SHERMAN & HEMSTREET v. CINCINNATI INS.

• Decision Date: 29 March 2004
• Docket Number: No. S03G1190.,S03G1190.
• Citation: 277 Ga. 734,594 S.E.2d 648
• Court: Georgia Supreme Court
• Parties: SHERMAN & HEMSTREET, INC. v. CINCINNATI INSURANCE CO.

594 S.E.2d 648

277 Ga. 734

SHERMAN & HEMSTREET, INC. v. CINCINNATI INSURANCE CO.

No. S03G1190.

Supreme Court of Georgia.

March 29, 2004.

Reconsideration Denied April 13, 2004.

Warlick, Tritt, Stebbins & Hall, Augusta, William B. Warlick, for Appellant.

Howard, Clark & Mercer, Douglasville, Glen W. Clark Jr., for Appellee.

Powell, Goldstein, Frazer & Murphy, Atlanta, Linda G. Birchall, for amicus curiae.

SEARS, Presiding Justice.

Certiorari was granted to consider whether the Court of Appeals correctly construed an insurance policy's provisions governing the limit of insurance applicable to coverage for employee dishonesty. Having reviewed the record in light of certain stipulations concerning the policy made by the parties before the trial court, we determine that the Court of Appeals' decision was correct. Therefore, we affirm.

Sherman & Hemstreet, Inc. ("Sherman"), purchased a commercial insurance policy issued by the Cincinnati Insurance Company ("Cincinnati") that provided coverage for, among other things, loss due to employee dishonesty. In their cross motions for summary judgment, the parties stipulated that the insurance policy had a three year term from September 1, 1997, to September 1, 2000, and that the policy was renewed for an additional three year term from September 1, 2000, to September 1, 2003. Otherwise, the parties stipulated, the provisions of the two policies were identical.

The policies provided that in cases of employee dishonesty, the "most [Cincinnati] will pay for loss in any one `occurrence' is the applicable Limit of Insurance shown in the Declarations." The Declarations, in turn, limited recovery for loss due to employee dishonesty to $50,000. Both policies defined an "occurrence" as "all loss caused by, or involving, one or more employees whether the result of a single act or a series of acts." Thus, for all losses due to the dishonest acts of employees (either a single employee or a group acting in concert), the policies limited Sherman's recovery to $50,000. The policies also included the following non-cumulation clause: "Regardless of the number of years this insurance remains in force or the number of premiums paid, no Limit of Insurance cumulates from year to year or period to period."

Four years after the original policy took effect, Sherman discovered that due to ongoing embezzlement by a single employee, it had sustained losses in each of the three years covered by the original policy and during the first year of the renewed policy. It submitted a claim to Cincinnati seeking to recover $160,670-$50,000 for each year of the original three-year policy and $10,670 for the first year of the renewed policy. Cincinnati paid Sherman $50,000, explaining that was the extent of Sherman's coverage for employee dishonesty. Sherman demanded the additional $110,670, and sued. The trial court granted Sherman's motion for summary judgment. On appeal, the Court of Appeals affirmed in part and reversed in part,¹ concluding the policies' terms were ambiguous as to whether the renewed policy set a new $50,000 limit independent of the original policy. That ambiguity was construed in favor of the insured, and hence the Court of Appeals affirmed the ruling that Sherman could recover $10,670 under the renewed policy. The Court of Appeals concluded, however, that under the unambiguous terms of the original policy, Sherman's coverage for employee dishonesty was limited to $50,000 for the entire three year period. Therefore, it reversed the trial court's ruling that Sherman was entitled to recover an additional $100,000 under the original policy. This Court granted Sherman's petition for certiorari.

1. Cincinnati argues that the Court of Appeals erred in requiring it to pay $10,670 to Sherman under the renewed policy, because the non-cumulation clause limited Sherman's recovery to $50,000 "regardless of the number of years [the] insurance remains in force or the number of premiums paid."² As noted above, though, Cincinnati stipulated that there were two insurance policies, one of them an original and the other a renewal. We agree with the Court of Appeals that in light of that stipulation, the non-cumulation clause is ambiguous because it could be construed to mean either: (1) that Cincinnati's maximum aggregate liability, regardless of the number of policies that it issued, was limited to $50,000, or (2) that the liability limit for the original policy could not be "carried over" to increase the liability limit for the renewed policy, although both policies indemnified Sherman for up to $50,000. We must construe this ambiguity in favor of the insured,³ and thus we agree with the Court of Appeals' judgment permitting Sherman to recover $10,670 under the renewed policy.

