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COMMONWEALTH PENNSYLVANIA v. TRANSAMERICA INSURANCE COMPANY (03/08/74)

decided: March 8, 1974.

COMMONWEALTH OF PENNSYLVANIA, PLAINTIFF,
v.
TRANSAMERICA INSURANCE COMPANY, DEFENDANT



Original jurisdiction in case of Commonwealth of Pennsylvania v. Transamerica Insurance Company.

COUNSEL

Richard J. Orloski, Deputy Attorney General, for plaintiff.

William E. Miller, Jr., with him Heath L. Allen and Metzger, Hafer, Keefer, Thomas and Wood, for defendant.

President Judge Bowman and Judges Kramer, Wilkinson, Jr., Mencer, Rogers and Blatt. Judge Crumlish, Jr., did not participate. Opinion by Judge Kramer.

Author: Kramer

[ 12 Pa. Commw. Page 191]

This case comes within the original jurisdiction of this Court. It was commenced by the filing of a complaint

[ 12 Pa. Commw. Page 192]

    in assumpsit filed by the Commonwealth of Pennsylvania (Commonwealth) on May 13, 1971 praying for judgment in the amount of $10,000, plus interest and costs, against the Transamerica Insurance Company (Transamerica). The Commonwealth alleges that Transamerica is liable under the terms of a bond (entitled Public Employe Faithful Performance Blanket Position Bond) issued by Transamerica's predecessor company to become effective July 1, 1963. In the record before us, which consists of the pleadings, a stipulation of facts and a deposition, we find the following pertinent facts. The bond in question was intended to indemnify the Commonwealth against any loss or losses, up to a maximum of $10,000, caused to the Commonwealth during the term of the bond through the failure of certain Commonwealth employees to faithfully perform duties or to properly account for all monies and property received by virtue of their position. The Commonwealth paid the full premium for this surety bond coverage for the period July 1, 1963 through August 25, 1967.

The bond contains a provision limiting the time during which suit may be brought on the bond. That provision reads as follows: "Section 6. No suit, action or proceeding of any kind to recover on account of loss under this bond shall be brought after the expiration of three years from the cancellation of this bond as an entirety, provided, however, that if such limitation for bringing suit, action or proceeding is prohibited or made void by any law controlling the construction of this bond, such limitation shall be deemed to be amended so as to be equal to the minimum period of limitation permitted by such law." The expiration date of the bond was August 25, 1967. During the period of the coverage of the bond, an employe of the Commonwealth (John P. Davis) embezzled an amount in excess of $10,000 from the Commonwealth. Davis pleaded

[ 12 Pa. Commw. Page 193]

    guilty to the charge and admitted to embezzling at least $85,000 from the Commonwealth during his course of employment as a revenue agent. Even before it was certain that its employe had committed embezzlement, the Commonwealth on November 4, 1968, advised Transamerica of its possible bond claim. On November 15, 1968, Transamerica requested the results of the Commonwealth's investigation in connection with this possible bond claim. On December 2, 1968, the Commonwealth advised Transamerica that the results of its investigation could be had through the Commonwealth's investigators; and Transamerica's agents did contact them. On March 28, 1969, Davis was arrested for embezzlement. On April 16, 1969, Transamerica mailed proof of loss forms to the Commonwealth. In early May of 1969, a preliminary hearing was conducted on the embezzlement case; and on May 22, 1969, Davis pleaded guilty to the criminal charge of embezzlement. On August 28, 1969, the Commonwealth mailed its proof of loss forms to Transamerica claiming a loss during the bond coverage in the amount of $48,094.11. On October 17, 1969, the Commonwealth forwarded a copy of its investigation in order to complete the executed proof of loss forms. On November 24, 1969, Transamerica requested further information, at which point in time Transamerica was not satisfied as to the validity of the Commonwealth's claim. On November 26, 1969, the Commonwealth advised Transamerica that it had all of the written reports available, and suggested that Transamerica send its agents to examine the Commonwealth's files. In December of 1969 and early January 1970, Transamerica sent a claims adjuster to review the Commonwealth's files in the matter. Prior to May 8, 1970, the bonds claim attorney for Transamerica instructed the claim adjuster for Transamerica to obtain copies of checks compiled by the Commonwealth's investigators for use in

[ 12 Pa. Commw. Page 194]

    the embezzlement charge. On May 8, 1970, the Commonwealth delivered copies of the requested checks to Transamerica's agents. In June or July of 1970, Transamerica requested that the Commonwealth supply copies of the back side of the checks and these were delivered. On August 5 and 6, 1970, Transamerica's agents visited the Commonwealth's investigators and spent two days examining the Commonwealth's files in the case. After August 6, 1970, but certainly before August 25, 1970, the expiration of the three-year period, the bonds claim attorney for Transamerica decided that Transamerica would not honor the claim of the Commonwealth. The Commonwealth was never advised of this decision. On October 27, 1970, the Commonwealth wrote to Transamerica requesting information on the status of its claim. This letter was never answered by Transamerica. In November of 1970, Transamerica's agent orally advised an agent of the Commonwealth in a telephone conversation that the claim would not be honored. On May 4, 1971, a deputy attorney general of the Commonwealth wrote two letters to Transamerica requesting payment on the bond. Thereafter, a conference was held between agents of the Commonwealth and Transamerica for the purpose of conciliation and negotiation wherein Transamerica made an offer of partial payment in the amount of $5,000 in full settlement of the $10,000 claim. The Commonwealth declined this negotiated offer of settlement. It should be noted here ...


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