Hartford Accident & I. Co. v. Collins-Dietz-Morris Co.

• Decision Date: 09 December 1935
• Docket Number: No. 1272.,1272.
• Citation: 80 F.2d 441
• Parties: HARTFORD ACCIDENT & INDEMNITY CO. v. COLLINS-DIETZ-MORRIS CO.
• Court: U.S. Court of Appeals — Tenth Circuit

80 F.2d 441 (1935)

HARTFORD ACCIDENT & INDEMNITY CO. v. COLLINS-DIETZ-MORRIS CO.

No. 1272.

Circuit Court of Appeals, Tenth Circuit.

December 9, 1935.

Arthur Leach, of Oklahoma City, Okl. (F. A. Rittenhouse and John F. Webster, both of Oklahoma City, Okl., on the brief), for appellant.

John Tomerlin, of Oklahoma City, Okl. (Stephen Chandler, Richard W. Fowler, and Tomerlin, Chandler & Shelton, all of Oklahoma City, Okl., on the brief), for appellee.

Before LEWIS, McDERMOTT, and BRATTON, Circuit Judges.

BRATTON, Circuit Judge.

Collins-Dietz-Morris Company, a wholesale grocery company with its principal place of business at Oklahoma City and with branches at Lawton and Tulsa, instituted this action against Hartford Accident & Indemnity Company to recover on three fidelity bonds which were given to indemnify plaintiff against loss resulting from theft, embezzlement, misappropriation, wrongful abstraction, willful misapplication, or other dishonesty of its employees. The first bond, executed by Metropolitan Casualty Insurance Company for the principal sum of $2,500, was dated March 4, 1927, and expired October 1, 1929. It provided that in case loss was shown to be due to one or more of a group of employees, it should not be necessary to designate the specific employee or employees causing it, but that the aggregate liability therefor should not exceed the face of the bond. The second bond was executed by defendant on October 1, 1929, and it was terminated on October 1, 1930. It was for the principal sum of $10,000 and provided that if loss should occur through fraud or dishonesty of one or more of a group of employees, all of whom were covered by the bond, and the insured should be unable to designate the specific employee or employees causing it, the insured should have the benefit of the bond, provided that the aggregate liability should not exceed $10,000; and it was further expressly provided that liability should be limited to acts committed while the bond was in force and which were discovered and reported not later than two years after its termination. A so-called rider was attached to the bond which, having reference to the bond of the Metropolitan Casualty Company, provided: "Now, Therefore, it is hereby understood and agreed as follows: That the attached bond shall be construed to cover, subject to its terms, conditions and limitations, any loss or losses which may have been caused under said fidelity suretyship by any `Employee,' and which shall be discovered after the expiration of any such period, or, if there be no such period, after the bar of the statute of limitations, and before the expiration of the time limited in the attached bond for the discovery of loss thereunder caused by such `Employee' and which would have been recoverable under said fidelity suretyship, had it continued in force, and also under the attached bond, had such loss or losses occurred during the currency thereof, provided that nothing herein contained shall be construed to render the Surety liable under the attached bond for a larger amount on account of any loss or losses under said fidelity suretyship than would have been recoverable thereunder had it continued in force, or to increase the time for discovering, or making claim for, loss under said fidelity suretyship in beyond what would have been the time, had it continued in force. * * *" The third bond was executed by the defendant on October 1, 1930, and it was terminated one year later. It was for the principal sum of $2,500; its material provisions were identical with those contained in the previous bond, and it bore a rider similar to that just quoted, except that it referred to the previous bond of the same company.

The action was in two counts. It was alleged in the first that between July 1st and December 31, 1929, plaintiff sustained a loss of $8,859.55 caused by theft and embezzlement of merchandise by its employees; that between January 1st and June 30, 1930, it suffered a like loss of $7,523.25, and that between July 1st and December 31, 1930, it suffered a similar loss of $7,449.18; that it was unable to designate the specific employees causing such losses; that it discovered the losses not earlier than April 30, 1932, and that it gave notice and submitted proof thereof within the prescribed time. Judgment was prayed in the sum of $10,000, the face of the bond of 1929. It was alleged in the second count that between January 1 and June 30, 1931, plaintiff sustained a similar loss of $12,309.29; that it was unable to designate the specific employees causing it; that it was not discovered until on or about January 19, 1932, and that notice was given and proof thereof submitted within the required time. Judgment was prayed in the sum of $2,500, the face of the bond of 1930.

In addition to a general denial, the defenses were that plaintiff failed to give notice and submit proof of the losses within the time provided in the bonds; that plaintiff took semiannual inventories of its stock of merchandise on hand and had sufficient knowledge to put it on notice of shortages if they existed, and that by the exercise of ordinary care and prudence it could have discovered any loss within six months after it occurred and could have prevented further embezzlements.

A verdict was returned for plaintiff in the sum of $10,000. Judgment was rendered for that amount with interest thereon from July 18, 1932, the date on which the action was instituted. Defendant appealed.

Error is assigned upon the action of the court in admitting testimony detailing conversations had and statements made by some of the employees who participated in the embezzlements which extended over a period of many months. Three former employees testified with reference to the nature and extent of the scheme through which the embezzlements occurred; they described how merchandise was placed on trucks without invoices or delivery sheets, and how it was sold and the proceeds divided among employees; they named several warehousemen, truckers, and checkers who were parties to the scheme and repeated conversations had among them concerning the matter. In addition, a baker testified that for fourteen months he bought substantial quantities of misappropriated merchandise consisting of sugar and compound at less than half the regular price; that such purchases were made from four different truck drivers; that he sometimes made purchases daily and sometimes a week intervened between them; that truck drivers sometimes left as much as thirty sacks of sugar and eight, ten, or fifteen cans of compound at his place of business and later took it away; that he saw them endeavoring to dispose of cigars, soap, washing powder and canned goods for whatever price they could obtain; that some of the employees told him the merchandise was being abstracted through a concert of action among many employees and sold to various purchasers; that some of it was being stored in a building rented for that purpose; that one former employee was taking orders and making deliveries in his private automobile, and that they were each making from fifty to seventy-five dollars per day. The wife of that witness corroborated his testimony in many of its substantial parts. It is said that all of such testimony was mere hearsay, not part of the res gestæ and not binding on the defendant. It is unnecessary to determine whether statements made by an insured after the embezzlement or misappropriation has been completed and which relate to a...