Standard Printing & Publishing Co. v. Bothwell

Pattison, J., delivered the opinion of the Court. The Employers’ Mutual Insurance and Service Company of Maryland, which was incorporated under the laws of this State for the purpose of writing a class of insurance generally called “strike insurance,” began to issue policies in August, 1920, but operated for a period less than a year, when its activities were crippled by a series of strikes and labor difficulties, appearing in different industries throughout the United States, but chiefly in the printing industry. It was a mutual company and its policy holders and members were subject to an assessment equal to the deposit premium, if such assessment was required for the payment of losses. And because of losses, and the many claims filed against the company, the board of directors found it necessary to levy, and did levy an assessment of one hundred per cent, of the deposit premium upon each of its policy holders.

But only a small number of them paid their assessment, either in full or in part, leaving unpaid thereon, in the aggregate, approximately one-half million dollars. To prevent further loss the outstanding policies were in the last days of October, 1921, cancelled, and, as a result thereof, claims were filed for unearned premiums claimed to be due by reason of such cancellation. ³⁰⁶ On the 9th day of November of the last named year, while the company was in the condition mentioned, receivers were appointed for it npon the application of the Insurance Commissioner of Maryland. At that time the assets of the company consisted of five hundred thousand dollars, in cash, and one million dollars owing to it hy the policy holders on the assessments levied against them,, and hy “The Lloyds of London,” and the Excess Reinsurance Company of London, as reinsurance, making-; the total assets of the company approximately one and one-half million dollars. Against this sum have been filed with, the receivers1 claims aggregating about seven million dollars.

Upon their appointment the receivers proceeded with their task of winding up> the affairs of the company, and to this end an auditor was appointed by the court authorized to take testimony in connection with the proof of various claims of its policy holders. Accountants were also employed by the receivers, under the order of the court, to examine the books of the various companies and persons insured to obtain the necessary information regarding fixed charges and net profits and other matters in connection with the claims. In making these investigations, and in the hearings had in-connection therewith,-a number of questions arose involving the construction of certain provisions of the policies affecting alike the rights of all the claimants thereunder, and it was thought best hy the receivers that they should receive directions from the court as to such questions. Therefore two claims were selected as test cases upon which appropriate proceedings were instituted, in which the views and direction of the court in respect to such questions were sought to guide the receivers in their dealing with all the claimants.

The two claims selected were the Standard Printing and Publishing Company and the Eleet-McGinley Company. The case of the Standard Printing and Publishing Company, the one now before us, was submitted to tbe court upon an agreed statement of facts which contains the policy of insurance under which it w,as insured; the by-laws of that ³⁰⁷ company, and its profits, and loss statements: First — For the year ending December 31, 1920; Second — For the four months preceding the strike; Thirds — For the period of the strike commencing with May and ending with September, 1921. It also contains schedules of “fixed charges” filed by the receivers and claimant respectively, commencing the 1st day of May, and ending September 30th, 1921, both inclusive, and also statements showing monthly sales made by the insured between May 1st, 1920, and November 1st, 1921. The provisions of the policy which are important in passing upon the questions presented, are the following: “Indemnity. “In consideration of the statements set forth in the declarations hereto attached, and hereby made a part hereof, and of the premium deposit specified herein (which deposit is subject to adjustment), and that the Assured, by acceptance of this policy, does also bind himself, his executors or administrators, to pay all such further sums as may from time to time be ■assessed on this policy by the directors of said company, in conformity with the articles of incorporation and by-laws of this company and the laws of the State of Maryland; provided that such further sums shall not in any case be more in any one policy year than an amount equal to the premium deposit for such policy year, does hereby agree to indemnify the individual firm or corporation named in Statement 1 of the declarations * * * for the period of one year * * * against the direct, actual loss of average daily fixed charges and/or net profits, as hereinafter defined, caused by a strike of all or part of the employees of the Assured, * * * and sustained during the period of such strike, said strike beginning while this policy is in force (except during the first fifteen days as hereinafter provided) and continuing for a period not exceeding the three hundred next succeeding working days, at a rate not exceeding three hundred ³⁰⁸ dollars ($300.00) per diem, and not exceeding an aggregate total indemnity of ninety thousand dollars ($90,000.00) during' any policy year.” “Gompany’s Liability. “B. If a strike • occurs during the term of this policy so as to cause a partial or a total prevention of production, the company shall be liable for 80% of the direct actual loss of fixed charges and/or net profits sustained, not exceeding in either case the per diem indemnity or the total indemnity herein stated; but the company shall not be liable for any consequential loss whatever; nor shall the company in any ease be liable for further loss hereunder when after a strike at the plant of the Assured covered by this policy, causing a total prevention of production, the average daily production at said plant becomes equal to eighty (80%) per cent, of the average daily normal production, nor shall the company be liable for further loss hereunder when, after a strike at said plant causing a partial prevention of production, the average daily production of that part which was interrupted by the strike equals eighty (80%) per cent, of the proportion so interrupted.” “Payment of Indemnity. “I. This contract is one of indemnity only, and there shall be no liability unless there has been actual loss.

