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COMMONWEALTH v. OLEARY ET AL. APPEAL OLEARY. APPEAL KANN (04/10/51)

April 10, 1951

COMMONWEALTH
v.
OLEARY ET AL. APPEAL OF OLEARY. APPEAL OF KANN



Before Hirt, Acting P. J., and Reno, Dithrich, Ross, Arnold and Gunther, JJ.

Author: Ross

[ 168 Pa. Super. Page 571]

ROSS, Judge.

The appellants, A. J. O'Leary and N. P. Kann, and E. J. Kann, were indicted for wilfully subscribing, as officers, to a false annual statement of an insurance company. The case against E. J. Kann was nolle prossed, the appellants were convicted, and after motions in arrest of judgment and new trial were refused, they took separate appeals to this Court. The appeals were argued together, the issues are identical, so the appeals will be considered in one opinion.

O'Leary was vice president and controller and N. P. Kann secretary of the Keystone Mutual Casualty Company, a mutual insurance company incorporated under the laws of Pennsylvania and authorized to do business in 28 other states. In compliance with Article III, section 320 of the Act of May 17, 1921, P.L. 682 as amended, 40 P.S. § 443, they subscribed to and filed on behalf of the company an annual statement which purported to show its financial condition as of December 31, 1946. Section 320 provides in part as follows: 'For wilfully making a false annual or other statement required by law, an insurance company, association, or exchange, and the persons making oath to or subscribing the same, shall severally be punished by a fine * * *.' The question involved in the appeals is whether there is evidence to support the jury's finding that the appellants wilfully subscribed to a false statement of the condition of the company as of December 31, 1946.

The factual controversy centers around certain entries made in a schedule designated as 'P', one of the schedules included with the blanks supplied by the

[ 168 Pa. Super. Page 572]

Pennsylvania Insurance Commissioner to insurance companies for the purpose of preparing the required annual statements. A function of 'Schedule P' is to disclose a breakdown of the amount which is ultimately reflected as the total reserve against liability losses. Section 313 of the Act of May 17, 1921 as amended, 40 P.S. § 112, provides a formula for computing the reserves required of stock and mutual companies and exchanges. It provides that the reserve for liability policies written during the three years immediately preceding the date as of which the statement is made, is arrived at by deducting from sixty per cent. of the earned liability premiums for each of such years, all loss and loss expense payments made under liability policies written in the corresponding years. Schedule P, under the heading 'Computation of Reserve for Unpaid Liability (including Automobile) Losses December 31 of Current Year', provides space in parallel columns for entering: the result of taking sixty per cent. of the earned liability premiums; the liability loss and loss expense payments; and for entering the remainder or formula reserve. Adjoining the aforementioned columns is a column in which the company filing the schedule is to enter its own estimate of reserves for liability losses computed on a case basis. It is the greater of the resultant figures in either the formula reserve column or the company estimate column which is, for the designated year, extended to a fifth column headed 'Total liability loss reserves'.

The Commonwealth introduced into evidence Keystone's tabulating machine runs of the liability losses paid during the year ending December 31, 1946. These runs were admittedly used by O'Leary in the preparation of Schedule P filed with the annual statement in question. Three figures on the tabulating machine runs had lines drawn through them and other figures substituted

[ 168 Pa. Super. Page 573]

    above in ink. O'Leary admitted making these alterations. Specifically the alterations made in the runs were as follows: For the years up to 1943 the machine figure for liability losses paid was reduced by $25,000; for the year 1945 the machine figure for liability losses paid was reduced by $200,000; and for the year 1946 the machine figure for liability losses paid was increased by $225,000. A copy of Schedule P filed by the company with its annual statement for 1946 discloses that the substituted and not the machine figures were entered on that schedule. The effect of the alterations was to increase the formula reserves for 1943 and 1945 by $25,000 and $200,000 respectively; and to decrease the formula reserves for 1946 by 225,000. Consequently, the company's apparent surplus for 1946 was increased a like amount.

In addition to testifying as to the effect of the alterations, a witness, Briscoe, an accountant employed by the State of Kentucky to examine the books and records of Keystone Mutual, testified that he, upon discovering the alterations, went to the statistical department of the company and checked the monthly control runs against the yearly runs on which the changes had been made. The monthly runs agreed with the original and not the substituted figures. Casari, an insurance examiner for the Pennsylvania Department of Insurance, testified that Keystone's estimate of possible losses or claims in the policy year 1945 inserted in Schedule P was not in agreement with the company records; that the amount entered was $497,032.15, while a check of the 'claim jackets' of the 1945 policies revealed that the amount should have been $778,734.40. He also testified that the company estimates on the claim jackets of the workmen's compensation policies was $34,001.02 greater than the figure entered on Schedule P as the total reserve for unpaid compensation

[ 168 Pa. Super. Page 574]

    losses. Although his testimony was weakened somewhat on cross-examination, as contended by the appellants, it was ...


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