PENN TP. v. Aetna Cas. & Sur. Co.

• Citation: 719 A.2d 749
• Court: Superior Court of Pennsylvania
• Decision Date: 02 September 1998
• Parties: PENN TOWNSHIP, Appellant, v. AETNA CASUALTY & SURETY COMPANY; Kemper National Insurance Company; Pennsylvania National Insurance Company, Appellees, v. Patricia E. FISHER, Appellee. PENN TOWNSHIP v. AETNA CASUALTY & SURETY COMPANY; Lumbermens Mutual Casualty Company; National Insurance Company v. Patricia E. FISHER. Appeal of AETNA CASUALTY & SURETY COMPANY. PENN TOWNSHIP v. AETNA CASUALTY & SURETY COMPANY; Kemper National Insurance Company; and Pennsylvania National Insurance Company v. Patricia E. FISHER. Appeal of PENNSYLVANIA NATIONAL INSURANCE COMPANY.

719 A.2d 749

PENN TOWNSHIP, Appellant, v. AETNA CASUALTY & SURETY COMPANY; Kemper National Insurance Company; Pennsylvania National Insurance Company, Appellees, v. Patricia E. FISHER, Appellee.

PENN TOWNSHIP v. AETNA CASUALTY & SURETY COMPANY; Lumbermens Mutual Casualty Company; National Insurance Company v. Patricia E. FISHER.

Appeal of AETNA CASUALTY & SURETY COMPANY.

PENN TOWNSHIP v. AETNA CASUALTY & SURETY COMPANY; Kemper National Insurance Company; and Pennsylvania National Insurance Company v. Patricia E. FISHER.

Appeal of PENNSYLVANIA NATIONAL INSURANCE COMPANY.

Superior Court of Pennsylvania.

Argued May 20, 1998.

Filed September 2, 1998.

Paul R. Wagner, Harrisburg, for Penn Tp.

Douglas B. Marcello, Harrisburg, for Aetna Cas. & Sur. Co.

Before CAVANAUGH, POPOVICH and BROSKY, JJ.

BROSKY, Judge.

These appeals are from the trial court's award of partial summary judgment in favor of appellee Aetna Casualty and Surety Company ("Aetna") on a fidelity bond. We affirm.

In 1985, appellant Penn Township, appellant in No. 1071,¹ engaged Patricia E. Fisher, a third party defendant below but not a party to this appeal, to act as treasurer to the Township. Ms. Fisher remained in this post until March 1990. During this period, appellee Aetna and others issued fidelity bonds of which Ms. Fisher was the named principal and appellant Township was the named obligee. The instruments which are the subject of this appeal were all issued by appellee, and were in effect for the periods January 6, 1986-January 5, 1987; January 5, 1987-January 4, 1988; January 4, 1988-January 2, 1989; January 2, 1989-January 1, 1990; and January 1, 1990-January 7, 1991.

In March 1990, a review of the appellant's financial records disclosed that a sum of approximately $400,000.00 had been embezzled. Almost immediately, Ms. Fisher became the focus of an ensuing criminal investigation. She was eventually convicted of larceny and sentenced to a term of incarceration in a state correctional institution.

On August 7, 1991, appellant brought the instant lawsuit in which it sought to recover from both Ms. Fisher and from the sureties on the various fidelity bonds naming Ms. Fisher as principal. After discovery was complete, the trial court entered partial summary judgment in favor of Aetna, finding that Aetna's maximum liability to appellant was limited by the unambiguous terms of its contract with the Township to $125,000.00 for the entire period during which Aetna was surety to Ms. Fisher. After summary judgment was entered, the case proceeded to trial against the other surety companies. Aetna did not participate in the trial because it did not challenge its liability in the amount of $125,000.00. Appellant filed a timely appeal, in which the sole issue presented for our review is whether the trial court erred in determining that Aetna's maximum liability to the Township was $125,000.00.

The trial court's decision has two components: the determination that the bond(s) contained no ambiguity and the determination that Aetna's interpretation of the non-cumulation provision was correct. Both determinations were questions of law. Community College of Beaver County v. Community College of Beaver County, Society of the Faculty, 473 Pa. 576, 592-94, 375 A.2d 1267, 1275 (1977); Novak v. Commonwealth, 133 Pa.Cmwlth. 220, 575 A.2d 661, 663 (1990). Our scope of review is therefore plenary. Borden v. Advent Ink, Co., 701 A.2d 255, 258 (Pa.Super.1997).

Whether a bond imposes cumulative liability over several years of operation is a question that must be determined in light of the facts of each case and the provisions of the bond under which the claim arose. Eddystone Fire Co. No. 1 v. Continental Ins. Cos., 284 Pa.Super. 260, 263-65, 425 A.2d 803, 805 (1981). A fidelity bond is a contract of insurance, and the rules of interpretation of insurance policies apply. Id. If a provision of an insurance policy is unambiguous, then the meaning of the term is determined exclusively by the words of the contract. Pennsylvania Manufacturers' Ins. Co. v. Aetna Casualty and Surety Ins. Co., 426 Pa. 453, 457-59, 233 A.2d 548, 551 (1967). If the contract is ambiguous, then the fact finder may look to parol evidence to determine the contract's meaning. Hutchison v. Sunbeam Coal Corp., 513 Pa. 192, 200-04 and n. 5, 519 A.2d 385, 390-91 and n. 5 (1986). If examination of the parol evidence proves unfruitful, the court may then resort to rules of construction. Id. Our analysis therefore begins with the policy language.

