Eddystone Fire Co. v. Continental Insurance

O’KICKI, Judge,

dissenting:

As the Appellee Defendant Insurance Companies in this case, points out, there are three issues arising from the facts in this case: (1) Did a loss occur within the meaning of the bond regarding the performance of the treasurer? (2) Did the Plaintiff, Volunteer Fire Company, fulfill conditions precedent to recovery on the bond? (3) Are bonds issued by separate member companies of an association cumulative in their coverage at least between the companies?

In an oral Opinion from the bench, the Trial Court found that, (1) losses did occur within the meaning of the applicable bond; (2) that the Plaintiff, Volunteer Fire Company, did perform an annual Audit, sufficient to comply with the terms of the bond; (3) that the three companies which issued the bonds were members of the Continental Insurance Companies group and that as they had this association, they would be deemed one company for the purposes of determining the total liability on the loss and limited such liability to Five Thousand 00/100 ($5,000.00) Dollars on all three policies.

The Appellee, Defendant Insurance Company, raised an issue both at trial and in his argument before this Court that there could have been undisclosed Savings Accounts in which all the losses were really present. The chief witness for the Plaintiff, Daniel Edward Mingis, C.P.A., testified *268 that he conducted a thorough Audit of the Fire Company’s accounts following the death of William Rankin, the treasurer for the Volunteer Fire Company. During his investigation of the accounts, he testified that he found no evidence of any additional savings accounts. The Trial Judge’s discretion as fact finder must surely stand against the unfounded possibility raised by the defense. A verdict cannot be founded upon such a guess as the defense propounded. Warden v. Lyons Transportation Lines, Inc., 432 Pa. 495 , 248 A.2d 313 (1968).

The Defendants, Appellees, also argued that recovery should not be had on the bonds because of the failure of the Volunteer Fire Company to fulfill conditions precedent to their recovery on the bond. That condition precedent was:

“ . . . the assured agrees to examine and verify the books of account kept and the money and property handled by each official, at least annually.”

There was testimony at trial from Paul F. Sides, III, that as Secretary of the Volunteer Fire Company, he personally knew that reports were given by an Audit Committee every year that the books were in order and the accounts sufficient. The Attorney for the Defendant Insurance Companies, in his Brief, claimed that “The Accountant who testified on behalf of the Plaintiff conceded that if even a cursory review of the books of account of the Treasurer had been conducted, even by laymen, the alleged defalcations would have been immediately apparent inasmuch as the amounts reported on deposit greatly exceeded the amounts actually shown in the checking and savings account statements.” The actual testimony was as follows:

“Q. What was the actual balance in the account?

A. The balance on the bank statement was $392.05.

Q. Now, that you don’t have to be a CPA to know that there is something fishy about that situation, do you?

A. No, sir.

Q. Now, a layman can look at a bank statement and a report from a treasurer as to the alleged balance in the account and determine immediately that there is a defi *269 ciency of some, what, $10,300.00 in that particular instance?

A. Quite a bit, yes.

“Q. And you feel that if one had conducted an examination to verify the books of the accounts kept by Mr. Rankin on a yearly basis, that those differences would have jumped out immediately to whomever conducted that examination?

A. I believe we went through this before and I guess my answers still the same. It would depend on whether that one was qualified to perform such an examination. In my own case, yes, absolutely. That would be one of the first places I would look. I can’t speak for what someone else without those qualifications could do or would do.”

As is evident from this excerpt of the Notes of Testimony, taken as a whole, the accountant went on to qualify his statement concerning laymen and their ability to verify the books. In consideration of this and upon going through the record, we find the C.P.A. made no statement that would contradict the Trial Judge’s finding that Audits were made on a yearly basis consistent with Statement 3 of the Schedule of Coverage of the Bond.

The issue that divides me from my colleagues is whether there is coverage by one insurance company or three (the National Ben Franklin Insurance Company of Pittsburgh, the Firemen’s Insurance Fund of Newark, New Jersey, and the Phoenix Assurance Company of New York.) In the issued policy of each company, there is a Section which provides:

“If this bond is issued as a continuation of a bond previously issued by the Company to the assured, it is understood and agreed that in order that the change from such prior bond to this bond may not impair the assured’s interests, this bond shall be construed to cover every loss within the period of the prior bond that would have been recoverable under the prior bond had the prior bond continued in force.

*270 PROVIDED:

... (d) That the aggregate liability of the Company on account of any loss or losses, whether sustained within the term of the prior bond or within the term of this bond, or partly within the term of each, shall in no event exceed the amount carried under this bond on the Official causing such loss or losses.”

