Columbia Hospital v. United States Fidelity & G. Co.
| Decision Date | 15 March 1951 |
| Docket Number | No. 10522.,10522. |
| Citation | 188 F.2d 654,88 US App. DC 251 |
| Parties | COLUMBIA HOSPITAL FOR WOMEN AND LYING-IN ASYLUM v. UNITED STATES FIDELITY & GUARANTY CO. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Bernard I. Nordlinger, Washington, D. C., with whom Milton W. King, Wallace Luchs, Jr. and Ellis B. Miller, all of Washington, D. C., were on the brief for appellant.
Thomas S. Jackson, Washington, D. C., with whom Louis M. Denit, A. Leckie Cox and P. Baxter Davis, all of Washington, D. C., were on the brief, for appellee.
Before CLARK, BAZELON, and WASHINGTON, Circuit Judges.
The questions here presented, relative to the coverage of a standard form of surety bond, have frequently been considered in other jurisdictions, but apparently never before by this court. Is liability to be limited to the amount stated in the bond, in respect of a named employee, regardless of the number of years that the bond has been in effect? Or is liability to be imposed, up to the stated amount, for each year of coverage in which the named employee has caused a loss?
In March 1942 the surety company (defendant-appellee) issued a so-called Blanket Position Bond in favor of plaintiff-appellant. In the opening sentence of the bond the defendant agreed, "in consideration of an annual premium," to indemnify the insured against loss through embezzlement or the like, the amount of indemnity as to each named employee being stated as $2500 (later amended to $5000 in respect of insured's bookkeeper) "during the term of this bond as defined in paragraph 1."
The Blanket Position Bond then went on to provide, in part:
The insured was billed for the bond by an insurance agency on a year-to-year basis, until in March 1946 it was billed for two and one-half times the customary amount. In a letter dated March 5, 1946, to the insured, accompanying the bill, the insurance agency said, in part:
* * *"
The rider referred to in the foregoing letter, which by its terms was to be "attached to and form a part of" the Blanket Position Bond, provided, in pertinent part, that the bond should be amended:
On December 14, 1948, the insured discovered that its bookkeeper had embezzled its funds, over a period of years, in the following amounts:
During the year 1945 .. $ 5,498.32
During the year 1946 .. 3,975.47
During the year 1947 .. 13,281.45
During the year 1948 .. 17,555.90
The insured demanded payment under the bond of a total of $18,975.47, representing $5000 for each of the years 1945, 1947, and 1948, plus $3975.47 for the year 1946. The defendant surety company admitted liability of $5000, and no more. The insured thereupon brought suit in the United States District Court for the District of Columbia, alleging liability of $18,975.47. Defendant answered, denying liability in excess of $5000. Plaintiff then filed a motion for summary judgment for the admitted part of defendant's liability ($5000). The surety company thereupon filed a cross motion for summary judgment, to the effect that plaintiff was entitled to receive only the sum of $5000. The insured filed an affidavit in opposition to the defendant's motion. The District Court, after consideration of both motions, and after hearing argument, granted the defendant's motion for summary judgment, limiting liability to $5000. It is from this judgment that appeal is taken.
The appellant-insured argues (1) that the defendant is liable in the maximum sum of $5000 for each twelve months period during the time of coverage, in respect of the actions of the insured's bookkeeper; (2) if defendant's liability is held to be exhausted by indemnifying the loss suffered in 1945 (up to $5000), then plaintiff has received no protection for the period 1946 to 1949 and is entitled to the return of its last premium; and (3) "There was of record a genuine issue of material fact with respect to whether the premium bills and other documents sent to plaintiff by defendant established separate and distinct contracts for the term of each renewal period, with a maximum liability of $27,500."
The Blanket Position Bond here in question contemplates a measure of liability with respect to named employees occupying stated positions, this measure of liability to be applicable "during the term" of the bond. The "term" is defined simply as a period beginning on March 17, 1942, and ending on the effective date of the cancellation of the bond. Such cancellation is provided for in two paragraphs, one dealing with cancellation of the bond in its entirety upon the effective date specified in a notice to be served by either party upon the other, and the other providing for cancellation as to a particular employee immediately upon discovery by the insured of any fraudulent or dishonest act on the part of such employee. The bond as originally written contemplated the payment of an annual premium. It was, however, modified by the rider attached pursuant to the letter of March 5, 1946, and all mention of annual premiums was deleted, the phrase "agreed premiums" being inserted. After giving effect to the rider, therefore, nothing remains on the face of the bond to indicate that there is in any sense to be an annual term or an annual measure of liability; the bond would then provide "the payment of agreed formerly, annual premiums during * * * the term shall not render the amount of this bond cumulative from year to year."
What meaning is to be ascribed to the phrase "cumulative from year to year"? The plaintiff-appellant argues that this provision simply means that there shall be no carry-over of coverage, to use up unobligated amounts. For example, if the bond remained in effect for four years, plaintiff would agree that a loss of $20,000 occurring solely in any one year could not be fully and entirely compensated, and that recovery would be limited to the amount of $5000 for that year. Plaintiff contends, however, that if in the example just given a loss of $5000 or less occurred in each (or any) of the four years involved, each such loss should be indemnified even though the total recovery under the bond would come to as much as $20,000.1
Appellant further argues that if it must pay an annual premium (or a premium covering a stated number of years) and must still be limited to the amount stated in the bond in respect of each named employee, it is making a payment without any compensatory return, and if a loss in fact occurs during the first year without being discovered the insured is placed in the position of continuing to pay premiums in subsequent years without any possibility of receiving coverage or benefit.
The surety company contends that it remains liable throughout the entire term of the bond (whether for one year or for many years as the result of renewal); that the insured need not prove that the loss took place in any particular year so long as he can establish that it was within the time the bond was in effect; that the surety company will be liable for a total of $5000 in respect to the actions of the insured's bookkeeper, even though this total is reached by adding amounts spread over a number of years. It further argues that if the insured took out a new bond each year instead of renewing the old bond, the insured would have to prove the exact time when a particular loss occurred so as to place it under the coverage of a bond issued for a specified year. Further, under the terms of the bond here in question, the insured is allowed two years after the cancellation of the bond in which to discover and report a loss. If it obtained a new bond each year, it might fail to recover altogether if it did not discover and report the loss under a particular bond within the two-year period immediately following. In contrast, under the present type of bond, as renewed from year to year, the requirement of discovering and reporting losses is extended when the bond is renewed, and the two-year period for the discovery and reporting of losses follows the total period (of, let us say, ten years) during which the bond has been in effect.
These arguments, pro and con, have been made over the years in a long series of cases arising in respect of surety bonds. See Annotation, 7 A.L.R.2d 946; Note, 27 Mich.L.Rev. 442; 6 Couch, Cyclopedia of Insurance Law, § 1374. We need not enter upon a lengthy analysis of these decisions. The weight of authority is in favor of the surety companies, even where there has been no specific contract provision against cumulation of liability. It has generally been held that "where the bond is for an...
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