Aetna provided coverage from January 1986 to January 1991, and a separate document setting forth Aetna's obligations to appellant was issued covering time periods corresponding approximately to each calendar year.² Each document is only one page long. The text of the bond covering the period January 6, 1986-January 5, 1987 reads in full:

04 S XXXXXXXXX-XXXXXX BCA

THE AETNA CASUALTY AND SURETY COMPANY

Hartford, Connecticut

PUBLIC OFFICIAL BOND

KNOW ALL MEN BY THESE PRESENTS: That PATRICIA E. FISHER, Principal, and THE AETNA CASUALTY AND SURETY COMPANY, Surety, a corporation organized under the laws of the State of Connecticut, with its Home Office in the City of Hartford, in the said State, are held and firmly bound unto the TOWNSHIP OF PENN, Obligee, in the aggregate and non-cumulative sum of ONE HUNDRED TWENTY FIVE THOUSAND and 00/100 Dollars ($125,000), for the payment whereof to the Obligee the principal binds himself, his heirs, executors, administrators, and assigns, and the Surety binds itself, it [sic] successors and assigns, jointly and severally firmly by these presents.

WHEREAS, Principal has been duly appointed or elected to the office of TREASURER for the term of office beginning on JANUARY 6, 1986 and ending on JANUARY 5, 1987.

NOW, THEREFORE, The condition of the foregoing obligation is such, that if the Principal shall during the said term faithfully perform such duties as may be imposed on him by law and shall honestly account for all money that may come into his own hands in his official capacity, then this obligation shall be void; otherwise it shall remain in force.

THE BOND IS FURTHER CONDITIONED that the liability of the Surety shall be fully terminated to future acts of the Principal thirty (30) days after receipt by the Obligee of the Surety's written notice of cancellation.

SIGNED, SEALED AND DATED 11/1/85

The instruments which set forth Aetna's obligations for the years 1987-1990 were identically worded to the 1986 bond except for Ms. Fisher's dates of office and the date of execution. The sum assured and the bond number in the top right hand corner remained unchanged.

The trial court found that the phrase "in the aggregate and non-cumulative sum" clearly and unambiguously limited Aetna's liability to $125,000.00 for the entire period for which Aetna provided coverage. The township agrees that the language is unambiguous. It contends, however, that the plain meaning of the first paragraph of the bond is that Aetna's liability is limited to $125,000.00 for the aggregate of all losses caused by any defalcations by Ms. Fisher during the period of office specified in the second paragraph. Thus appellant argues that it may recover a maximum of $125,000.00 for each of the bonded years 1986-1990.

It should be noted that there is very little Pennsylvania authority to aid us in interpreting the bond in question. This much can be said: there is nothing inherently improbable about the interpretation placed on the limiting provision by either party or the trial court. The statute pursuant to which a bond was required neither requires nor prohibits a non-cumulative bond. 53 P.S. § 65702. Although some courts and commentators have questioned why a municipality would purchase a bond which limited its liability to a fixed sum over many years of operation, Standard Accident Ins. Co. v. Collingdale State Bank, 85 F.2d 375, 376 (3d Cir.1936); Note, Fidelity Bonds — Does it Pay to Renew Them? 27 Mich. L.Rev. 442 (1928), we have not found this argument persuasive when the policy clearly provides for non-cumulative liability. Eddystone Fire Co.,284 Pa.Super. at 263-65, 265-67,425 A.2d at 805, 806. As has been noted by other courts other factors, such as reduced premiums, elimination of the need to prove the precise date of a defalcation and a longer time period in which to bring a claim, can make a continuous, non-cumulative bond an attractive option. A.B.S. Clothing Collection Inc. v. Home Ins. Co., 34 Cal.App.4th 1470, 1476-77, 41 Cal.Rptr.2d 166, 169 (1995); Columbia Hospital for Women and Lying In Asylum v. United States Fidelity and Guaranty Co., 188 F.2d 654, 657 (D.C.Cir.1951)

.

On the other hand, as this case shows, there is nothing inherently improbable in the proposition that a municipality would want to have the policy limit available to it every year. This is especially true if, as amici suggest, it could have had such coverage at no extra cost merely by switching surety companies each year. Therefore a consensus has developed that a surety company may limit recovery to an aggregate sum over many years of coverage, but that the parties' intention to enter into a continuing bonding scheme must clearly appear. A.B.S. Clothing Collection Inc. v. Home Ins. Co., 34 Cal.App. 4th 1470, 1478, 41 Cal.Rptr.2d 166, 170 (1995); Scranton Volunteer Fire Co. v. United States Fidelity and Guaranty Co., 450 F.2d 775, 776 (2d Cir.1971); Columbia Hospital, 188 F.2d at 657, 659; State ex rel. Guste v. Aetna Cas. & Sur. Co., 417 So.2d 404, 406 (La.Ct.App.1982).

To determine the parties' intent here, we begin with the terms of the bond itself, and the threshold question that we must address is whether the contract is clear or ambiguous. A contract is ambiguous if it is reasonably susceptible of different constructions and capable of being understood in more than one sense. Hutchison, 513 Pa. at 200-02, 519 A.2d at 390. If a contract is reasonably...