If the industry in which the plant herein described is engaged becomes materially and generally affected by increase or decrease in business activity during the period of a strike at said plant, it is the intent of this policy that, in the absence of direct proof of the actual, direct loss caused by and during the period of such strike, ascertainment of the actual loss shall be arrived at through due consideration of what such increase or decrease shows might reasonably have been expected during the period of such strike; but liability hereunder shall in no event exceed the per diem indemnity or the total indemnity herein stated.” ³⁰⁹ There were four questions- presented to the co-urt below, all of which are presented to- this Court on appeal. The first question is, Ho-w is the actual loss of average daily fixed charges and/or net profits insured against to be ascertained ? The consideration of this question may very properly be divided in two subdivisions. Eirst — The period to be used in calculating “the average,” and Second — The element which makes- up “fixed charges.” What would have been the actual net profits of the business during the strike period, had the strike not occurred, is impossible of exact ascertainment, consequently the amount of loss caused by the strike, is more- or less speculative.

The loss of net profits, may be, and at times- is, estimated by selecting some other period of time in which the insured has been engaged in business most nearly approaching the strike period in similarity of conditions, and by ascertaining the average daily net profits of that period; and if it be fo-und that the average daily net profits of the selected period are greater than those earned during the strike period, because of the strike, the difference therein is- the loss of average daily net profits during the period of the strike, subject of course to- any special facts affecting the- business of one and not the other of said periods, indicating with reasonable certainty that the average daily net profits- of the period selected would be increased or diminished during the period of the strike by those facts. Ho unvarying general rule can be established as to the period of time- to- be selected as a basis upon which the loss of profits during the strike period may be estimated, applicable to all cases, because of the varying circumstances and conditions incident thereto. It is only in those cases of like character, and conditions that any general rule can be established applicable to all. The claims filed against the receivers in this case are very similar.

The policies under which the claims- were filed are practically the same in form, and ninety (99%) per cent, of ³¹⁰ .them were issued to those engaged in the printing business, who were alike affected by the printers’ strike of 1921. It was because of their great similarity that the court below was asked, in passing upon the exceptions filed to the claim of the Standard Printing and Publishing Co., to lay down some general rules, applicable to all the cases, by which the receivers may be guided and controlled in distributing the funds in their hands. The counsel for the receivers contend that the first four months of the year 1921 should be selected and used in estimating what would have been the average daily net profits during the strike period had there been no strike. The reason given therefor being that this, the nearest period to the strike, showed a falling off of business, the sales being largest in January and smallest in April, the month immediately preceding the strike.

That such falling off of business started in the latter part of 1920, and continued through the first four months of 1921, which they claim indicated that the period suggested by them approached, as near* as any other time, what would have been the business conditions of the strike period immediately following, in the absence of a strike. There was nothing at least to indicate that it would be more. The claimant, however, meets this contention by saying that the four months named by the receivers was not only too short a period upon which to estimate the profits of the strike period with fairness to it, but such period was at a time of great fluctuation and depression in business, and when the sales of the claimant were at their lowest ebb. The counsel of the claimant contend that, in addition to the first four months of 1921, the twelve months of the year 1920 should' be included in the period to' be used, because, as stated by them, it would include the fiscal year of the Standard Printing and Publishing Go. ending with the 31st day of December, 1920, and the parties would thereby have the benefit of the known net profits of that year. ³¹¹ In reply to claimant’s contention that the sixteen months period immediately preceding the strike should he used, the receivers state that the first and major part of the year 1920-was abnormally good and if that year was included within the period it would produce a result unfair to the insurance-company.

The court refused to accept either of the contentions made-by the parties and fixed the year commencing May 1, 1920, and ending with the 30th day of April, 1921, as the period to-be- nsed as a basis in estimating the loss of the average daily “fixed charges and/or 'average daily net profits” during the-period of the strike. The court in selecting the period mentioned largely avoided the apprehended unfair result which the parties said would follow if the period suggested by the other were adopted. It refused to accept the fo-ur month period immediately preceding the strike, because of the extremely low average of daily profits that would have resulted therefrom, and also declined to accept the sixteen month period, as it- would have-made the daily average profits too high because of the inclusion within that period of six or’ eight months of greatly abnormal profits. In tbe period selected by the court, were included not only the months of low profits but several months- of very large-profits.

