Jorski Mill & Elevator Co., Inc., and Millers Mutual Insurance Association of Illinois v. Farmers Elevator Mutual Insurance Company
404 F.2d 143
10th Cir.
1968
Check Treatment

*2 MILLER*, agreed K. Jorski Before WILBUR storage agreement SETH, providing Circuit BREITENSTEIN coverage. coverage, Judges. Of $947,000 allotted to Jorski and it Judge. BREITENSTEIN, premium Circuit thereon. *3 shortage ensuing Elevator Appellee-plaintiff Farmers the de- After Company paid the mand, Insurance It Mutual CCC claim. Farmers the agen- Commodity Corporation, an Credit then and Millers reeov- sued Jorski States, against cy loss sus- joint judgment for a of the United ered a and several appellant-defend- by $49,835.25 the failure of inter- tained them in the sum Inc., ant Jorski Mill Elevator est. by obligations it under perform assumed appeal little need be 0n the of Jorski Agreement Storage a Uniform Grain only explanation short- said. the Its Farmers with CCC. it had made whieh wag age speculation due that was fhe surety, appellant-de- sued Jorski and correctly theft, re- f0 trial court Asso- Mutual Insurance fendant Millers says jeeted Jorski that this defense. Illinois, the amount ciation of to recover coverage by was Farmers judgment paid. appeal The from paid part benefit because it favor Farmers.1 premium. that the amend- The answer is storage agreement provides agreement storage with Jorski not that re- the additional applicable federal was made under Heve a ob- his June effective on statutes and became ligations or statute, inure his benefit. required by the 1960. As a Jorski furnished CCC with warehouse- argues may not Jorski that ccc bond, May 23, man s dated charges storage un recover penal $100,000, increased to sum of later ground on that delivered wheat surety. $105,000, On as finding Shortage Review Commit Jorski, April 8, 1964, was demand when shortage tee not due to nor was that made, 19,000 by about bushels failed maj warehousing practices and Prudent stored CCC. load out the wheat with it Procedure violates Administrative Shortage of CCC Review Committee a hear Act3 because was not afforded shortage non- determined jng_ Act Procedure The Administrative operational nor- result and did not “applies only agency action warehousing practices. prudent mal and preceded agency provides must statute In to re- a CCC is entitled situation hy hearing.” No has a statute storage charges theretofore cover requires a our called to attention which grain paid by it as on the undelivered hearing before determination grain. well as the value Moverover, Shortage Review Committee. agreement pro 17(d) storage study, § after an extensive may determine whether greater vides bond determined that it needed disposition grain contrary grain than its stored “resulted from normal provided by warehouse- the standard prudent warehousing practices.” 19,1963, CCC and June bonds. On men’s styled a contract argument entered into Policy,” “CCC Blanket Insurance of CCC penal By $50,000,000. sum of frivolity, Jorski borders day, the same effective pay as volunteer * Circuit, sitting Of the District Columbia Act, 2. See United States Warehouse by designation. §§ U.S.C. 241-273. seq. 3. et U.S.C. opinion court, 1. trial Farmers Ele See Udall, U.S.App.D.C. 396, Mill & Ele vator Mut. Ins. Co. Jorski LaRue v. Co., W.D.Okl., F.Supp. vator contractually because it was bound to entity same loss the same upon the default Jorski. covered the Millers with the result that Farmers and Millers were controversy The real is be propor- cosureties must bear loss tween the two carriers. The tionately. policy general- The Farmers insuring contract issued Farmers to ly, policy specifically, and the Millers cov- unique. designated It CCC is a “blan risk, ered the same violation of ware- policy.” expression ket insurance agreement, protected house obligee, the same policy” “blanket terma of art in the the CCC. The Millers “contemplates insurance field and principal, covers the default of a named shifting, fluctuating vary the risk is Jorski, and the Farmers covers the ing, applied property to a class of “any per- failure of warehouseman” to any particular rather than risk obligations imposed by form the *4 stor- 5 thing.” ordinarily policy A blanket is n age agreements. The elements of co- regarded as excess over and insurance suretyship, obligee, principal, same and specific above insurance6 and not does risk, present, presence apply specific until has these elements must be considered in policy been exhausted.7 The Farmers is connection with other facts. specific