Meyer Jewelry Co. v. General Ins. Co. of America

• Decision Date: 08 January 1968
• Docket Number: No. 1,No. 52510,52510,1
• Citation: 422 S.W.2d 617
• Parties: MEYER JEWELRY COMPANY, a Corporation, Appellant, v. GENERAL INSURANCE COMPANY OF AMERICA, a Foreign Corporation, Respondent
• Court: Missouri Supreme Court

Page 617

422 S.W.2d 617

MEYER JEWELRY COMPANY, a Corporation, Appellant, v.GENERAL INSURANCE COMPANY OF AMERICA, a Foreign CorporationRespondent.

No. 52510.

Supreme Court of Missouri, Division No. 1.

Jan. 8, 1968.

David Skeer, Leonard Rose, Kansas City, for appellant.Sheffrey, Ryder & Skeer, Kansas City, of counsel.

John R. Caslavka, Shughart, Thomson & Kilroy, Kansas City, for respondent; Shughart, Thomson & Kilroy, Kansas City, of counsel.

WELBORN, Commissioner.

This is an appeal by Meyer Jewelry Company from a summary judgment entered in favor of the General Insurance Company of America in an action by Meyer to recover $16,972.50, based upon the Employee Dishonesty Coverage of a Blanket Crime Policy issued by General to Meyer.

Meyer's petition alleged that it was engaged in the wholesale and retail jewelry business in Kansas City; that, from April, 1956 until May 11, 1964, it employed Cordie Thomas Hawkins as an assistant buyer that, from on or about June 30, 1961 to May 11, 1964, Cordie Thomas Hawkins conspired with Willis Hawkins to appropriate Meyer's merchandise for their own benefit by delivering items of inventory from the premises of plaintiff's store to their acquaintances and associates without charge, and by selling various items of merchandise to other persons without remitting the proceeds of such sales to plaintiff; that, after Cordie Thomas Hawkins was discharged from plaintiff's employ on May 11, 1964, plaintiff discovered the loss in the amount of $18,522.52.

The petition further alleged:

'6.DefendantCordie Thomas Hawkins successfully concealed from plaintiff's knowledge the fraudulent and dishonest taking of said property in the manner and way hereinafter set forth.Said defendant was in charge of the record of the merchandise inventory, and the extensions and computations reported thereon during the period of her said employment, and she was thus able to and did pad the amount of items counted when physical inventory was taken under her direction and supervision, so that the report of such inventory did not truly indicate the items in stock that were actually on hand, but rather overstated the quantity thereof; and further, said defendant marked up the prices of items in stock to prices higher than the prices previously recorded therefor, so that the report of such physical inventory taken under her direction and supervision reflected a higher dollar value than if said items had been honestly reported.Thus the inventories taken under said defendant's direction and supervision during her employment, as aforesaid, including the last inventory so taken by said defendant on June 30, 1963, reflected only a normal and modest shortage, whereas at said time there was an actual shortage of approximately $18,522.52.'

The petition alleged that General Insurance Company of America had issued to Meyer its Blanket Crime Policy, with a $25,000 limit of liability, and including the following coverage:

'EMPLOYEE DISHONESTY COVERAGE.Loss of money, securities, and other property which the insured shall sustain through any fraudulent or dishonest act or acts committed by any of the employees, acting alone or in collusion with others * * *.'

The petition alleged that Meyer had complied with the provisions of the policy regarding proof of loss, etc., but that General had refused to pay Meyer either the sum of $1,550.02, the amount of loss covered by the policy which could be proved 'by direct evidence, without resort to any inventory computation or profit and loss computation,' or the further sum of $16,922.50, the amount of loss covered by the policy, 'which sum can be proved by means of an inventory computation or a profit and loss computation.'(This appeal concerns only the claim for the $16,972.50.)

By its answer, General admitted the issuance of a blanket crime policy to Meyer and that proof of loss had been submitted by Meyer to it.General otherwise denied the allegations of plaintiff's petition, and its answer further stated:

'(3) Without in any way limiting its general denial contained herein this Defendant states that said policy number BC 415 issued by General Insurance Company, a copy of which is attached hereto as Exhibit A contains the following provision:

'Section 2, Exclusions.This policy does not apply: (b) to loss, or to that part of any loss, as the case may be, the proof of which, either as to its factual existence or as to its amount, is dependent upon an inventory computation or a profit and loss computation; provided, however, that this paragraph shall not apply to loss of money, securities or other property which the insured can prove, through evidence wholly apart from such computations, is sustained by the insured through any fraudulent or dishonest act or acts committed by any one or more of the employees.'

