First Nat. Bank of Amarillo v. Continental Casualty Co.

BRYAN, Circuit Judge. This was an action by the First National Bank of Amarillo, Tex., on two “bankers’ blanket bonds” of indemnity against the in-, surer or underwriter, the Continental Casualty Company, to recover $78,000, the aggregate amount of the bank’s funds which had been embezzled by one of its employees. Both bonds were executed on February 7, 1931, and except as affected by riders covered only future losses of the bank resulting from dishonest acts of any of its employees. One, called the primary bond, covered such losses up to $50,000; the other, called the exeess bond, covered only such losses in exeess of $50,000. The bank, it may be assumed, would have been entitled to judgment for the full amount claimed if all its losses in controversy had been sustained after these bonds were issued. But the admitted fact is that $48,000 of its funds had been embezzled and lost to it before the date of the bonds in suit. The Casualty Company admitted liability for $50,-000, which it paid; and the district judge, before whom the case was tried without a jury, rejected the bank’s contention that it •was entitled to judgment for the balance of $28,000. Hence this appeal. The bank did not discover that it had suffered any of the losses sued for until April, 1932. It canceled a similar primary bond for $50,000 which it had been carrying for years with another company when it took out fidelity insurance with the Casualty Company. A rider attached to the Casualty Company’s primary bond recited that the prior bond of the other company had been canceled, and provided “that the attached bond shall be construed to cover, * * * any loss or losses- under the prior bond which shall be discovered after the expiration of the time limited therein for the discovery of loss thereunder * * * which would have been recoverable under the prior bond had it continued in force.” The rider attached to the excess bond similarly recited the cancellation of the prior bond, and provided “that the attached bond shall be construed to cover, subject to its terms, conditions and limitations, any loss or losses under the prior bond which shall be discovered after the expiration of the time limited therein for the discovery of loss thereunder, * * * provided that such loss or losses would have been recoverable under the prior bond had it not been canceled or terminated.” The following notation appeared on this last-mentioned rider: “Excess Rider — Deductible Rider — for use where a Bankers’ Blanket Bond is written * * * as exeess over Standard Form No. 8,” that is to say, the rider attached to the primary bond. The loss of $46,000 could not have been recovered by resort to the prior bond, since, although sustained while that bond remained in force, it was not discovered within twelve months after the cancellation or termination of that bond. But that loss was collectible out of the Casualty Company’s primary bond under the terms of the rider thereto attached. The Casualty Company by paying the $46,000 and an additional $4,000 for losses subsequent to February 7,1931, fully discharged the liability assumed by the primary bond, thus leaving $28,000 of losses which the bank seeks to recover by resorting to the Casualty Company’s excess bond and the rider thereto attached. As there can be no recovery under the excess bond itself, because it provides indemnity for future losses in excess- of $50,000 and the loss here amounted to- only $28,000, we turn to the rider thereto attached to- determine whether liability may be asserted under it. In our opinion such- liability may not be so asserted. That rider, like the bond to which it is attached and expressly made sub [839] jeet, is limited to losses in excess of $50,000. It has reference not at all to the primary-bond but only to the prior bond. It does not, however, insure against all losses recoverable under the prior bond of $50,000, but only such as would have been recoverable according to its own terms, and which would also have been recoverable under the prior bond if it had been continued in force. The losses sought to be collected out of the excess bond could not have been recovered under the prior bond if it had not been canceled, because the prior bond was a primary and not an excess bond, and the losses under it were less than $50,000. The rider is upon a printed standard form and is comprehensive enough to refer to excess as well as to primary bonds; and so the object of attaching it to this excess bond could well have been to define and limit the liability assumed in cases of the cancellation of a prior excess bond, or of a prior primary bond under which the liability was greater than that assumed by the primary bond that superseded it. If, for example, the prior primary bond bad been for $100,000 and the loss under it over $50,000, it may well be that liability would have existed under this excess bond. Without the quoted proviso, the rider might reasonably have been construed to mean that the excess bond provided indemnity for losses under the prior bond which amounted in the aggregate to less than $50,000; yet clearly that was not the intention of the parties. That proviso clearly puts such a construction out of the way. In this view the notation was proper; but in any event, it would not be controlling since it formed no part of the rider upon which it was placed. The primary bond beeame liable under the terms of its own rider for the loss of $4-6,000 sustained during the life of the prior bond. That bond and the prior canceled bond may not properly be treated as one and thereby make the excess bond liable for losses which it had not assumed. The exeess bond assumed liability for losses above $50,000 incurred either before or after its effective date; but it did not contemplate or authorize the adding together or combining of losses incurred both before and after that date. To take future losses and add them to past losses and thus make up an amount sufficient to create a liability under the excess bond would be not to constrne the contract by which the Casualty Company agreed to be bound, -but to make one under which the bank could recover. Our conclusion is that neither under the terms -of the excess bond nor of the rider attached to it was there any liability on the part of the Casualty -Company for the loss of the $28,000 sustained subsequent to the date of the bonds in suit. The judgment is affirmed.