2. Sherman argues that the original policy was not for a term of three years, but rather was a series of separate, independent contracts, each for a term of one year. Thus, argues Sherman, it is entitled to recover up to the policy's $50,000 limit of liability for each of the three years in which a loss occurred. As noted above, however, Sherman stipulated before the trial court that the original policy was for a term of three years:

The initial policy had a three (3) year term from September 1, 1997, to September 1, 2000, and the policy was renewed for an additional three (3) year term from September 1, 2000, to September 1, 2003. Otherwise ... the provisions of the two policies were the same.

The parties are, of course, bound on appeal by the stipulations upon which their case was decided in the trial court.⁴ Accordingly, Sherman is estopped from arguing on appeal that the policy was for anything other than a single term of three years.⁵

3. The Court of Appeals properly held that Sherman's recovery under the original policy was limited to $50,000. As with any contract, the terms of an insurance policy bear their usual and common meanings.⁶ In construing an insurance policy, we strive for the construction that will uphold the policy both as a whole and in every part.⁷ In construing any part of a contract for insurance, the contract as a whole must be taken into consideration.⁸

As discussed above, the original policy was for a term of three years. The policy unambiguously stated that for that three year period, the most Cincinnati would pay for losses due to employee dishonesty was $50,000 per "occurrence." The policy defined an "occurrence" as "all loss caused by, or involving, one or more employees, whether the result of a single act or a series of acts." The employee dishonesty at issue in this case was a series of embezzlements committed by a single employee over the course of several years. Thus, the loss for which Sherman sought indemnification under the original policy fell within the policy's definition of a single "occurrence." By its plain terms, the three year policy capped Sherman's coverage at $50,000 for this single occurrence.

4. The original policy's non-cumulation clause also limits Sherman's recovery to $50,000. That clause states that: "Regardless of the number of years [the] insurance remains in force or the number of premiums paid, no Limit of Insurance cumulates from year to year or period to period." Sherman claims the clause was intended to prevent the insured from seeking to carry forward unused portions of insurance from one year to the next. Thus, argues Sherman by way of example, if an insured lost $150,000 in the policy's third year due to employee dishonesty, the non-cumulation clause would prevent it from seeking to recover its entire loss by carrying forward $50,000 in unused coverage from both the first and second year of the policy.

Sherman's argument, however, is based upon the erroneous assumption that there was a separate $50,000 coverage limit for each year the policy was in place. In Divisions 2 and 3, supra, we have already rejected that same proposition. As discussed above, without considering the non-cumulation clause at all, the rest of the policy unambiguously allows recovery of only one limit of insurance. There is no annual limit for employee dishonesty, as urged by Cincinnati.

As noted above, the non-cumulation clause must be construed consistently with the remainder of the policy.⁹ Hence, we read the clause as unambiguously stating that payment of the premiums on an annual basis does not increase the single limit of insurance, regardless of whether the policy was written for a term of more than one year. Therefore, if (for example) Sherman had paid premiums for its three year policy on an annual basis, it could not argue that it necessarily follows there was an annual $50,000 limit of coverage.¹⁰ The non-cumulation clause plainly foreclosed any claim that the scope of coverage was tied to the schedule of premium payments or the length of the policy.

Moreover, the very terms of the non-cumulation clause are inconsistent with Sherman's argument regarding how that clause should be construed. The clause provides that regardless of the number of years the policy stays in force, the $50,000 per occurrence limit of insurance shall not cumulate, i.e.: shall not accumulate.¹¹ In other words, the policy provided for only one coverage limit "per occurrence"—$50,000.¹² 5. Sherman argues that it paid an annual premium and it should not be denied annual coverage. In essence, Sherman argues, it received nothing in exchange for its payment of annual premiums. However, we note that where the policy intended for insurance limits to apply on an annual basis, it said so explicitly. For example, the policy's provisions for general commercial liability coverage state that the insurance limits for that particular...