Employers' Liability Assurance Corp. v. Reed's Refrigeration Service, Inc.

Brune, C. J., delivered the opinion of the Court. This is an appeal from a summary judgment for the plaintiff (Reed) against the defendant (the Insurance Company) in a suit under a “Comprehensive Dishonesty, Disappearance and Destruction Policy” issued by the Insurance Company to Reed, for which the premium was duly paid. The issue is whether the plaintiff’s loss through cashing a bad check for a dishonest employee was covered by the policy. The employee was prosecuted and sentenced on this and two other bad check charges.

The relevant provisions of the policy are contained in an insuring agreement and in the definitions. Under the former the insurer agreed to indemnify the insured for all loss sustained “[tjhrough any fraudulent or dishonest act or acts, committed anywhere by any of the Employees acting alone or in collusion with others, including loss of money and securities and other property through any such act or acts of ⁵¹ any of the Employees, and including that part of any inventory shortage which the assured shall conclusively prove to have been caused by the fraud or dishonesty of any of the Employees,” subject to a stated limit of liability as to each (not here exceeded). Under “Definitions,” the policy provided: “The following terms, as used in this Policy, shall have the respective meanings stated in this Section: ‘Employee’ or ‘Employees’ means, respectively, one or more of the natural persons (except directors or trustees of the Assured, if a corporation, who are not also officers or employees thereof in some other capacity) while in the regular service of the Assured in the ordinary course of the Assured’s business during the Policy Period and whom the Assured compensates by salary, wages and/or commissions and has the right to govern and direct in the performance of such service, and who are engaged in such service within any of the States of the United States * * *, or elsewhere for a limited period, but does not mean brokers, factors, commission merchants, consignees, contractors or other agents or representatives of the same general character.” There is no question as to the facts that the dishonest employee was in the employ of Reed when she cashed the bad check for $600 here involved and that she cashed it through her employer’s cashier. The defense is that when she did so, she was not acting in the service of the employer.

The Insurance Company contends that this defense raised an issue of fact and thus barred the entry of a summary judgment and that the policy did not cover a loss incurred when she was not acting in the employer’s business and so did not cover a loss due to an accommodation extended to an employee outside that field. We think that the case turns on the construction of the policy and that the determination of the second question is decisive. The policy, reduced to its simplest terms as applied to the facts of this case, means, we think, that the Insurance Company agrees to indemnify the assured against loss due to the dishonest act of a person who is an employee, as that term is defined in the policy. The contention of the appellant would read the word “acting” into that statement so that the policy ⁵² would cover a loss due to the dishonesty of an employee only while acting as such.

The fatal difficulty with that construction is that it is not what the policy says. We need not stop to consider whether, if the policy did say it, the policy might then be worthless to the insured for the reason that an employee, while engaged, say, in stealing from his employer, would not be acting in the employer’s business. Quite apart from that argument, the policy does not use the word “acting” either in the insuring clause or in the definition clause. The latter clause draws a distinction between persons in the regular employ of the insured subject to its full control and direction, on the one hand, and agents such as brokers, factors, consignees, contractors, etc., not subject to such control, on the other.

We find no room for doubt or dispute that the employee here involved fitted the policy definition of “Employee.” There is no question that her act was dishonest or that the insured suffered loss thereby. The Insurance Company’s contention that its risk should be measured by and limited to risks incident to the conduct of the business and should not be extended to cover risks due to