Appeal from the District Court of the United States for the Southern District of New York.
Before MANTON, AUGUSTUS N. HAND, and CHASE, Circuit Judges.
Judgments were entered below for Jules E. Brulatour in the sum of $5,402.60 and for J. E. Brulatour, Inc., for$38,318.18 on verdicts directed by the court. The action is on a fidelity bond by which the appellant insured the appellees during the period involved against loss through embezzlement or other specified wrongful acts of any employees occupying the positions enumerated in a schedule attached to the bond. The appellees lost $38,491 by reason of an employee's acts of embezzlement between 1922 and 1929, inclusive, and the question presented is whether the appellant is liable for the full amount of this loss or whether its obligation was effectively limited by the terms of the bond to a maximum of $12,500. This raises the question of whether there were separate yearly contracts, under each of which the appellees could recover $12,500, or whether there was a single contract continued from year to year by annual premium payments with the liability thereon noncumulative.
The bond, written in 1924, extended its coverage by an attached rider to losses occurring in 1922 and 1923, undiscovered until a later date. It provided that the appellant for and in consideration of an annual premium bound itself to pay the assured for any losses suffered through embezzlement or similar acts by any of the employees occupying the positions "now named in, or hereafter added to, the schedule attached hereto, and which is hereby made a part of this bond, and not exceeding the amounts specified for such positions in such schedule, during the period commencing with the respective dates set opposite such positions in such schedule and pending as hereinafter stated."
The only methods of termination were set forth in the ninth provision, reading: "Any suretyship hereunder may be terminated as a whole, or as to any portion, or as to any employe, by the Company upon thirty (30) days notice to the Employer, and likewise the Employer mayterminate any suretyship by notice in writing to the company specifying the date of cancellation. Thereupon the Company shall refund the unearned premium for such suretyship if no claim has been paid thereunder."
The original schedule bears the same date as the bond, and recites a list of officials and employees of the assured, guaranteed under the bond in certain amounts for certain premium. There is a notation, "Effective date 1-4-24." The employee guilty of embezzlement was listed as guaranteed in the amount of $12,500. The original bond provided: "The liability of the Company hereunder on account of all loss or losses caused by each and every person while filling any position named in said schedule, or added thereto, shall not exceed the amount set opposite such position in said schedule, or for which such position shall be added thereto. * * *"
Further it provided: "The Employer undertakes and agrees to furnish the Company on each premium anniversary date hereof a statement specifying the number of positions to be covered, the number of persons occupying each position, and the amount of coverage required for each position."
Pursuant to this requirement, the appellee furnished a schedule each year similar to the one above, in which this dishonest employee was covered for $12,500. These schedules recited that they were schedules for the original bond and that the listed employees were guaranteed for the stated amount under this bond. Each successive schedule recited as its effective date the first day of each year. Since 1931 the form of the schedules has been expanded. They referred to the bond as effective as of January, 1924, recited as consideration the renewal premium and explicitly provided that "this list shall be deemed a part of the original bond and not a new obligation, nor shall it create a cumulative liability."
The bond and its yearly schedules did not constitute separate contracts. There is nothing either in the contract or the evidence to indicate that the original contract set up by the bond ever ended. None of the specified means of termination were employed, and there is no showing that it would expire automatically. The bond recited a consideration of an annual premium. This was paid yearly for a continuation of the insurance, as the premiums of a life insurance policy are paid to continue a single contract. The yearly schedules all expressly state that the coverage is under the original bond. The fact that the schedules recited a date uppon which they should become effective is not an indication that this original obligation terminated and was renewed each year.
There is evidence showing how the parties regarded their relation. Shortly after the original bond was written, the business was incorporated, yet all the subsequent schedules recited that they guaranteed the employees of the individual and the corporation "as interests may appear." If each schedule was a separate contract, there would be no purpose or meaning to this provision, for the insurance would be covering employees of the corporation alone.
And, when the assured had discovered the loss and notified the company by letter, that letter stated that they believed the loss was greatly in excess of the amount of the bond. When it is considered that their estimate of the loss at this time was $25,000, it appears that they regarded the bond as covering them only to the extent of $12,500 in the aggregate, since even at this time they realized that the defalcations extended through a period of years. Moreover, the assured made no comment on the revised form of the 1931 schedule, which left no doubt that the company was assuming only noncumulative liability. If the appellees viewed the contract differently, they would not have remained silent when the rights which they assumed they had were thus cut down.
This schedule speaks of a "renewal premium." Appellees suggest that the use of this term by the appellant and their agent in several change notices, bills, and receipts was an indication that the appellant regarded the contracts as severally expiring at the end of each year. But any such inference that may be so extracted is negatived by the fact that the appellant referred to "renewal" even when it was clearly defining the contract as single throughout various years with noncumulative liability.
Another indication of the understanding of the parties in the original bond is found in the paragraph defining the extent of liability. It recites: "The liability of the Company hereunder on account of all loss or losses caused by the same person while filing two or more of such positions, either at the same time or at different times, shall not exceed the amount for which such ...