[1] The legal nature of the fidelity Guarantee Insurance (=business liability insurance) with which the insured is liable to compensate for the loss caused by the insured's legal liability due to the act of the surety(s)

[2] In case where a securities company is liable for damages caused by an employee's excessive trading, and the insured event under the fidelity Guarantee Insurance Contract occurs, whether the insurance company can deduct the transaction fees expected to occur when it engages in normal discretionary trading from the insurance proceeds to be paid to the insured securities company (negative)

[3] In a case where a securities company is liable for damages equivalent to the above excessive fees paid to a damaged customer by receiving an excess fee received from a customer who did not engage in the normal discretionary trading due to an employee's excessive trading, whether an insurance company which entered into a contract of fidelity guarantee may deduct the amount equivalent to the above excessive fees from the insurance amount to be paid to the insured securities company (negative in principle)

[4] Whether the insurer's liability to pay insurance can be limited on the ground that a fidelity guarantee insurance contract with the nature of a business liability insurance is negligent in managing and supervising the guarantor (negative)

[1] In cases where a guarantor is subject to compensation pursuant to the additional risk burden clause (Ⅰ), which applies to a contract for fidelity Guarantee Insurance, where the insured is determined as the subject of compensation by a direct damage to the insured (including any damage suffered by the insured due to his/her gross negligence or failure to perform his/her responsibility as a good manager in the course of performing his/her duties for the insured, the insurer's agreement to compensate for the damage suffered by the insured as a result of his/her legal liability as a result of the insured's act as a principal guarantor, not the insured's act as a principal guarantor, but the third party's damage suffered by the insured's loss due to the insured's act as a principal guarantor. Thus, the insured's liability insurance is a type of business liability insurance (Article 721 of the Commercial Act).

[2] Where a securities company entered into an all-inclusive contract with a customer with a securities company, thereby causing damage to its customer by putting its employee on the part of violating the duty of loyalty and unfairly frequent trading, and as a result, the securities company bears the liability to compensate for damages, and thereby the insurance company is obligated to pay the insurance money to the securities company, the insured, within the limit of the insurance coverage amount with respect to the “damage suffered by the securities company due to the above insured event” as to the “damage suffered by the securities company due to the above insured event.” Meanwhile, the insurance company’s employee is obligated to pay the insurance money to the insured company within the limit of the insurance coverage amount. On the other hand, the trading commission that is anticipated from a securities company’s employee who entered into a normal contract without making an over-sale contract, as a matter of course, to the expenses incurred by the securities company in conducting the business on consignment sales of stocks

[3] In the event that a securities company receives an excess fee from a customer who suffers from an excessive trading due to an excessive trading of employees, the insurance company that entered into a contract for fidelity guarantee shall be liable for damages equivalent to the excessive trading to the customer who suffered from the excessive trading. As such, the insurance company that is the insured and the guarantor who is its employee agreed to compensate for the loss incurred by the insured as a result of the insured’s failure to perform its liability as a serious fault or good manager in the course of performing its business on behalf of the insured, and the insured is not entitled to compensate for the loss caused by the insured’s burden of legal liability as a good manager, and the insurance company shall not, in principle, deduct the liability equivalent to the excessive trading from the insurance amount that is to be paid to

[4] In a contract of fidelity guarantee insurance with the nature of a business liability insurance, even if there is a negligence in managing and supervising an employee who is the insured, it is not permissible to limit the insurer's liability to pay insurance proceeds in light of the nature of the insurance aiming at compensating the insured's loss. Thus, insurance proceeds cannot be reduced in accordance with Article 6 (3) of the Act on the Guarantee of Personal Identity or the good faith.

[1] Article 721 of the Commercial Act / [2] Article 721 of the Commercial Act / [3] Article 721 of the Commercial Act / [4] Article 721 of the Commercial Act, Article 6 (3) of the Guarantee of Secrecy Act

[1] [4] Supreme Court Decision 2002Da30206 delivered on September 6, 2002 (Gong2002Ha, 2405) / [2] Supreme Court Decision 2002Da72804 Delivered on June 27, 2003

Samsung Securities Co., Ltd. (Law Firm Barun, Attorneys Choi Ho-ri et al., Counsel for the defendant-appellant)

Seoul Guarantee Insurance Co., Ltd. (Law Firm Democratic, Attorneys Yoon Jin-young et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2004Na41165 delivered on January 28, 2005

