Appeal from the District Court of the United States for the Eastern District of Pennsylvania; George A. Welsh, Judge.
Before DAVIS, BIGGS, and BUFFINGTON, Circuit Judges.
The appellee, First National Bank of Weatherly, Pennsylvania, brought suit against the appellant, Aetna Casualty and Surety Company, for the sum of $45,600, upon a bond given by the appellant to cover any loss or losses occasioned by the dishonesty of any of the appellee's employees within the overage of the bond. Trezise, the appellant's cashier, named in the bond, embezzled the appellee's funds as follows: from May 18, 1931, to May 18, 1932, $14,100, from May 18, 1932, to May 18, 1933, $10,500, from May 18, 1933, to May 18, 1934, $6,000, from May 18, 1934 to May 18, 1935, $25,911, or a total of $56,511. Trezise's fidelity was insured by the appellant from May 18, 1931, to May 18, 1935.
The bond was issued upon May 16, 1922, and by its terms the appellant bound itself to pay to the appellee, " * * * such pecuniary loss as the Employer shall sustain * * * through the Embezzlement * * * of * * * any of the employes listed in the schedule forming part of this bond * * * during the period commencing upon the date each employe is listed hereunder and continuing in amounts scheduled until the termination of this insurance."
The schedule attached to the bond listed the employees whose fidelity was insured by the bond. The names upon this schedule were changed from time to time as the employees of the bank changed. In September, 1929, a change notice was sent to the bank by the insurance company effective upon September 3, 1929, providing that the fidelity of Trezise was insured in the sum of $15,000.
The record shows that Trezise remained in the appellee's employ from September 2, 1929, until September 10, 1936, when he was discharged.
The bond also provided that the insurance as to any employee should terminate only upon the bank giving written notice to the insurance company specifying the date of termination or the insurance company giving thirty days' written notice of termination to the bank, and as to any employee by his retirement from the employ of the bank or upon discovery by the bank of loss through that employee.
The bond also provided that the employer should have the right at all times while it was in force without impairing its continuity to add to the schedule names of other employees than those specified and to increase or decrease the amount of insurance coverage of any employee upon giving the insurer written notice thereof. The bond also provided in connection with this subject that the addition or increase should be effective and binding on the insurance company on and after the date upon which the bank should receive the insurance company's written acceptance of such notice.
The question presented by the appeal at bar for our determination may be stated as follows: Does the bond create as to any employee covered by it a single and continuous liability limited by the amount specified as the coverage upon each employee without regard to the length of time the bond is in force, or does it create a separate and distinct liability for each successive period of twelve months during the time of the coverage?
The learned District Judge held this question was governed by the decision of this court rendered in the case of Standard Accident Insurance Company v. Collingdale State Bank, 3 Cir., 85 F.2d 375. The appellant had previously filed an affidavit of defense demanding proof of the loss, and averred its liability could be only $15,000. Prior to trial it paid this sum to the appellee without prejudice.
The trial court received evidence aliunde the bond itself offered for the purpose of construing the instrument. This included schedules prepared by the appellant's agent at Scranton indicating insurance in effect under the bond, the "renewal dates" of such insurance in twelve months"' periods and the amount of premium to be paid by the appellee for each period. These schedules were never delivered to the appellee and their receipt in evidence was error for two reasons. First, it was not proven that the appellee had received the schedules or that its officers had any knowledge of their contents, and, second, the bond contains neither patent nor latent ambiguity which would justify the introduction of extrinsic evidence. National Surety Co. v. McGreevy, 8 Cir., 64 F.2d 899, 901; City of Newark v. Mills, 3 Cir., 35 F.2d 110; United States F. & G. v. Barber, 6 Cir., 70 F.2d 220, 226; etna Forge & Bolt Co. v. Youngstown S. & T. Co., 3 Cir., 282 F. 786; State Line & S.R. Co. v. Lenhigh R. Co., 277 Pa. 227, 120 A. 829; Sternbergh v. Brock, 225 Pa. 279, 74 A. 166, 24 L.R.A., N.S., 1078, 133 Am.St.Rep. 877.
Receipted bills, prepared by the agent of the appellant at Mauch Chunk, Pennsylvania, were also introduced in evidence. Each of these bills under the heading "Explanation" sets forth an expiration date for the bond in May of the following year. These bills were not upon the stationery of the appellant nor prepared by it, but even had they been prepared by the appellant and sent by the appellant to the appellee, we would still be of the opinion that the terms of the bond, unequivocal in their nature, would remain unimpaired except by such acts of the parties as would have constituted a novation.
We are therefore concerned with construing the terms of the bond itself and the schedule which by specific reference is ...