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04/13/88 Aetna Casualty and Surety v. Oak Park Trust and Savings

April 13, 1988

AETNA CASUALTY AND SURETY COMPANY, PLAINTIFF-APPELLEE AND CROSS-APPELLANT

v.

OAK PARK TRUST AND SAVINGS BANK, DEFENDANT-APPELLANT AND CROSS-APPELLEE



APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, THIRD DIVISION

523 N.E.2d 117, 168 Ill. App. 3d 1000, 119 Ill. Dec. 649 1988.IL.521

Appeal from the Circuit Court of Cook County; the Hon. Thomas R. Rakowski, Judge, presiding.

APPELLATE Judges:

JUSTICE McNAMARA delivered the opinion of the court. RIZZI and FREEMAN, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE MCNAMARA

Defendant Oak Park Trust and Savings Bank appeals from the entry of summary judgment in favor of plaintiff Aetna Casualty and Surety Company on plaintiff's claim seeking to recover restitution payments which plaintiff maintains were improperly paid to defendant in contravention of the provisions of a banker's blanket bond. On appeal, Oak Park Trust claims that the trial court erred in not finding that Aetna was estopped from asserting the provisions of the bond which entitled Aetna to first recovery. Oak Park Trust also appeals from the trial court's grant of summary judgment in favor of Aetna on Oak Park Trust's counterclaim seeking additional recovery on its original coverage claim under the bond. Aetna cross-appeals from that portion of the trial court's order denying prejudgment interest.

Oak Park Trust purchased a banker's blanket bond from Aetna. According to the terms of the bond, Aetna agreed to indemnify Oak Park Trust for certain losses, including losses that met the terms of "dishonesty" as defined by the bond. Oak Park Trust suffered a loss as the result of a fraudulent loan for $185,000 made by a former bank employee to Vernon Brandt. Oak Park Trust filed a claim with Aetna seeking $129,500 as the loss resulting from this transaction less the bond deductible of $25,000, for a total claim of $104,500. In response to Oak Park Trust's claim, Aetna stated that the portion of the loan which was repaid and was applied to interest before the fraud was discovered should have been applied to the principal, because the bond did not cover "potential income, including but not limited to interest and dividends." Aetna thus paid Oak Park Trust $81,432.81 on its claim.

Upon accepting payment, Oak Park Trust signed a release and assignment, by which it agreed to release Aetna from further liability for all matters included in the proof of loss and assigned to Aetna all of its claims and rights growing out of the loss.

The bond on which Aetna paid Oak Park Trust stated that in regard to recovery of a loss, any such recoveries "shall be applied first in reimbursement of the Underwriter and thereafter in reimbursement of the Insured for that part of such loss within such Deductible Amount."

Vernon Brandt, one of the participants in the fraudulent loan scheme, was convicted of certain Federal offenses. The terms of Brandt's probation required him to make restitution, and Brandt began making payments to Aetna in 1981. Between 1981 and 1985, Aetna received $40,000 in restitution from Brandt.

In 1984, Oak Park Trust appeared at a status hearing on Brandt's probation before Judge Marshall in the United States district court. Judge Marshall had imposed Brandt's sentence and was supervising his probation. Apparently, Brandt had fallen behind in his restitution payments to Aetna and Oak Park Trust was concerned about recovering at least its deductible and, if possible, the additional amount of its claim denied by Aetna. Aetna did not attend this status hearing or a subsequent hearing in January 1985. At the first status hearing, Judge Marshall ordered that restitution in the amount of $25,000, the amount of Oak Park Trust's deductible, be paid to Oak Park Trust even though Aetna had not received its full restitution. When Aetna protested to Judge Marshall by letter, the Judge, who had expressed reservations about his authority to enter the order, told Aetna to come in on a motion to vacate his order. Aetna did not appear. Oak Park Trust was responsible for having Brandt's probation extended two years, in which he made additional restitution. Oak Park Trust received three payments from Brandt totaling $25,000. Oak Park Trust did not comply with Aetna's demands to turn these payments over to it.

On November 13, 1985, Aetna filed this action asserting that it was entitled to the $25,000 in restitution that Judge Marshall ordered be paid to Oak Park Trust. Oak Park Trust filed a counterclaim for the $23,067.19 in interest for which Aetna had denied coverage. Oak Park Trust also filed affirmative defenses stating that Aetna should be estopped from asserting the recovery provisions of the bond or the release because it failed to proceed against Brandt.

The trial court granted summary judgment in favor of Aetna on its original claim and an Oak Park Trust's counterclaim. The trial court also denied Aetna's motion seeking prejudgment interest. Oak Park Trust has appealed the order granting summary judgment and Aetna has cross-appealed that portion of the order denying its request for prejudgment interest.

On appeal, Oak Park Trust does not dispute that the provision of the bond would entitle Aetna to first recovery or that it executed a release and assignment which released Aetna from further liability. Rather, it maintains that Aetna has waived or is estopped from asserting this ...


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