'That Section 2, referred to above specifically excludes from coverage any loss, the proof of which, either as to its factual existence, or the amount, is dependent on inventory computation or a profit and loss computation and this Defendant is not liable therefor.'

In response to interrogatories, Meyer enumerated approximately 90 transactions from January 12, 1962 to April 30, 1964, involving specified items of merchandise of a total value of some $1550 which it claimed Hawkins had appropriated.However, according to the stipulation of the parties filed in this appeal, those specific transactions were applicable to proof only of fact of loss insofar as the $16,972.50 claim was concerned.By further answers to interrogatories, Meyer stated that 'insofar as proving amount of loss'($16,972.50) it would not be able to use any other method than 'an inventory computation or a profit and loss computation.'

On the basis of Meyer's answers to the interrogatories, General filed a motion for summary judgment, contending that by virtue of Meyer's admission that proof of the amount of its loss was solely dependent upon an inventory computation or a profit and loss computation, it had been conclusively shown that the loss was excluded under Section 2 of the Exclusions of the policy issued by General.The trial court sustained the motion for summary judgment, and, after its motion for new trial had been overruled, Meyer appealed.

Questions involving the meaning and effect of the 'inventory computation' exclusion provision of employee fidelity policies are not altogether novel, although they are of comparatively recent origin, the provision having been incorporated in such policies since May, 1957.SeeKeech, 'The Investory Shortage Problem,' ABA, Section of Insurance, Negligence and Compensation Law, 1963, pp. 52, 53.An early case involving the exclusion was Mid-Continent Stores, Inc. v. Central Surety and Insurance Corporation, 377 S.W.2d 567, decided by the Kansas City Court of Appeals.The court of appeals affirmed a summary judgment in favor of the insurers, on the basis of the inventory computation exclusion, when the insured alleged a loss of $6100 due to fraudulent acts of one of its store managers, but conceded that it could not prove an amount of loss in excess of the $500 deductible amount 'otherwise than by means of an inventory computation.'377 S.W.2d 567.

The court of appeals accepted the insurer's contention that the exclusion was 'clear and unambiguous' and 'excludes from coverage any loss the proof of which, either as to its factual existence or as to its amount, is dependent on inventory computation * * *.'377 S.W.2d 568.Other than reciting the language of the provision found in the exclusion, the court made no reference to the proviso, the portion relied upon by appellant here, who readily considers that, without the proviso, the exclusion would preclude its claim.

In 1966, the St. Louis Court of Appeals, in Locke Distributing Co. v. Hartford Accident and Indemnity Co., 407 S.W.2d 658, considered the effect of the exclusion and the proviso.Two employees of a beer distributor acknowledged falsification of the accounts receivable records and the use of money thereby obtained.An 'audit' also revealed a beer inventory shortage, concerning which the employees made some statements acknowledging responsibility although they denied responsibility at the trial.The court of appeals held that the trial court should not have admitted in evidence the audit or testimony based upon it because 'the existence and amount of the beer shortage at the Poplar Bluff warehouse was ascertained by (the auditor) by inventory computation.'407 S.W.2d 669.In answer to this contention that the fact of loss had been established by evidence independent of the inventory computation and therefore the proviso permitted use of such computation to establish the amount of the loss, the court stated:

'The words 'as to its amount' appearing in the absolute prohibition was clearly intended to be carried over into the proviso, to prohibit the use of inventory computation in proof of the amount of the loss even though there be independent evidence of the act of stealing.The only effect of the proviso is to render inventory computations admissible as corroborative evidence, after proof of the misappropriation and the amount thereof by evidence independent of inventory computation.'407 S.W.2d 670.

In Gotcher Engineering & Manufacturing Co., Inc. v. United States Fidelity and Guaranty Company, 193 So.2d 115, decided by the Supreme Court of Mississippi in 1966, the court held that, by virtue of the inventory computation exclusion, a demurrer to a petition seeking recovery under an employee dishonesty policy was properly sustained inasmuch as the allegations of the petition were inadequate to takethe case out of the exclusionary provision.In that case, the petition alleged that the employees involved had access to the employer's warehouse and (except for the president of the company) exclusive control thereof; that, on the date of employment (February 20, 1962), a physical...