provi different in that it has a policy expressly permits The Farmers payment prompt sion for to CCC. The provides: other and only requirement on that it “make CCCis efforts, Subrogation. reasonable litigation” short of In the event pol- The payment to collect. Farmers icy applies immediately not does shall, per- and insurer to the full extent specific await the exhaustion of the in- subrogated law, mitted be to all of rights surance. recovery CCC’s therefor against the warehouseman and paid at bar the case person legal entity other or other promptly. Its insured has been satisfied payment.” the extent of such litigation. appear and not in this does Upon payment by Farmers, right question of Farmers to agreed that: recoup Millers and amount of “ recoupment. * * * Farmers Elevator Mutual Company Insurance Millers makes two contentions. law, permitted by the full extent as First, says that Farmers a claim provided in such Blanket Insurance which was not within Policy, to all of CCC’s recov- that a not en volunteer is ery Millers Mutual Insurance subrogation. point titled to is with Association, other or out merit. trial court found a “fail legal entity other to the extent of such approxi ure of Jorski to load about the 8 payment.” mately 19,000 bushels of CCC wheat.” of the failure a violation ware By terms of its liability house and within the right subrogation Farmers had the provisions policy. of the Farmers and that confirmed urged The second contention that if action gation Farm- of CCC. It is that subro policy, may ers equitable was liable under its covered doctrine and Burlington Fidelity 5. National Bank of v. Appleman, 6. 6 Insurance Law Prac- Casualty York, Cir., 4 Co. of New 125 3912, tice, p. § 300. 920, 924, F.2d 140 A.L.R. 694. See also Co., 7. Wilson & v. Co. Hartford Fire Ins. v. Reliance Ins. Orleans Parish Co. 1, 266, Mo. 300 254 S.W. 282. 805-806, Board, Cir., 803, F.2d School 322 916, S.Ct, rt. denied 377 U.S. ce 1180, Farmers Elevator Mut. Ins. Co. Jor- v. 186, Appleman, 12 L.Ed.2d and 6 Co., W.D.Okl., ski Mill & Elevator Practice, p. 3912, F.Supp. 755, Insurance Law and Recognition Millers were so contract Farmers contract. not created be may subrogation there and between cosureties principle cosureties of the may only proportion to contract, independently contribution arise, penalties policies.11 The diffi- legal equitable considerations or culty position subrogation may arise fails with this not mean distinguish Indeed, and a two between a there are out of contract. legal supplemental subsurety, equita subrogation, (1) or or kinds of ble, (2) Conventional conventional. stipulate A subrogation of an reason arises subsurety suppiemental provided or agreement.9 express implied duty no is under to assume a ^ & In Accident in Hartford statements greater liability stipulation and that demnity Trust Bank & Co. First Nat. obliga inequitably increase win not 71; Co., Cir., 69, Pearlman surety.12 of another Here Ins. U.S. Reliance ajready bound Memphis & 9 L.Ed.2d 190 S.Ct. ba(j existing duty The is no to Millers. Dow, 120 U.S. Rock R. Little R. Co. v. SUance of the in 301-302, 30 L.Ed. 7 S.Ct. obligation In such crease Millers. subrogation legal equitable all refer to subsequent surety can circumstances deny subro and do not conventional conclusiveiy stipulate to the relation Subrogation gation by contract. exists *5 sbip by appropriate an manifestation in substitution one clear intent.13 Farmers its intent made place to a law another with reference subrogation, policy provision its right.10 claim, sub ful demand after The intent of ccc is clear because through may the invoca stitution occur expressly payment by Farmers, CCC subrogation or of the tion doctrine agreecj subrogated to that Farmers was may acquiesced in confirmed and rights ága¡nst the ccc MillerS-+ method is exclusive. contract. Neither “ not lack of assent Millers changed situation +tha , , ., „ . policy .... statement that the Farmers T ,. In its Farmers is immaterial. t i , , subrogated . . full exte shall be expressly notice of waived Millers nt , permitted by /,, .... law. The law reco agree- g both ys i s z modifications warehouse e n _ ,. , cosuretyship . .. and ml. The subsuret p , issued h ment. Farmers i , . . contracted to be sub y s after m to that r et Millers u , „ ,, right against . ... .... . As such its specific f which reference made to r o «, , recoupment, proportionate (cid:127) full con (cid:127) f, i x -J T. r aequisition by msur- CCC of a blanket t , , ,, , „ . ibution. policy or anee bond. AfflVTYlPil

