Jellico Grocery Co. v. Sun Indem. Co. of New York

• Decision Date: 22 February 1938
• Citation: 272 Ky. 276,114 S.W.2d 83
• Parties: JELLICO GROCERY CO. v. SUN INDEMNITY CO. OF NEW YORK.
• Court: Kentucky Court of Appeals

114 S.W.2d 83

272 Ky. 276

JELLICO GROCERY CO. v. SUN INDEMNITY CO. OF NEW YORK.

Court of Appeals of Kentucky

February 22, 1938

Appeal from Circuit Court, Whitley County.

Suit by the Jellico Grocery Company against the Sun Indemnity Company of New York to recover on an indemnity policy insuring the plaintiff against loss which it might sustain through fraud dishonesty, forgery, theft, or embezzlement of its employees. Judgment for defendant, and the plaintiff appeals.

Affirmed.

Tye Siler, Gillis & Siler, of Williamsburg, for appellant.

Stephens & Steely, of Williamsburg, and Green, Webb, Bass &amp McCampbell, of Knoxville, for appellee.

BAIRD Justice.

The Jellico Grocery Company appeals from a judgment of the Whitley circuit court where the court directed the jury to find for appellee.

The Jellico Grocery Company is a corporation engaged in the wholesale grocery business in Kentucky and Tennessee. Its home office is situated at Williamsburg, Whitley county, Ky at which place it operates a store. Its main store is situated in Jellico, Tenn., where its principal records were kept and where its managers of branch stores reported. It operated for years a branch store at Oneida, Scott county, Tenn. At that store the general manager was Robert W. Easley. He was manager for the company from about 1918 until his death on March 22, 1936. On August 1, 1928, appellee, Sun Indemnity Company of New York, a corporation, issued to appellant an insurance policy of indemnity by the terms of which appellant was indemnified against loss, which it might sustain through the fraud, dishonesty, forgery, theft, embezzlement, and wrongful abstraction of any of its employees. Robert W.Easley, the manager of the branch store at Oneida, Tenn., was included as one of its employees and the indemnity insurance covered him to the amount of $1,000.

There is no claim or allegation in appellant's petition that Easley was guilty of forgery, theft, embezzlement, or wrongful abstraction of any funds or property while in appellant's employ, but it is alleged that a loss resulted to it on account of Easley violating an agreement that he made with the company after the policy was issued, which was that he would not extend credit to M. I. Thompson or to the M. I. Thompson Coal Company, both of whom were alleged to be insolvent. It is further alleged that in violation of that agreement and against appellant's direction, Easley wrongfully extended credit to both M. I. Thompson and the M. I. Thompson Coal Company, and fraudulently and dishonestly concealed the fact from appellant and deceitfully made and caused to be made to it reports of the transactions of the store by omitting from his reports that credit had been extended to M. I. Thompson and the M. I. Thompson Coal Company. It is alleged that the extension of the credit given resulted in great loss to it which was far in excess after the loss was ascertained of the sum of $1,000, the amount of the policy. Appellee by answer admitted the execution of the indemnity policy, but denied all other material facts set out in the petition and further alleged other defenses to which attention will be called later.

The first question presenting itself to the court in the outset is, Does the evidence justify a recovery under the provisions of the indemnity policy sued on? There is no evidence that Easley profited personally in any manner by granting credit to the Thompsons, but there is positive evidence that he did not so profit. There is no evidence that Easley stole embezzled, forged, or abstracted any property belonging to appellant under his management. The only charge made is, that he violated the directions of his employer by giving credit to M. I. Thompson and the M.I. Thompson Coal Company, and that he failed to report the credit given at the head office in Jellico, Tenn. Did the giving of the credit and failure to report constitute the fraud or dishonesty covered by the indemnity policy? The evidence does not sustain the conclusion that his acts and doings were that of a dishonest man. Neither A. T. Siler, president of the company, nor George H. Bales, bookkeeper, at Oneida, Tenn., the only witnesses who testified for appellee, state that Easley was dishonest or that he intentionally perpetrated a fraud by what he did. Easley, no doubt, after having had charge of appellant's store so long, had at heart the success and prosperity of the general business of the store. The evidence is to the effect that M. I. Thompson and the firm of the M. I. Thompson Coal Company, composed of M. I. Thompson and ___ Thompson, his son, were partners and had been customers of the Oneida store for many years. For seven or eight years of the time Easley had charge, the Thompsons had purchased for themselves and for the partnership large quantities of merchandise. Credit in large amounts had been extended to both M. I. Thompson and the coal company during that time. Goods to the amount of from $50,000 to $75,000 had been purchased at this store by the Thompsons. The credit extended to them by Easley in violation of the direction of appellant we are convinced was not actuated by any fraudulent or dishonest intent. Easley extended the credit, we think, believing in the end that the business of the Thompsons would be profitable to the business he had in charge. It is in evidence that the bookkeeper Bales, in making out the reports for the store, was directed by Easley not to include the credit given the Thompsons when he mailed the reports to the general manager at Jellico, Tenn. It is also in evidence that under Easley's direction, at least for three separate months, the credit extended to the Thompsons was not included in the reports, but it is further in evidence that Easley explained that by saying at the time, that to do so would necessitate considerable letter writing and correspondence between them. It is further in evidence that the books and ledger of the Oneida store were open and free at all times to be examined by U.S. Jones, general manager of appellant's company, and at a number of times Jones visited the...