In the 1917 case of Brogan v. National Surety Company, the U.S Supreme Court was tasked with determining whether a surety company could be held liable for losses incurred due to fraudulent acts committed by an employee who had been bonded by that company. The plaintiff, Brogan, argued that he suffered financial loss as a result of his bookkeeper's embezzlement and sought compensation from National Surety Company under the fidelity bond they issued covering said employee. However, it was revealed during proceedings that Brogan knew about previous instances of dishonesty on part of this bookkeeper but failed to inform the surety company when obtaining the bond. The court ruled in favor of National Surety Company stating that if an employer knowingly employs someone with a history or tendency towards dishonest behavior without informing their insurer (the bonding agency), then any subsequent losses caused by such behavior cannot be claimed against them because they were not given full disclosure at time of issuing coverage.

In the dissenting opinion for Brogan v. National Surety Company, it was argued that the majority's decision to allow an insurance company to avoid paying a claim due to misrepresentation in the application process contradicted established legal principles. The dissent contended that if an insurer wishes to deny coverage based on false statements made by the insured during application, they must prove not only that these falsehoods were material but also fraudulent - meaning there was intent behind them. In this case, according to dissenters, no such proof of fraudulence had been provided; therefore, denying payment seemed unjustified and unfair towards policyholders who may make innocent mistakes or omissions when applying for insurance coverage.