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FIRST HAYS BANSHARES3/7/1989
The opinion of the court was delivered by
This case arises from banker's blanket bonds issued by the defendant, Kansas Bankers Surety Company. The
plaintiff, First Hays Banshares, Inc., (Banshares) brought the present action against the defendant, contending that it improperly denied coverage under the bonds for various misdeeds perpetrated by one of the directors of a bank owned by the plaintiff. The defendant, Kansas Bankers Surety (KBS) appeals various rulings by the trial court.
The facts underlying the present case may be briefly summarized. The banker's blanket bonds in question were issued to a bank owned by Banshares, First National Bank of Hays City (First National). The two bonds, issued with an effective date of July 25, 1984, are designated Bond No. 1570KR and Bond No. 28-4670. Bond No. 1570KR provides a stated liability limit in the amount of $1,050,000, subject to a $1,000 deductible. Bond No. 28-4670 provides a stated liability limit of $1,000,000, subject to a deductible in the amount equal to the coverage provided by Bond No. 1570KR.
Steven D. Pratt was a member of the board of directors of First National and a member of the directors' compliance and discount committees. In 1984 and 1985, Pratt obtained several loans from First National, allegedly secured by a purchase money security interest in cattle. It was later discovered that the cattle did not exist. In addition, Pratt deposited several insufficient funds checks for substantial amounts with First National. First National discovered Pratt's activities on July 17, 1985.
The present action arose after KBS, on August 13, 1985, denied coverage for First National's losses arising from Pratt's activities. Banshares, which purchased Pratt's obligations from First National, filed the present action against KBS on June 3, 1986. On May 4, 1987, the district court granted partial summary judgment on behalf of Banshares, finding that Pratt's activities at First National were covered within the scope of the banker's blanket bonds issued by KBS. The jury returned a verdict of $5,269,959.81 on behalf of the plaintiff. This award reflects direct, actual damages in the amount of $1,497,834.23, and consequential damages in the amount of $3,772,125.58. Additional facts will be discussed as relevant to determine the issues herein.
The defendant contends that the district court erred in denying summary judgment on its behalf, based upon a settlement agreement between Pratt and First National. The September 18,
1985, settlement agreement reflects an agreement between Pratt and his father, Don Pratt, and five banks, including First National. Under the terms of the agreement, Don Pratt agreed to pay First National $1.6 million. In exchange, First National "agreed to fully and completely release any and all claims against Steven D. Pratt, his family, or any business organization controlled by the Pratt family." KBS contends that the September 18 settlement agreement releases it from any liability under the bond by creating a complete "circle of indemnity," and by violating the terms of the bonds.
We first consider the defendant's circle of indemnity argument. In support of its argument, KBS relies on Dennis v. Southeastern Kansas Gas Co., 227 Kan. 872, 610 P.2d 627 (1980). In Dennis, the plaintiffs brought a personal injury action for damages suffered in a gas explosion against the City of Moran, Kansas, and against the gas company supplying gas to the city. The city ordinance granting the gas company a franchise for the supply of gas to the city and its inhabitants required the gas company to hold the city harmless for any liability arising from the su
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