The intent of CCC and Farmers prompt pay make should K. MILLER WILBUR Senior Circuit ment of defaults losses incurred Judge (concurring dissenting partm warehousemen and should be Pari) : from of CCC recover did, to, portion I They concur fore- had the others. subrogation. going opinion judg- conten which affirms though parties Jorski, I dissent from even N.J.Ch., 898; Brian, 897, v. Ameri Gore A. 9. Commercial Standard Ins. Co. v. 35 Cir., Appleman, Employers 11 Law and Prac- Ins. 6 F.2d Insurance can 209 tice, 6501, p. 60, 64; § Mut. Ins. Co. Dun 292. Hardware 668; woody, Cir., 666, In re Dictionary) p. 10 Black's Law 4th 1595. ed. Cir., Rogers Laundry Co., 2/5 Palace Appleman, Insurance Fidelity See Law 830; F. United States 6771, pp. Practice, Guaranty § 664-667. Slifkin, N.D.Ala., F. Co. v. 568-569; D.N.J., Lauer, Supp. In re Restatement, Security, 146(c), p. F.Supp. 691, 696; Evans’ Adm’r 737; Evans, Ky. 13. Id. 199 S.W.2d at 409 and 412. judgment against United affirmance said States Warehouse Act and gives regulations Millers, prescribed wind- undeserved the said there- majority under, obligations bases its fall to such additional Farmers. upon may I think is erroneous action what its the warehouseman as be as- supple- during period Farmers was a sumed conclusion that afore- for, cosurety surety respec- under mental instead of a said contracts with, depositors Mutual Insurance Associa- tive hereinbefore- product(s) crucial so or not tion. Whether named in such licensed case; for, warehouse(s), question any if Farmers was all modifi- Millers, en- cations of said United States Ware- Millers, Act, from under the regulations, titled to recover house and contracts pro- contribution, made, latter’s doctrine of hereafter notice portionate part or- entire loss. modifications of be- my hereby ing obligation der to dis- waived, demonstrate reasons then necessary senting, in more effect, it is to restate be null shall of no void and obliga- origin detail the and nature of the otherwise to be and remain in full companies. tions of the two and virtue.” force 23, 1963, May On Jorski executed insuring The Farmers’ clause is as fol- penal CCC a bond in warehouseman’s lows: $100,000 sum of increased —later Liability. The insurer $105,000 surety, Millers Mutual as —with any and all amounts which faithfully perform all Jorski would CCC shall be entitled recover obligations licensed warehouse- warehouseman because fail- exe- man. June On perform ure of the warehouseman to penal cuted to a blanket bond in fully obligations the Uniform $50,000,000 by promised which it sum Storage Agreement, Grain Form CCC- failure of a warehouse- answer for *6 (5-17-60), and all modifications fully obligations. perform to his Of man agreement any perform or oth- to large coverage, $947,000 additional obligations er as a in warehouseman Jorski, paid the to was allotted which connection with commodities or stored premium Thus, the thereon. thereafter * handled *. under such $1,052,000 penal total insured sum Other insurance bond performance its of Jorski’s under duties permitted covering the same risks CCC. affecting liability without obligations Farm- of the bonds policy.” (Emphasis insurer under this Millers, in ers and not identical while supplied.) language, substantially in are identical companies both Thus under- purpose; for undertake CCC both to took to answer to failure to CCC for default of Jorski’s loss because perform obligations fully performance obliga- its duties Jorski in of its as a warehouseman under Uniform Storage Uniform Grain Agreement. Storage read- Grain Agreement. nothing There ily insuring seen when clauses bond, anything Farmers’ nor is in there compared. two of the are That bonds my the record which has been called to Millers’ bond reads as follows: attention, to indicate that Farmers awas “Now, therefore, li- if said supplemental surety Millers, nor that any amendment(s) censees) thereto any purpose the bond had other than to granted principal protect be and said CCC from losses occasioned obliga- faithfully perform all of its the defaults of warehousemen. re- a tions as licensed obligation patently terms of Farmers’ lating picture dur- to entered into transactions surety only, it as a for Jorski commencing ing