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. Whether the profit or loss of the transaction commission is offset;

According to the Additional Risk Liability Clause (Ⅰ), in addition to the damage provided for in Article 1 of the General Conditions for Identity Guarantee Insurance, the insured's direct damage to the property (including the loss caused by the insured's legal liability for damages due to the above reasons) caused by the insured's failure to perform his/her responsibility as a good manager in dealing with the business on behalf of the insured. The part of the insurer's agreement to compensate for the loss caused by the insured's legal liability is not to compensate for the loss directly caused by the insured's act as the principal, but to compensate for the loss caused by the third party's legal liability as a result of the insured's act as the insured's act as the principal and the third party's loss is to compensate for the loss caused by the insured's legal liability against the third party (see Supreme Court Decision 2002Da30206 delivered on September 6, 2002).

As a result of the conclusion that a securities company entered into an all-inclusive contract with a customer, where the employee incurred loss to the customer by performing an employee’s over-the-counter transaction with respect to his/her breach of duty of loyalty, making it difficult and unreasonable, and the securities company bears liability to compensate for the loss caused by the employee’s over-the-counter transaction, the insurance company is obligated to pay the insurance money to the insurance company, which is the insured, within the scope of the insured amount, for the “loss caused by the above-mentioned insured event.”

Meanwhile, even if an employee of a securities company did not make an excessive sale as above, it shall be deemed that a normal contract was made by an employee of a securities company, and trade commission that is expected to have occurred when normal contract transactions were conducted shall be deemed to have been naturally obtained as a result of stock transaction, as expenses incurred by a securities company in conducting the business of buying and selling stocks on consignment. Thus, it shall not be deducted from the insurance amount to be paid by the insurance company to the insured (see Supreme Court Decision 2002Da72804, Jun. 27, 2003, etc.).

In addition, in the event that a securities company receives an excess fee from a customer who suffers from an excessive trading that is not caused by an excessive trading of employees, the securities company shall be liable for damages equivalent to the excessive trading to the customer who suffered from the excessive trading. As such, the insurance company agreed to compensate for the loss suffered by the insured as a result of the insured’s failure to perform his/her responsibilities as a serious fault or good manager in handling the business on behalf of the insured by an insurance company to compensate for the loss caused by the insured’s loss. Unless the insured is excluded from the liability for damages equivalent to the excessive trading fee or is excluded from the insurance clause, etc., the insurance company shall not, in principle, deduct the excess trading fee from the insurance amount to be paid to the insured. The securities company uses the trading fee from the customer to the Korea Stock Exchange, personnel expenses and piece rate for employees, the securities company’s physical facilities and management expenses, etc. The insurance company shall use the remainder as profits of the securities company. Meanwhile, in preparation for various risks arising from the business owner’s business, the insurance company shall be held liable for the insurance company’s loss and profit from the above business act.

After compiling the evidence adopted by the court below in its decision, it is justified in rejecting the defendant's assertion that non-party 1 and 2, the guarantor, suffered by the plaintiff in the course of a revolving sale or a voluntary sale, etc., due to the same cause as the insurance accident. In conclusion, it is not erroneous in the misapprehension of legal principles as to the offsetting of profit and loss of transaction fees. The defendant's ground of appeal on this part is not acceptable.

2. Whether to restrict or reduce identity guarantee insurance money;

As seen earlier, even if an insurance contract with the nature of a business liability insurance was negligent in the management and supervision of an employee who is the insured in the context of a business liability insurance, limiting the insurer’s liability to pay the insurance proceeds in light of the nature of the insurance aiming at compensating the insured’s damages (see Supreme Court Decision 2002Da30206, Sept. 6, 2002), and thus, the insurance proceeds cannot be reduced in accordance with Article 6(3) of the Guarantee of Secrecy Act or the good faith principle.

In the same purport, the court below is just in rejecting the defendant's assertion that the plaintiff's negligence on the management and supervision of the insurance accident of this case caused damages to this part, and thus, the defendant company's liability to pay insurance proceeds should be limited in light of the good faith principle, and the defendant's assertion that the defendant company's liability should be reduced in consideration of the plaintiff company's employees' negligence free of charge under Article 6 of the Guarantee of Personal Identity Act, and there is no violation of law by misunderstanding the legal principles as to whether Article 6 of the Guarantee of Personal Identity Act is applied or applied by analogy

3. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Kim Young-ran (Presiding Justice)