Graydon-Murphy Oldsmobile v. Ohio Cas. Ins. Co.

• Decision Date: 16 March 1971
• Docket Number: GRAYDON-MURPHY
• Citation: 93 Cal.Rptr. 684,16 Cal.App.3d 53
• Court: California Court of Appeals Court of Appeals
• Parties: OLDSMOBILE, a California corporation, Plaintiff and Appellant, v. The OHIO CASUALTY INSURANCE COMPANY, a corporation, Defendant and Respondent. Civ. 10001.

Page 684

93 Cal.Rptr. 684

16 Cal.App.3d 53

GRAYDON-MURPHY OLDSMOBILE, a California corporation, Plaintiff and Appellant, v. The OHIO CASUALTY INSURANCE COMPANY, a corporation, Defendant and Respondent.

Civ. 10001.

Court of Appeal, Fourth District, Division 2, California.

March 16, 1971.

[16 Cal.App.3d 55] Getz, Aikens & Manning and George E. Leaver, Los Angeles, for plaintiff and appellant.

[16 Cal.App.3d 56] Swarner, Fitzgerald & Dougherty, H. M. Dougherty and Ray Lapica, Riverside, for defendant and respondent.

OPINION

KERRIGAN, Associate Justice.

This is an action on an insurance contract for loss sustained by reason of the dishonest acts of an employee in embezzling her employer's funds. Plaintiff, the corporate employer, was insured under an employee dishonesty policy issued by the defendant-insurer in the sum of $10,000. The policy became effective on January 28, 1964.

Dixie Mason was plaintiff's office manager. During the three years prior to the commencement of the aforesaid policy, she embezzled $33,436. Following execution of the policy, she stole an additional $14,750. In early November 1964, she advised her employer that she was going to terminate her employment on November 13. On that date, she met with her superior and confessed that she had stolen an estimated $28,000 over a period of years. At the same time, she offered to deed 80 acres of land in San Diego County to plaintiff and agreed to make restitution of the balance at the rate of $400 per month, commencing in January 1965. She signed an informal memorandum to such effect at the time she confessed, but not a formal conveyance. ¹

On November 20, 1964, plaintiff filed an action against Dixie Mason in the Los Angeles County Superior Court and attached the San Diego real property.

On or about December 10, 1964, plaintiff filed a proof of loss and made a $10,000 demand upon defendant for full payment under the policy. Defendant offered to honor the demand provided plaintiff would transfer its interest in the San Diego acreage to it (the insurer). Plaintiff refused. Defendant countered by denying plaintiff's claim.

Plaintiff continued with the Los Angeles suit and obtained a judgment against Dixie Mason in the amount of $49,789 plus costs in January 1965. The San Diego land was executed upon, and plaintiff netted $20,000 from the execution sale. Dixie made a $600 payment upon the restitution agreement, but paid nothing further. Consequently, plaintiff's total recovery amounted to $20,600.

Plaintiff then brought this action on the insurance contract, seeking to compel defendant to pay the full amount of the policy. The matter was heard by the court sitting without a jury. Plaintiff contended that the $20,600 recovered from Dixie Mason should first be applied to the earlier embezzlements, that defendant receive no credits, and defendant should pay the full amount of the policy. Defendant contended that it did not have to pay for three reasons: (1) The recovery should be credited against the bond as provided under section 10 of the policy; (2) plaintiff had made a material misrepresentation in its application for insurance by affirmatively indicating that its books were subjected to an annual audit; and (3) plaintiff's action against Dixie Mason, which led to the judgment against her and recovery of $20,600, prejudiced the subrogation right of defendant under section 14 of the policy. The trial court found in favor of defendant on all issues, and entered judgment accordingly.

Plaintiff, in effect, raises the same three issues on appeal: (1) Section 10 of the policy is not applicable to the facts; (2) there was no material misrepresentation; and (3) none of plaintiff's actions prejudiced defendant's subrogation rights.