year period payment one and its to indicates that CCC May regarded of the follows, 1963 under terms itself as such. It there- ties, hardly fore, to Farmers’ con- would have been he content execution that Millers; inferred, attention to leave his be ait tract made particularly para- they such a doubtful at dif- sureties the fact that became graph. would instru- writer of the contract different ferent times express held, provide prevent the cre- have careful in not, been it is ments does despite language that, cosuretyship, the rela- all the indicia ation really who intended cosuretyship, sureties two or more tion between duty supplemental be sure- should for the same are bound answer ty, the Farmers’ principal, them- and if CCC had intended who as between only supplemental ex- insurance to must loss caused selves share isting suretyships, would I am sure it principal. default language upon specific have insisted majority opinion admits effect, very simply have which could “ * * * gen- policy supplied. The Farmers specifical- erally, and the Millers however, know, We risk, ly, violation covered the same so Farm- intend. It did not obtain agreement, protected warehouse surety in ers’ contract order to have obligee, Mil- the same the CCC. The existing sureties warehouse- of a default lers covers the merely men’s bonds. It wanted more principal, Jorski, Farm- named and the protection dollarwise than that afforded ‘any ers failure of covers the penal bonds, warehousemen’s perform the obli- warehouseman’ sums of were inade- concluded storage agree- gations imposed by the quate. Fortunately, the rec- we have ” ments. ord, words, in CCC’s own its reason for cosurety- taking elements of policy: “[t]he the Farmers’ to ob- risk, ship, principal, obligee, same tain a exist- the sureties present,” presence that “the ing bonds, but adds ob- warehousemen’s must considered these elements coverage, tain an ex- additional other facts.” The study connection with had tensive convinced it that majority by the provide “other fact” stated warehousemen’s bonds did not cosurety- transforming an undoubted enough coverage protect financial ship supplemental suretyship into a grain stored under Uniform interest following paragraph Farmers’ Storage agreements. said Grain policy: coverage ar- the Farmers’ blanket chose *7 rangement increase this “[t]o because Subrogation. event of “10. In the coverage bonds of individual on basis the in- payment under this the substantially increased would result in (cid:127) permitted shall, surer to the full extent The blan- to most cost warehousemen.” by law, of to all CCC’s said, CCC, coverage “the ket affords recovery of the therefor very n coverage aat increased substantial person other cost.” reasonable legal entity extent of or the other payment.” amply follow- evidenced such This is ing quotation December from a letter of My para- colleagues infer CCC: addressed to Jorski negated cosurety- graph all of the indicia your ship supplemental is “Enclosed statement and made surety. proportionate of the cost of the If the Farm- draftsman of share pol- policy, investing premium on the blanket insurance after ers’ icy. charge state- cosurety, in the enclosed all had actu- the attributes of a computed in ally accordance provide has intended to for, in surety forth supplemental formula set with the should with, existing Grain sure- Uniform of a instead “ * * * Storage Agreement you Traditionally recent- sureties ly compelled prin- pay executed in connection with their debts for policy. cipal been deemed entitled to re- have imbursement, even a con- without ago year a half “About surety promise tractual study conducted of the extensive probably here And had.12 there Commodity requirements of the bond subrogation right found- ‘The of Corporation Credit under its Uniform contract. It is a creature of ed on Storage Agreement our Grain solely pur- equity; for the enforced respect experience claims to ware- pose accomplishing of sub- the ends grain. The conclusions house-stored justice; independent stantial and is any contractual study reached in the showed a need relations between the parties.’ Memphis & L. R. R. Co. v. cover- a substantial age increase in bond Dow, [7 301-302 S.Ct. U.S. protect interest financial CCC’s 482, 488, 489, (1887).” 