National Surety Co. v. Winston — 161 A.D. 594

Majority

p. 594

National Surety Company, Respondent, v. James O. Winston and Thomas S. Winston, Copartners Composing the Firm of Winston & Company, and MacArthur Brothers Company, a Corporation, Appellants.

First Department,

April 3, 1914.

Headnote

Insurance — undertaking guaranteeing due performance by municipal contractor — reinsurance after insolvency of original insurer—when contractor liable to assignee for premiums.

Where a municipal contractor, for an annual premium, induces an indemnity company to give an undertaking running to the city of New York insuring the proper performance of the contract, and the surety company on its insolvency reinsures all its risks with another company,

p. 595

assigning to it all indemnity agreements, and the assignee agrees to fulfill all outstanding contracts of the insolvent, the assignee can recover premiums due from the municipal contractor.

Under such circumstances the precedents holding that when an insurer becomes insolvent, or reinsures its policies, it breaks its contract with its policyholders, have no application, for it is the municipality which is insured rather than the contractor. And this is true although the municipality was not a party to the contract, if it did not call upon the contractor to substitute other security.

Appeal by the defendants, James 0. Winston and another, copartners, etc., and another, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 28th day of November, 1913, upon the decision of the court after a trial before the court at the New York Trial Term, a jury having been waived.

A. T. Clearwater, for the appellants.

William R. Page, for the respondent.

Defendants were awarded a contract to construct a portion of the new aqueduct for the city of New York.

They gave the city an undertaking of the Empire State Surety Company in the sum of $80,000, and at the same time executed an agreement to indemnify the surety company and to pay it an annual premium of $1,200 payable in advance on the 20th day of September, 1907, afterwards changed to the twentieth day of February in each year. The Empire State Surety Company became insolvent and is now in process of liquidation. '

On September 18, 1912, the Empire State Surety Company reinsured all of its risks with plaintiff and assigned to it all of its good will, agreements of insurance and reinsurance, indemnity agreements and the like, plaintiff agreeing on its part to assume and fulfill all the outstanding contracts of the Empire State Surety Company.

Neither the city of New York nor defendants were parties to this agreement, nor so far as appears have consented to it; but, on the other hand, it does not appear that the city has called on defendants to substitute other security.

p. 596

This action is for the premium which fell due February 20, 1912, which defendants refused to pay.

The appellants argue that by becoming insolvent the Empire State Company necessarily broke its contract with the city of New York to insure defendants’ faithful performance of their contract, and consequently that the contract of indemnity failed of consideration to support it.

This argument is supported by a line of cases holding that an insurer or casualty company upon becoming insolvent or reinsuring its policies breaks its contract with its policyholders and that they are not required to go on paying premiums or to accept the substitution of the reinsuring company.

The analogy is not perfect, however. Defendants are not, in the usual sense, policyholders of the Empire State Company. That company does not insure defendants. Its agreement with them is that it will' insure the city of New York against any default on the part of defendants. If the city is content to accept the substituted surety, as it appears to be, defendants get all that they contracted for. So long as the city is satisfied, it can make no difference to defendants who the city accepts as surety. If it accepts any one the defendants have received consideration for their indemnity agreement.

The Empire State Company still exists and is still liable upon its bond, and for all that appears its bond is perfectly good notwithstanding its insolvency. It has simply superadded to its own responsibility that of plaintiff, and it or its assignees are entitled to enforce the indemnity agreement.

The judgment appealed from is affirmed, with costs.

Ingraham, F. J., Clarke, Dowling and Hotchkiss, JJ., concurred.

Judgment affirmed, with costs.