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December 5, 1980


The opinion of the court was delivered by: LEVAL


This is an action seeking to enjoin the cancellation of an insurance policy. The plaintiff Payroll Express Corporation is a New Jersey corporation engaged in the business of making payroll deliveries. The defendant Aetna Casualty and Surety Company has provided Payroll with dishonesty, disappearance and destruction insurance under a series of contracts beginning in 1972. On May 2, 1980, without prior warning, the Aetna served on Payroll notices of cancellation of certain provisions of the policy and on May 20 served notice of cancellation of the policy, to be effective June 21, 1980. Those actions gave rise to the present litigation. Payroll promptly sought a temporary restraining order contending that the terms of the policy forbade such cancellations. The restraining order was granted and was subsequently continued in effect by stipulation of the parties until November 24, 1980 while they attempted to resolve their differences. Trial was begun on November 20, the cancellation of the policy being further voluntarily deferred to December 24 to permit time for hearing and adjudication.

 Throughout the time in question Payroll Express has been engaged in the business of making payroll deliveries for its customers. The customers, characteristically large employers with a sizable payroll, make wire transfers to Payroll's bank of funds sufficient to meet the customer's payroll. Payroll, using its own vehicles, drivers, messengers and guards, transports the money to the customer's work site and there distributes the cash to the customer's labor force. Payroll's contracts with its customers require it to keep in effect an insurance policy against dishonesty, destruction and disappearance, a standard form of insurance commonly referred to in the industry as a 3D policy, or more generally as crime insurance. As of February 7, 1972 the Aetna began to provide Payroll with such coverage. The Aetna's standard form 3D policy contains no reference to duration, except for the statement in Section 16 that the policy is cancellable at any time on 15 days prior notice. Robert Felzenberg, the president of Payroll, had explained to the Aetna that he could not live with a policy cancellable on short notice because of the nature of Payroll's work and because of Payroll's contractual guarantees to its customers. Accordingly for 1972, the Aetna issued a letter to the effect that "The company agrees to provide coverage ... for a period of one year ...." from the effective date of February 7, 1972. (PX 18, 18a) There was some confusion as to whether Aetna had reserved by another paragraph a right to terminate on 30 days notice. Felzenberg sought clarification. Throughout this time Payroll had an excellent record in terms of freedom from losses. Felzenberg was constantly urging the Aetna to extend guaranteed longer term coverage. His objective was to obtain permanent non-cancellable coverage leaving the insurer free to change premiums as experience dictated.

 Because of Payroll's excellent loss-free record, in 1973 the Aetna agreed to extend its coverage to three years. Upon the renewal effective February 7, 1973 a new Special Endorsement No. 3 was issued which provided in paragraph 1 "The company agrees to provide coverage ... for a period of three years from the effective date ..." (PX 27) from February 7, 1973 to February 7, 1976. At the first anniversary of this three year policy, the Aetna issued a new Special Endorsement No. 3 in similar terms to the effect that the Aetna would provide coverage for three years until February 7, 1977. (PX 28) A year later a similar special endorsement was issued for the period February 7, 1975 to February 7, 1978, accompanied by a letter agreeing to maintain the premiums within certain limits throughout the period. (PX 29)

 Felzenberg remained concerned with the short duration of his policies. He regarded it as an essential cornerstone of his business to have crime insurance dependably in place against which to issue contractual guarantees to his customers. It troubled him that, operating under a three year policy, at the end of one year he had only two remaining years of guaranteed insurance and no assurance of premium levels thereafter.

 Thus in the end of 1975 as the expiration of the first year of the 1975 policy approached, Felzenberg renewed his quest for permanent, non-cancellable insurance. His concept was a policy which the Aetna would be required to maintain in effect permanently, providing that at the expiration of each year, the Aetna would set and guarantee the amount of the premium for the third year to come. Felzenberg pressed his request with Richard La Hue, an officer in the Aetna's Hartford home office who was in charge of the Payroll insurance contract. An appointment was made for Felzenberg to meet with La Hue at the Aetna's Hartford home office. What occurred at this meeting is the subject of dispute and conflicting testimony. Felzenberg contends that at this meeting the Aetna agreed to adopt his concept of permanent insurance with a guaranteed third year premium to be fixed at the expiration of every year. La Hue contends that the Aetna agreed to no such thing and remained firm in its refusal to grant what Felzenberg had been asking for several years. It is apparent that La Hue believed himself to have agreed to something different from its prior policy. For shortly after the meeting, La Hue instructed John Schramm, the Aetna's Albany office bond manager that either he or Peter Bennett (a former Aetna employee now employed by Marshall and Sterling, Aetna's agent for the Payroll coverage) should "design for (La Hue's) approval" a "Letter to Insured re non/can and premium level." (PX 30) Schramm apparently passed this assignment on to his subordinate Frank Maranto, who was in charge of the day to day operations of the Payroll policy, who in turn passed it on to Peter Bennett, as La Hue's memo had suggested. Bennett prepared a draft of these provisions in letter form, providing for the signature on behalf of the Aetna of Frank Maranto, Attorney-in-Fact. Schramm sent Bennett's draft to La Hue for approval. La Hue made two minor changes, not here significant, and otherwise approved the draft for issuance by the Aetna on February 19, 1976. (PX 31)

 On that day, pursuant to the negotiations which had taken place, the Aetna issued a new policy to Payroll effective February 7, 1976 which combined into a single policy the various types of insurance which previously had been set forth in two separate policies, and in accordance with La Hue's approval of the Bennett draft, a letter was issued dated as of February 7, 1976. The interpretation of that letter is the focal point of this litigation. It provided as follows (PX 1B):

Dear Mr. Felzenberg:
Payroll Express Corp.
Policy No. 10 BY 1580 BCA
Please be advised the following conditions are to apply to the above captioned policy.
(1) The Aetna Casualty & Surety Company agrees that the first paragraph Section No. 16 of the policy, dealing with the cancellation of policy or insuring agreement, is deleted in its entirety. The only exception to this will be failure on the part of the insured to pay the required premium, in which case, the company will have the options of cancellation under Section No. 16 of the policy.
(2) The Aetna Casualty & Surety Company further agrees that they will not decrease the limits of coverage on the above-captioned policy unless requested to do so by the insured.
(3A) The premium charge for the above-captioned policy is for the period February 7, 1976 to February 7, 1979, and is agreed to be $ 55,365. per year.
(B) This premium shall not be changed unless there is a merger or consolidation with some other concern or unless the insured purchases additional limits or coverages.
(4) The Aetna Casualty & Surety Company further agrees that, upon expiration of each of the policies' premium anniversary years, a new third year premium will be developed and will become a guaranteed cost, subject to 3B above.
Very truly yours,
The Aetna ...

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