30 L.Ed. 595] grain under its Uniform stored than few doctrines better established Storage Agreement. in- To Grain surety pays that a debt of who on the basis crease this rights of another is entitled all result sub- individual bonds would right he enforce his stantially increased cost to most ware- rule, widely to be reimbursed. This addition, many housemen. In ware- country generally applied in this required have not been housemen who right subrogation, known as past, to furnish bond to CCC Appeals relied Court of they un- either were licensed ” * * * this case. Act or der the U. Warehouse S. licensing holding by required was a clear bonds State Su- subroga- preme equal to exceeded re- Court that the were quirements, CCC’s required tion in the Pearlman case would have been arose, upon promise to do results not from the contractual so based study. had, equities the sit- affords from the The blanket compelled increased cover- CCC the substantial uation:- fact had been age very at a reasonable cost.” the debt another. The Court more than reiterated its made statement appraise effect of order subroga- years ago “right bond, subrogation the Farmers’ clause independent con- necessary, to deter- quoted, it is above parties.” between the tractual relations pro- subrogation is form of mine what subrogation, So-called “conventional” two kinds therein. There are vided subrogation, equitable arises unlike true only subrogation recognized courts: necessarily must from contract and (a) subrogation, often call- true subrogation; equitable be different from origin “legal” or, by of its ed reason different, occasion if is no it is there subrogation; (b) “equitable” basis, by this stand- for a contract. Measured contractual so-called “conventional” ard, contractual clear that Farmers’ *8 subrogation. subrogation True pro- subrogation theory fails because the upon depend contract and arises CCC, upon of its contract with visions seeking party it equities of when right beyond relies, gave it no which it party superior equities of the subrogation. The equitable of true against sought. Ac- it Hartford whom is all, right, at existed it existed latter if Indemnity First National v.Co. cident regardless contract, as shown of Tulsa, Co. of Bank & Trust case. the Pearlman 1961). Re- (10th In Pearlman Cir. again 136-137, comparison, I For convenient 371 U.S. liance Ins. provision (1962), reproduce contractual 9 L.Ed.2d 83 S.Ct. gave says majority opinion Supreme Court said: against subrogation right of Millers: COOPERATIVE HYDABURG ASSOCIA- TION, Appellee, Libelant and Subrogation. event of In the any payment under per- COMPANY, STEAMSHIP shall, ALASKA extent to the insurer full Respondent Appellant. subrogated of by law, to all mitted No. recovery rights thereof CCC’s against Appeals United States Court entity legal other other Ninth Circuit. (My payment.” em- extent of such Nov. phasis.) right provision no confers sub- This

rogation upon beyond or above have, right might appro- circumstances, equities

priate Indeed, it does even situation.

purport enlarge benefit for Farmers’ right subrogation arises from For, in the

equitable considerations.

language emphasized, the drafts- I have pro-

man of the restricted where sub-

visions those instances law, rogation matter would arise as a contract.

even absence provision that Farmers So “to the to CCC’s permitted limits its full law” extent granted by

subrogation law having equities, party superior way no no other other and to subrogation; permit

extent does the law

anything beyond that must be con- contract, paragraph tract. language, limiting nothing gratuitous endorse- than more ordinary principle of true

ment subrogation. Why the draftsman it, say. I cannot

the contract inserted Farmers,

He have comfort wanted undertaking liability

$50,000,000, assuring

proper have the circumstances would is, subrogation in cases —that might equities. superior have where judg- foregoing, I think

From erroneous and Millers is cosurety, Farmers, an undoubted *9 judgment

is entitled to the loss calculated for its share of proportion Bayard M. (argued), Crutcher of Bo- $947,- $105,000 gle, Gates, Dobrin, Long, to Farmers’ Wakefield & Seattle, Wash., appellant.