions for summary judgments against defendant and National. These motions were denied. National filed a motion for partial summary judgment limiting plaintiff's recovery. The trial court granted National's motion and limited plaintiff's recovery against National to $10,000 plus interest. Judgment was accordingly entered in favor of plaintiff and against National in the amount of $12,629.11. Defendant stipulated to a judgment in favor of National and against himself on National's counterclaim in the amount of $12,629.11. The court heard the evidence on the balance of the claim and entered judgment in favor of plaintiff against defendant in the amount of $252,437. This represented amounts actually embezzled $176,081.60; interest thereon of $51,355.40 and also $25,000 for punitive damages. Apparently the embezzled amounts have been entirely dissipated and the judgments against defendant remain unsatisfied. Plaintiff appeals from the partial summary judgment in favor of National limiting National's liability to $12,629.11 and from the order denying plaintiff's motion for summary judgment against National in the amount of $144,092.45 plus interest and costs. The divergent contentions raised by plaintiff and National will have greater significance if set forth after the following statement of fact.
Defendant was first elected treasurer of plaintiff organization on February 23, 1946. He held this office, with re-election on an annual basis, until 1965. His first embezzlement took place in 1948. He misappropriated plaintiff's funds in varying amounts thereafter during each and every year without exception until and including 1965. The smallest amount taken was in 1955 in the amount of $4710 and the largest thefts occurred in 1953 in the total amount of $17,890. Plaintiff contends that the total amount of these defalcations was $192,617.45. However, defendant made some repayment of funds from time to time perhaps in an effort to lay the foundation for additional misappropriations. This amounted to $16,535.85 leaving a net amount abstracted of $176,081.60. These various shortages were confirmed by adequate accounting procedures.
The relationship between plaintiff and National commenced in 1946 with the execution of a position schedule bond bearing National's Identification No. 862703. This bond is dated February 28, 1946. It covered loss of money for dishonest, fraudulent or criminal acts committed by employees of plaintiff while occupying any position designated in the bond. There is a provision that such losses are to be reported to National in writing within 15 days after discovery by plaintiff and "within three years after termination of coverage on the employee causing the loss * * *."
Various schedules were subsequently appended to this bond setting forth the positions covered, the amount of liability of National as to each position and the amount of premium charged in each instance. After the initial year, each of these schedules provided, "That this schedule supersedes all prior schedules attached to the bond * * *." The original schedule dated February 28, 1946, also provided:
"The amount of coverage on each such position is the amount stated in the appropriate schedule or endorsement. Any such amount may be changed by endorsement, or by naming a different amount in a new schedule identified as aforesaid and attached as of any anniversary date."
The original schedule also provided:
"The coverage on any position for separate periods shall not be cumulative as to any occupant, but the full amount of coverage shall be available for losses caused by each different occupant of the position."
Each of the subsequent schedules further provided:
"* * * the coverage on each employee is continuous from its inception to its termination, and the coverage for separate periods shall not be cumulative; that if the coverage on any employee for separate periods be for different amounts, the maximum liability of the Corporation for all defaults of that employee shall be governed by the provisions of the bond, and shall in no event exceed the largest amount of coverage in force during any period within which defaults shall have occurred, nor shall the coverage for one period be available for defaults occurring within any other period."
The positions originally noted in the first schedule were president, vice president, treasurer, secretary and messenger. The designated liability in connection with the position of treasurer, occupied by defendant, was $5000. The three remaining officers had liability limits of $1000 each and the liability as regards the position of messenger was limited to $500. Total premium for all of these positions was $15, with $7.50 thereof being allocated to defendant's position.
All subsequent schedules as issued and attached to this same fidelity bond bearing No. 862703 set out the position in question, the amount of the liability assumed by National, and the premium charged. The provisions thereof remained unchanged as above noted. There were minor variations in that the position liability as regards plaintiff's president was increased to $2000 during 1951 with an additional premium being charged for the increase. Also, the position liability as regards defendant was increased first to $6000; and, in 1952, to $10,000. The annual premium for this last increase became $15 and the total premium charged by National that year was $24.
As regards the varying amounts expressed in the position bond, during each year, defendant made an annual report under oath to the Auditor of Public Accounts of Illinois in which he set forth the total assets of plaintiff. During the years from 1946 to and including 1957, in which this position bond remained in effect, the assets of plaintiff as thus reported by defendant varied from $27,143.65 in 1948 to $41,352.45 in 1957. During each of these years, the Auditor had issued schedules indicating minimum bond requirements for credit unions. For the years 1948 to and including 1957, this official minimum requirement for defendant's bond as Treasurer of plaintiff Credit Union was $6000. As above indicated, the minimum of the treasurer's bond was fixed by the Auditor at $6000 from 1948 to and including 1957. However, from 1948 to 1951 inclusive, the bond actually remained at this level; but, from 1952 to 1957 inclusive, defendant's bond was given in the amount of $10,000. Thus, from 1952 to and including 1957, the schedules reflected an increase in the liability on the bond to $10,000. In each instance, the board of directors of plaintiff duly approved these expressed amounts of coverage on defendant's bond. Ill. Rev. Stat. 1951, ch. 32, par. 8. See also Ill. Rev. Stat. 1955, ch. 32, par. 13.
During the latter part of 1957, the Auditor of Public Accounts requested a change in the type of bond then being used. This change was not initiated or requested by plaintiff or by National but originated entirely from the Auditor's office. The Auditor required that plaintiff obtain a blanket bond and that the surety on the bond notify the Auditor when this had been issued, with information as to the date and number of the bond. This request was made in writing and also contained a direction that plaintiff was required to obtain a blanket bond in the sum of not less than $8000.
Accordingly, plaintiff made a written application to National for the issuance of a blanket bond to be effective February 28, 1958, in the amount of $8000. This bond was actually executed by National and bears No. 3065971. The pertinent provisions thereof will shortly be stated. This type of blanket bond remained in full force and effect until June 1, 1965. In 1958, it was in the amount of $8000; but, upon each and every annual renewal thereafter, the coverage on this blanket bond was raised to $10,000 and it remained in that amount to and including June 1, 1965. The Department of Financial Institutions and plaintiff and National treated this blanket bond as being renewed each year.
During each year in which the position bond and the blanket bond remained in force and effect, they were always in form and amount approved by the Auditor of Public Accounts, or, in later years, by the Director of Financial Institutions. As we will later observe, plaintiff claims that neither the position bond nor the blanket bond were in proper statutory form and that the Auditor or the Director therefore could not legally approve them. This contention, however, does not modify the fact that the Auditor and the Director actually did approve both of these bonds as to form and amount. In addition, the amount specified in both bonds originally ...