Massachusetts Bond. & Ins. Co. v. Julius Seidel Lbr. Co.

Citation279 F.2d 861
Decision Date01 July 1960
Docket NumberNo. 16352.,16352.
PartiesMASSACHUSETTS BONDING AND INSURANCE COMPANY, a Corporation, Appellant, v. JULIUS SEIDEL LUMBER CO., a Corporation, Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)

Herbert E Barnard, St. Louis, Mo., for appellant.

Robert F. Schlafly, St. Louis, Mo., for appellee.

Before SANBORN, WOODROUGH and BLACKMUN, Circuit Judges.

SANBORN, Circuit Judge.

This is an appeal by the defendant (appellant), hereafter referred to as "surety", from a judgment for the plaintiff (appellee) in the principal sum of $11,600 in a diversity action upon a contract or contracts of suretyship or fidelity insurance by which the surety agreed to pay to the plaintiff such loss as it might sustain by acts of dishonesty of a cashier and bookkeeper employed by it.

The contract in suit is a Missouri contract, and the applicable substantive law is that of Missouri. The facts are stipulated. The case was tried to the court. The judgment represents the considered views of a Missouri federal judge as to what the Supreme Court of that state would probably hold in a case presenting the same facts. The burden of demonstrating that the District Court misconstrued or misapplied the applicable law is that of the surety. Western Casualty & Surety Co. v. Coleman, 8 Cir., 186 F.2d 40, 43; Globe Indemnity Co. v. Wolcott & Lincoln, Inc., 8 Cir., 152 F.2d 545, 547.

The plaintiff's claim, as stated in its complaint, is, in substance, as follows: That on June 29, 1940, the surety entered into a fidelity insurance contract insuring plaintiff against losses from the dishonesty of L. A. Feldmeier, its bookkeeper and cashier, for the year July 15, 1940, to July 15, 1941, to the extent of $1,800; that in subsequent years plaintiff and the surety entered into insurance contracts insuring the plaintiff against such losses to the extent of $1,800 per year, for one-year periods commencing on July 15 in each of the years 1941 to 1950, inclusive, and to the extent of $2,000 per year for yearly periods commencing July 15 in 1951, 1952, 1953 and 1954; that in December, 1954, plaintiff discovered that Feldmeier had embezzled funds from it commencing in 1949; that the surety was promptly notified; that the plaintiff duly submitted proofs of loss showing unrecovered losses in excess of $2,000 in each of the four one-year periods 1951, 1952, 1953 and 1954 as a result of the defalcations of Feldmeier, and in excess of $1,800 in each of the two one-year periods 1949 and 1950; that the total defalcations of Feldmeier exceeded $11,600; that demand for that amount was made upon the surety, which has refused to pay.

The surety in its answer admitted the issuance of the surety bond or policy dated June 29, 1940, the renewal agreements referred to in the complaint, the losses sustained by the plaintiff, the receipt of the proofs of its claim, and the refusal of the surety to pay the plaintiff the amount which it demanded. The surety alleged that, after receiving plaintiff's proofs of claim, the surety advised the plaintiff that under the terms and conditions of the contract the greatest amount to which plaintiff was entitled was $2,000; that the surety tendered a draft for that amount, which the plaintiff refused and still refuses to accept.

The problem was and is whether the contractual relation between the parties was such that the maximum liability of the defendant for all losses due to the dishonesty of Feldmeier during the years 1940 to 1955, the entire suretyship period, was limited to $2,000 or was the aggregate of the maximum amounts of coverage in each of the six years in which a loss, due to the dishonesty of Feldmeier, occurred.

The bond or policy contract entered into on June 29, 1940, appears to be on a form designated by the surety as "Continuous-Schedule." In the right-hand upper corner appears "Bond No. 39720." The first paragraph of the contract reads as follows:

"The Massachusetts Bonding and Insurance Company of Boston, Massachusetts, as Surety, in consideration of a premium computed at an agreed rate, hereby guarantees to pay to Julius Seidel Lumber Company, 2200 South Kingshighway, St. Louis, Mo., the Employer, such direct loss as the Employer shall sustain of money or other personal property belonging to the Employer, or for which the Employer is responsible, by any act or acts of Fraud, Dishonesty, Forgery, Theft, Larceny, Embezzlement, Wrongful Abstraction or Wilful Misapplication on the part of any Employee listed herein, directly or through connivance, while in any position in the service of the Employer, during the period commencing at 12 o\'clock noon on the 15th day of July, 1940, and continuing until the termination of this suretyship."

