Zurich Insur. Co. v. Friedlander

Hammond, C. J., delivered the opinion of the Court. Jack L. Friedlander, an active practicing lawyer, a former active accountant, and an investor with a net worth of several million dollars, sued Zurich Insurance Company, which had issued to him and his wife a so-called Homeowners Policy that carried a “Credit Card and Depositors Forgery Coverage Endorsement,” under which the company agreed to indemnify the insureds up to $10,-000 for loss resulting from the forgery of a check or checks, claiming that during the period the policy was in force he had lost over $10,000 by virtue of checks drawn on his personal account which his private secretary forged and cashed. The company defended primarily on the ground that the coverage provided by the endorsement was limited by an exclusionary clause that reads: “This endorsement does not apply to any loss arising out of the issuance of any checks, the acceptance of any counterfeit money or the misappropriation of any credit card in the course of the prosecution of the business, occupational or ⁶¹⁴ commercial pursuits of the Insured (unless issued or registered in his name and unless he is' personally libel thereon or therefor) or to loss caused by dishonesty of any Insured,” and that the bank account on which the forged checks were drawn was not only a personal account but also was used by Friedlander for the deposit of income from investments, including joint ventures in real properties, and for the drawing of checks for new investments, and therefore the losses sued for arose, in the words of the exclusionary clause, out of the issuance of checks “in the course of the prosecution of the business, occupational or commercial pursuits of the Insured.” Judge Pugh, sitting without a jury, held that the bank account was a personal checking account, and the fact that on occasion checks were received from and drawn to pay for investments did not make the account one maintained as part of a business, occupational or commercial pursuit, and gave judgment for Friedlander against Zurich for $10,000. The Zurich policy was succeeded by a policy of Maryland Casualty Company that contained identical "forgery coverage and an identical exclusionary clause.

Friedlander sued Maryland Casualty for the losses that had occurred during the period its policy was in force and the case went to trial before Judge Levine and a jury. At the conclusion of the plaintiffs’ case, Maryland Casualty elected not to offer testimony and Judge Levine, noting that there was no dispute of material fact, held as a matter of law that the exclusionary clause did not exonerate the insurer and directed a verdict for Friedlander. Each insurance company appealed and the appeals were consolidated in this Court and argued together. We find that both cases were rightly decided below and will affirm the respective judgments.

The pertinent facts are few and simple. Friedlander is a senior partner in a Washington law firm. In early 1965 the firm employed a young lady who became Friedlan ⁶¹⁵ der’s personal secretary. She was paid by the firm but she worked almost exclusively for Friedlander.

She took over his personal check book and drew all checks on his personal bank account and presented them to him for signature since he alone could sign checks on the account. The firm had various bank accounts, all of which were audited by accountants. The personal account was not audited. Legal fees went into a firm account.

Much of Friedlander's “draw” from the firm of $500 a week and the income and principal repayments from his investments went into his personal account. From that account all his personal and family bills were paid, including the chauffeur’s pay, his mother’s bills in a nursing home, and many of his household expenses. From time to time checks were drawn on the personal account to pay for investments in corporate stock or real estate ventures. Fried-lander leaned heavily to investments in improved real estate because of their tax advantages, under which he enjoyed a heavy cash flow which did not currently become subject to income taxes because the depreciation on the real estate could be deducted.

Soon after her employment, Friedlander’s secretary began to forge checks on the personal account. She would draw a check from the back of the check book to her own order, sign Friedlander’s name, endorse it for deposit and put it in her own bank account. Over the years from 1965 to 1969 she stole some $42,000