Fidelity & Casualty Co. v. Johnson , 190 Wis. 199 ( 1926 )

Rosenberry, J.

The plaintiff is a company engaged in the business of furnishing indemnity insurance. It is alleged in the complaint that the defendant was treasurer of the state of Wisconsin and by the provisions of ch. 14, Stats., was required to give a bond in the penal sum of $100,0G0 conditioned “for the faithful performance and discharge by defendant of the duties of the office of state treasurer and of all persons appointed and employed by him in his said office, and for the faithful performance and discharge of defendant’s duties as a member of the board of commissioners of the public lands of the state of Wisconsin and in the investment of the funds arising therefrom during each term of defendant’s office for the period of two years to which he was elected and in each instance until defendant’s successor should be elected and qualified;” that the bond was issued December 16, 1916, upon the application of the defendant, was duly approved and filed in the office of the governor of the state of Wisconsin on December 21, 1916. Like application was made on December 3, 1920, for like bond of $100,000.

The complaint alleges “that as a part of the consideration for plaintiff’s becoming surety on each of said bonds defendant in each of said applications covenanted and agreed to indemnify plaintiff against any losses, damages, costs, charges, and expenses it might sustain, incur, or become liable for in consequence of the said bond or any renewal thereof or any new bond issued in continuation thereof or as a substitute therefor;” that suit was brought by the state against certain guarantors of a state depository and as a result thereof the defendant and the plaintiff were made parties to the suit. (The facts and circumstances in connection with that matter are fully set out in State v. Johnson, 186 Wis. 59, 202 N. W. 319, and need not be restated here.) That the plaintiff paid out for attorneys’ fees, disbursements, costs, charges, and expenses the sum of $812.29 in defense of the action. This action was begun to recover thé amount of such attorneys’ fees, disbursements, costs, charges, and expenses which the defendant refused to pay. The defendant demurred to the complaint, the demurrer was overruled, and from the order overruling the demurrer the defendant appeals.

It is contended by the defendant that the contract by which- the defendant agreed to indemnify the plaintiff against loss, damages, costs, charges, and expenses which it might incur or become liable for in consequence of said bond is void for the reason that it is against public policy. It may be conceded without argument that contracts contrary to public policy are void. We find no substantial basis for the claim that this contract is void. The argument is that because the surety has an agreement by which the principal agrees to indemnify it for costs, expenses, and charges which it may incur in consequence of the bond that the state treasurer will by reason of that fact be induced not to deposit state funds in banking institutions designated as state depositories which in the opinion of the state treasurer are not perfectly safe, because if he does so he may be sited with his bondsmen and so become liable for costs. If the agreement between the state treasurer and the surety .tends to encourage the state treasurer to deposit state funds in institutions that are perfectly safe, 'we see nothing contrary to public policy in that. The weaker depositories have no vested right to a deposit of state funds. The principal was at common law by implication liable for costs and expenses incurred by the surety in defending himself against liability. 32 Cyc. 274, and cases cited. The state treasurer is required by law, as a condition of holding his office, to secure the state against loss by reason of his improper handling of state funds. The surety comes forward and for a consideration agrees to so indemnify the state, and as a part of the arrangement the principal agrees to reimburse the surety for losses and expenses incurred in consequence of the bond. We fail to see anything in this transaction which is in the slightest degree contrary to public policy. The fact that the treasurer is required to reimburse the surety in case there is liability under the bond tends to make him more careful in the discharge of his duties rather than less careful. The bond was issued upon a valid consideration. The principal as an inducement for the issuance of the bond agreed to reimburse the surety for disbursements and expenses incurred in consequence of the bond. While the treasurer performed his duties and there was no liability and no breach of the conditions of the bond, except for the bond the surety would have incurred no liability for costs and disbursements. It necessarily follows that the liability was incurred in consequence of the bond. The language is very broad, is not restricted, and is intended to make the principal primarily liable. If it was the intention of the parties to make the principal liable only in case there was a breach of the conditions of the bond, that limitation should have been included in the language of the application.

By the Court. — The order appealed from is affirmed.

Stevens, J., took no part.