That is followed by certain provisos and conditions, the first of which is:

"First: For any default within the terms of this bond by any bonded Employee, claim may be made while this bond is in force and within two years after termination thereof with respect to such Employee; but notice of such default shall be delivered to the Surety at its Home Office in the City of Boston, Massachusetts, within ten days after its discovery."

The second proviso reads:

"Second: On application, other Employees may be added hereto from time to time by the Surety issuing an Acceptance in writing showing the amount and effective date; and the Suretyship on any Employee may be increased or decreased by the Surety without impairing the continuity thereof, but the liability of the Surety under succeeding guarantees shall not be cumulative nor shall its aggregate liability on account of any Employee exceed the largest single amount set opposite any one position occupied by such Employee in any of such bonds; nor shall the suretyship granted for one period cover defaults occurring within any other period."

The fifth proviso reads as follows:

"Fifth: This Suretyship shall terminate:
"(a) As to any Employee upon his retirement from the service of the Employer or the discovery of loss on account of that Employee.
"(b) Upon thirty days\' notice by the Surety to the Employer, and likewise the Employer may terminate any Suretyship hereunder by notice in writing to the Surety specifying the date of cancellation. Thereupon the Surety shall refund the unearned premium as to such cancelled suretyship, provided no claim has been paid thereunder.
"(c) By non-payment of agreed premium for a period of three months from effective date of this bond and renewal thereof."

The following is the last sentence of the sixth proviso:

"No one of the above conditions or provisions contained in this bond shall be deemed to have been waived or altered unless the waiver or alteration be in writing over the signature of an officer of the Surety, and no notice to any agent of the Surety or knowledge possessed by any such agent shall be held to effect a waiver or change in this contract or any part of it."

The "Schedule" attached to the bond listed three of the plaintiff's employees, including "L. A. Feldmeier; Position, Cashier and Bookkeeper; Amount $1800.00; Premium $10.00."

On the 11th day of July, 1941, the surety issued to the plaintiff a "Continuation Certificate Schedule""Schedule No. S35402; Renewal No. R-41; Agent's No. 39720" — continuing in force "Schedule Bond No. S35402 39720" in favor of the plaintiff

"on behalf of persons named in annexed schedule in the positions and for the sums therein specified for the period beginning the 15th day of July, 1941, and ending the 15th day of July, 1942, subject to all the covenants and conditions set forth and expressed in said schedule bond heretofore issued on the 15th day of July, 1940.
"Provided the aggregate liability of Massachusetts Bonding and Insurance Company from the date of the issuance of said schedule bond to the date of the expiration of this certificate for or on account of any act or acts of any one of said persons shall not exceed the sum written opposite that person\'s name upon the attached schedule."

The schedule attached to the certificate contained the name of Feldmeier, cashier and bookkeeper, "Amount $1800.00, Premium $10.00."

On June 13, 1942, Bond No. 39720 was renewed for another year by the same form of continuation certificate, again scheduling Feldmeier for coverage in the amount of $1,800, for a premium of $10.00.

The surety on July 6, 1943 — as a means of evidencing the continuation of its suretyship in force — in consideration of the annual premium, issued to the plaintiff a "Schedule Adjustment List" to be attached to "Schedule Bond No. S-35402 39720." This "Schedule Adjustment List" contained the following language:

"The current annual premium for the above bond is accepted upon the following terms and conditions: That this schedule supersedes all prior schedules or acceptances attached to the bond, and only those employees whose names and positions (if the bond is a name schedule) or positions only (if the bond is a position schedule) appear on this schedule are covered under the bond on and after the first day of the current premium year; that the coverage on each employee is continuous from its inception to its termination, and the coverage for separate periods shall not be cumulative; that if the coverage on any employee for separate periods be for different amounts, the maximum liability of the Company for all defaults of that employee shall be governed by the provisions of the bond, and shall in no event exceed the largest amount of coverage in force during any period within which defaults shall have occurred, nor shall the coverage for one period be available for defaults occurring within any other period.
"Attached to and forming a part of said bond * * *."

Feldmeier, cashier and bookkeeper, was scheduled for $1,800 coverage, at a premium of $10.00.

In 1944, a similar "Schedule Adjustment List" was issued by the surety to the plaintiff covering Feldmeier in the same amount and for the same premium as...

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