Section 10 of the policy provides:

'If the insured shall sustain any loss covered by this Policy which exceeds the applicable amount of insurance hereunder, the insured shall be entitled to all recoveries (except from suretyship, insurance, reinsurance, security or indemnity taken by or for the benefit of the company) by whomsoever made, On account of such loss under this Policy until fully reimbursed, less the actual cost of effecting the same; and any remainder shall be applied to the reimbursement of the Company.' (Italics supplied.)

Inasmuch as the evidence in the case at bar is uncontradicted, the interpretation of the policy is solely a judicial function, and a reviewing court is not bound by the interpretation of the trial court. (Parsons v. Bristol Development Co., 62 Cal.2d 861, 865, 44 Cal.Rptr. 767, 402 P.2d 839.) In performing our function, several elementary principles must be kept in mind. An instrument in writing is to be construed most strongly against the party who drafted it or caused it to be drafted. (Civ.Code, § 1654; Laux v. Freed, 53 Cal.2d 512, 524, 2 Cal.Rptr. 265, 348 P.2d 873.) The effect and purpose of insurance is to indemnify the insured in case of loss and, ordinarily, such indemnity should be effectuated rather than defeated; to that end, the law makes every rational intendment in order to give full protection to the interest of the insured. (Visco Flying Co. v. Hansen & Rowland, Inc., 184 Cal.App.2d 829, 835, 7 Cal.Rptr. 853.)

Plaintiff maintains that section 10 does not apply to the money recovered because there has been no showing that the recovery was 'on account of such loss under this Policy,' and that the section does not cover the present situation where there are both pre- and post-policy period losses.

Defendant argues that the policy provision is clear and unambiguous, and provides that plaintiff must offset any and all recoveries made during the policy period against all losses incurred during the policy period; since $14,750 was lost and $20,600 was recovered, the insurer is not indebted for any sum under the policy.

We hold that section 10 of the policy is not applicable to the entire recovery. The recovery is not entirely attributable to either the pre-policy or post-policy losses. Section 10 applies only insofar as the loss is identifiable as being a loss 'covered by this Policy.' Therefore, the trial court's finding that the insurer receive credit for the entire recovery cannot stand.

Plaintiff has maintained throughout the proceeding that it is entitled to the entire recovery. Plaintiff argues that codified rules of interpretation (see Civ.Code, § 1654) militate against the insurer, and that the insurer was able to protect itself by inserting a provision which covers the instant situation; since defendant did not expressly provide for a situation wherein the insured sustained pre-policy and postpolicy losses that, in the absence of instructions by a debtor or a specific application by the creditor, the recovery should be applied to the obligation maturing earliest. (See Civ.Code, § 1479.) Defendant contends that allowing the plaintiff to credit the recovery to the earlier losses would be tantamount to extending the term of the policy and forcing it to insure a risk which it did not contract to insure. Neither party has considered apportionment of the recovery as a solution.

In City Trust & Savings Bank of Kankakee, Ill. v. Underwriting M. of Lloyds, 7 Cir., 109 F.2d 110, there were both pre- and post-policy losses. Certain moneys recovered were directly traceable to a post-policy loss. The evidence showed that the identical money which had been stolen was recovered. Consequently, both the loss and recovery cancelled each other out, and there was no apportionment. However, in Commercial Standard Insurance Co. v. Liberty Plan Co., 10 Cir., 283 F.2d 893, there were losses from two distinct sources. A recovery which could not be traced to either loss was prorated between the two.

In the case at bar, the recovery was from two sources: the $20,000 derived from the execution sale and two cash payments totaling $600 made by the embezzler. The property had been deeded to Mrs. Mason by her parents in 1950. No evidence was introduced as to the source of the cash payments. Since the recovery was obtained solely from collateral sources, we hold that the doctrine of apportionment be applied and the recovery prorated.

The total of Mrs. Mason's embezzlement was $48,186. Prior to issuance of the Ohio Casualty policy, $33,436 (69.39%) was taken. After the policy became effective, $14,750 (30.61%) was stolen. Apportioning the $20,000 recovery in those percentages, $14,294.34 of the fund is applicable to the pre-policy loss; the remaining.$6,305.66 is a recovery of the loss incurred during the policy period.

Section 10 of the policy, although it...