As was held in Scranton Volunteer Fire Company v. United States Fidelity and Guarantee Co., 450 F.2d 775 (2d Cir. 1971), this language does limit the total recovery from the insurance company to Five Thousand 00/100 ($5,000.00) Dollars, no matter how many renewals, no matter how great a time period the Insurance Contract with that Company covered. However, to make the intuitive legal leap as the Defendant Insurance Company has urged and the Trial Judge did, is to equate all three insurance companies with each other under the generalized rubric of The Continental Group. The limitation of liability in this case is unwarranted under that Scranton holding. If it properly understood the meaning of Clause 8(d), as the Defendant insurance company intended it, any insured should seek insurance coverage with a different insurance company each year that it sought such coverage. The difference is that if the insurance is sought with different companies, then the same yearly premium would provide Five Thousand 00/100 ($5,000.00) Dollars of coverage each year that an insurance policy was in force. Whereas, if the insurance coverage is kept with the same company for several years, then the total liability is limited to Five Thousand 00/100 ($5,000.00) Dollars. Does not an insured contract for $5,000. worth of protection in EACH YEAR? In 1936, the Third Circuit Court of Appeals, in Standard Acc. Ins. Co. v. Collingdale State Bank, 85 F.2d 375 , found that a practical business concern would necessarily seek more insurance coverage for the premium rather than less. The Court said:

“We are the more persuaded to this view by the improbability that a practical concern, such as the Appellee herein, would pay one company two premiums for a single Right of Recovery if it could by payment of the same sum to two *271 separate insurance carriers procure recoverable insurance for two periods.”

If one fact is clear from the record in this case, it is that the Eddystone Fire Co., No. 1 is neither a sophisticated nor even necessarily a practical business concern. Volunteer Firemen work at that profession on a purely part-time basis providing a service to the community while they are not working at other jobs for their livings. It cannot be expected that they fully comprehend and understand the complex issues presented in any insurance contract drafted by experts for the insurance companies.

The issue then becomes, in this case, whether the paragraph as drafted by the Insurance Company, and construed according to the applicable law of construction of contracts, provides for consideration as one, all of the insurable policies in this case? Any ambiguity must be construed against the drafter of the instrument. Evans v. Baltimore Life Ins. Co., 216 Pa.Super. 425 , 268 A.2d 155 (1970). It should be noted that in no place within the language of the contract itself is there a reference to the Continental Insurance Group. The envelope cover (which is not part of the contract) on each insurance policy contains in the middle of it a picture of a Revolutionary Soldier and a small %’s inch by %’s inch block on the middle of the front page which states, “The Continental Insurance Company.” At all points within the Indemnity Contract, where the form refers to “Company”, the name of the individual Insurance Company is typed in. On the body of the agreement there is no mention of the term, “Continental Group.” The listed name on the face sheet is not sufficiently clear to provide notice to the insured that any Insurance Company doing business under that heading is merely a branch of the Continental Insurance Company. Indeed, even if the term, “The Continental Group Insurance Companies” is taken as part of the contract, such a designation in no way explains the relationship of the component companies to the other.

On the attached schedule, which it should be pointed out was not signed by the insured, it is indicated:

*272 “The assured, by the acceptance of this bond, gives notice to the Company terminating or cancelling prior bond(s) no (s) BND 173 1116 such termination or cancellation to be effective as of the time this bond becomes effective.”

The Trial Court (en banc) used this language to show a common bonding scheme that rendered the Ben Franklin Insurance, the Phoenix Assurance Company, and the Fireman’s Insurance Company a single Insurance Company. The Court en banc further determined that this language absolutely ended all liability on prior bonds when the new one was accepted. Even a cursory examination of Paragraph 8 of the Indemnification Agreement shows that termination of the bond does not end the liábility under the prior bond for acts which occurred prior to its termination. SubSection (d) of Paragraph 8 provides for liability to continue under the prior bonds, even though they are terminated.

If the Insurance Company wanted to clearly and unambiguously indicate to the insured fire company that for the purposes of determining total liability any Insurance Company within the Continental Group of Insurance Companies was to be considered as a Company within the meaning of Paragraph, Sub-Section (d), it could have stated at every point in the contract where it indicated the term “Company,” the Continental Group Insurance Companies, as an alternative, the Insurance Companies could have indicated on the first page of the agreement, underneath the name of the individual Company, the term “A Continental Group Insurance Company.” The reasons for this lack of clarification are not presented to this Court. The counsel for the Insurance Company presented no testimony at Trial, nor did he present any exhibits into the record to indicate the peculiar organization of the Continental Group Insurance Companies. The Court en banc and the Trial Court, reached the conclusion that all Companies were to be treated as one, without any significant evidence at all on the record indicating a relationship between them. The lower Court grasps at the face sheet, which is not even a part of the contract, as showing some sort of legal glue that ties together three *273 Companies. It is the opinion of this Judge that this finding and conclusion of the lower Court was in error. Accordingly, the decision should be reversed and remanded on this issue only.