This, we think, had the affect of increasing the average daily net profits of the period selected, to an amount sufficient to meet any well founded contemplated increased profits of the strike period that immediately followed. The period selected by the court below meets with our approval, as it will, in our opinion, based upon the record before us, best serve as- a basis for estimating the loss of' average daily profits and “fixed charges.” We will now consider the question as to what are “fixed’ charges” within the meaning of the policy. The receivers and the claimant each filed a schedule of' “fixed charges” which, it seems, they thought should he paid, or allowed under the policy. ³¹² In each of the schedules are found the following items: “Rent,” $1,741.00; “Office and Officers’ Salaries,” $7,-941.35; “Taxes/’ $3,804.94; “Heat and Light,” $361.74; “Insurance,” $1,500.00'.; “Bluefield Office,” $26.21. In the receivers’ schedule are found the following items which do not appear in the claimant’s schedule: “Power,” $528.58; “Telephone and Telegraph,” $552.50; “Salemen’s Salaries,” $7,100.00; “Depreciation,” $3,954.50.

And in the claimant’s, schedules are found these items, which do not appear in the receivers’ schedule: “Interest,” ■'$1,598.13; “Miscellaneous Expenses,” $1,703.57; “Postage,” $422.91; “Repairs,” $660.28; “Traveling Expenses,” $8,-545.54. The difference in the aggregate of the two schedules is •'$1,383.50, and the difference in the daily average is $9.32. No doubt the “Miscellaneous Expenses” found in the claimant’s schedule include some of the items found in the receivers’ schedule. As there is no item of “Salesman’s Salaries” found in the claimant’s schedule, it is most probable that such item is included in the item “Traveling Expenses” found in the claimant’s schedule.

Reference has been made to these schedules to show that the parties, the claimant and receivers did not at that time differ so widely in what they.regarded as “fixed charges” and .also to show that in the receivers’ schedule is found the item '“Depreciation,” which, under that name, is not found in the ■claimant’s schedule, although now the claimant contends that depreciation is a “fixed charge” while the receivers, contend that it is not. It is claimed by the claimant, and it would so seem from the record before us, that the item “Depreciation,” which was disallowed by the court below, was understood by it to mean depreciation in the value of manufactured articles ¿nd not the depreciation of the plant. If "this be so, the court was ■absolutely right in so holding. The depreciation in the value of the manufactured product or goods on hand was certainly .not a “fixed charge.” ³¹³ As the policy does not define “fixed charges/’ what is meant thereby, is, left to us to decide.

Bassett on Accountancy on page 244, cited by the receivers in their brief, defines “fixed charges” as those “charges which spread over the entire establishment, such as rent, insurance, taxes, mortgage interest, depreciation and the like, according to whether the plant is leased or owned. * * * ‘Eixed charges’ arise out of the very being of the plant and continue whether or not the business is, operated.” The only case to which our attention has been called, and the only one that we have been able to find after diligent research, in which “fixed charges” have been defined in an action brought upon an indemnity policy insuring against loss of “fixed charges” caused by the strike, is the case of Buffalo Forge Co. v. Mutual Security Co., 83 Conn. 393 . In that case the court approved of and adopted the trial court’s definition that by “fixed charges” were meant those expenses necessarily ineuri’ed in maintaining the organization in such a state of efficiency as would enable it to resume normal production without substantial delay after the strike was ended or as the strike might he broken by a gradual return of employees.” It is a well settled rule of law that contracts of insurance, like all other contracts, are to he considered according to the sense and meaning of the terms which the parties have used them, and if they are clear and unambiguous, these terms are to he taken and understood in their plain, ordinary and popular sense.” Mutual Life Insurance Company v. Murray, 111 Md. 660 ; Palatine Insurance Co. v. O’Brien, 107 Md. 354 ; Bank of St. Mary's v. The Maryland Casualty Co., 142 Md. 454 . But it is also “a principle of universal application, that, in order to arrive at the intention of the parties, the contract itself must he read in the light of the circumstances under which it was entered into. General or indefinite terms employed in the contract may he thus explained or restricted in their meaning and application; and the contract must he so construed as to give it such effect, and none other, ³¹⁴ .as the parties intended at the time it was made.” Bank v. Gerke, 68 Md. 456 .

The term “fixed charges” has, it seems, no well defined meaning. Its meaning is more or less general and indefinite, depending somewhat npon the connection in which it is used and the object and intention of the parties by whom it is employed. When used in a contract like the one before ns, it may having a different meaning from what it would have if used in a different connection or with an entirely different object ■or purpose. The term was here used by the parties in a ■contract whereby it was their object, purpose and intention to give to the insured indemnity against the loss therein mentioned, caused by strike.

The insured was not insured against loss of the average •daily net profits alone, but also against loss of average daily '“fixed charges.” The insured, no doubt, had in its employment at the time <of the strike officers and employees whose term of office or ■employment was of much longer duration than the usual