United States Fidelity & Guaranty Co. v. Crown Cork & Seal Co.

⁵¹⁴ Offutt, J., delivered tbe opinion of tbe Court. This appeal involves the construction of what may be called a “schedule bond,” that is a bond of insurance in which the insurer, in consideration of the payment of certain premiums, undertakes to indemnify the assured up to a designated amount, during a term which may be fixed or uncertain, against loss occasioned through the fraudulent or dishonest conduct of employees whose names appear in a schedule, which is a part of the insurance contract. The facts are undisputed and in part are very concisely and clearly stated in this extract from the appellant’s brief: “The bond sued on, styled a schedule bond, was originally issued in May, 1918, and was unlimited as to its duration. It 'was intended that employees of the Crown Cork and Seal Company would be listed under it from time to time in varying amounts as to liability and that the extent of the liability as to each employee so listed might also be increased or diminished from time to time, the premiums to be paid upon these various and varying risks to be calculated upon a certain basic annual rate, to wit, 25 cents per $100 of insurance.

As changes occurred either in the identity of the employees or in the amount of insurance upon an employee, proper premium adjustments were made. There was no renewal of the original bond, but the bond was simply continued in force from year to year upon payment of the premiums called for thereby. “One John Doe, an employee of the appellee, whose misappropriations have given rise to this suit, was covered by this schedule bond for a number of years in varying amounts, as follows: “From January 20, 1919, to March 15, 1920, $20,-000. “From March 15, 1920, to March 1, 1922, $25,000. “From March 1, 1922, to December 14, 1922, $10,-000. “On this latter .date it was discovered that he was an embezzler and he was immediately discharged. An examination of his accounts showed that between Jan- ⁵¹⁵ nary 19, 1919, and December 14, 1922, he had embezzled $27,537.29, of which sum $13,079.82 was embezzled between May 4, 1921, and March 1, 1922, and $14,459.47 between March 1, 1922, and December 14, 1922. The appellant admitted its liability for $13,-079.82 and promptly paid that sum to the appellee.

It denies liability as to the $14,459.47 or any part thereof.” The policy or bond of insurance was executed on May 28th, 1918, and contained among other things these provisions: “The United States Fidelity and Guaranty Company, as insurer, for a premium based upon a.n annual rate per one hundred dollars of insurance, hereby guarantees to pay to the Crown Cork and Seal Company, the employer, such pecuniary loss as the employer shall sustain (limited only by the provisions hereof) of money, bonds, debentures, scrips, certificates, warrants, transfers, coupons, bills of exchange, merchandise or other property, including that for which employer is responsible, occasioned by any act or acts of fraud, dishonesty, forgery, theft, larceny, embezzlement, wrongful abstraction or misapplication or misappropriation or any criminal act by any of the employees listed hereunder directly or through connivance in any position and at any location in the employer’s employ and during the period commencing upon the date each is listed hereunder and continuing in the amounts named until the termination of this insurance, and discovered within twenty-four months after the termination of this insurance on behalf of such employee or employees. “Provisos: “1. On application, other employees may be added hereto from time to time by the insurer issuing an acceptance in writing, stating the amount and the date added, and this insurance on any employee may be increased or decreased by the insurer without impairing the continuity hereof, provided the insurer’s aggregate liability under all its bonds and engagements on any one employee shall not exceed the largest bond or engagement on such employee.” ⁵¹⁶ The “premium year” rau from June 1st in any given year during the life of the policy to June 1st in the following year, and, to quote from the .agreed statement- of fact, whenever an employee was added between said dates to the aforesaid list of employees covered by said policy, a proportionate fractional part of the agreed-on premium was paid to cover the fraction of the year until the next succeeding June 1st. A short time prior to June 1st of each year during the existence of said policy, the defendant would mail to the plaintiff notice of premium that would he due on the succeeding 1st of June. The “notice” referred to contained this provision: “It is understood that the United States Fidelity and Guaranty Company of Baltimore, Maryland, does not assume liability during any year or years, or for any default or defaults in the aggregate exceeding the amount of its suretyship as determined by the original obligation of suretyship.” John Doe, an employee of the insured, was first listed on the schedule which formed a part of the insurance contract on January 20, 1919, for $20,000, which amount- was changed from time to time as indicated above in the manner provided in the policy.

As has been stated, the insurance company denied any liability for losses which occurred through the defalcation of the insured’s .employee, John Doe, subsequent to March 1st, 1922, upon the theory that, .as it had paid for all losses occurring during the whole period that the bond or engagement on that employee was fixed at $25,000, that it was not liable for further losses occurring through the defalcation of such employee after that amount had been reduced to $10,000, because “it never issued but one bond; that the annual payment of premiums and the periodical adjustment of premiums merely continued the original bond in force from period to period subject to all of its original terms and conditions.” The assured, refusing to accept- this theory; brought suit on the bond in the Baltimore City Court-, where it was tried before the court on an agreed statement of fact under sec ⁵¹⁷ tions 54 and 55 of article 75 of Bagby’s Code, Public General Laws of Maryland, and at the conclusion of that trial the court entered a judgment for the plaintiff for $10,355, in accordance with these provisions of the agreed statement of fact:— “If the court shall be of opinion that upon the aforegoing facts the plaintiff is, by the true construction of said policy, entitled to recover the amount embezzled by said John Doe after March 1st, 1922, not exceeding, however, ten thousand dollars ($10,000), in addition to the said sum of thirteen thousand and seventy-nine dollars and eighty-two cents ($13,079.82) paid, the court shall enter judgment against the defendant in favor of the plaintiff for ten thousand dollars ($10,000) and costs, with interest in the discretion of the court from the fifth day of April, 1923, but if the court shall be of opinion that the defendant is not liable for the amount embezzled by the said John Doe after March 1st, 1922, then judgment shall be entered for the defendant for costs. From such determination either party aggrieved thereby shall have the right to appeal to the Court of Appeals.” From that judgment this appeal was taken, and, as will be seen, the only question it presents is whether the appellant is liable to the appellee for losses occurring in each premium period up to the amount of insurance in force during snch period on the employee whose» conduct is the basis of the claim, not exceeding in the aggregate “the largest obligation for any single» period, (luring which the employee is listed and during the life