In the case of Royal Indemnity Co. et al. v. American Bond & Mortgage Co., the U.S Supreme Court was tasked with determining whether a surety company could be held liable for losses incurred by a mortgage company due to fraudulent actions committed by an employee of said mortgage company, who was under bond from the surety firm. The court ruled in favor of Royal Indemnity, stating that they were not responsible for covering these losses as their agreement only covered faithful performance and honesty on part of bonded employees during their regular duties within employment terms; it did not extend to cover damages resulting from fraud or dishonesty outside those parameters.

In the dissenting opinion for Royal Indemnity Co. et al. v. American Bond & Mortgage Co., Justice Stone argued that the majority's decision to hold an insurer liable for losses incurred by a mortgage company due to fraudulent acts committed by its employees was incorrect and inconsistent with previous rulings of similar cases. He contended that the insurance policy in question did not cover such losses as it only provided coverage against dishonest or fraudulent acts "committed on premises" where business is conducted, which he interpreted as physical locations rather than abstract entities like corporations or businesses themselves. Furthermore, he pointed out that there were no explicit provisions in the policy covering losses resulting from frauds perpetrated through mail correspondence, which was how this particular fraud had been carried out.