Peden Iron & Steel Co. v. Ocean Accident & Guarantee Corp.

PARDEE, Circuit Judge (after stating the facts). The substantial controversy in this case is whether the insurance company’s liability on unrated accounts is limited to $5,000 or to $3,750; in other words, whether the provision, “only 75 per cent, of the amount so covered on said accounts shall be included in the calculation of losses under this ■contract,” applies to the accounts of individual debtors which are respectively limited to $3,000, or to the sum of $5,000, which is fixed as the limitation of the gross aggregate of insolvent accounts to be taken into the calculation of losses under the contract. The agreement reads as follows: “The gross aggregate of insolvent accounts coming within the provisions of this agreement, to he taken into the calculation of losses under this contract, is limited to $5,000, but no account against any one such debtor shall be covered for more than $3,000, and only 75 per cent of the amount so covered on said accounts shall be included in the calculation of losses under this contract.” The plaintiff in error contends with great force that the above is ambiguous, arid that he was entitled to show on the trial by parol evidence the verbal negotiations leading up to the contract, not to vary or reform the same, but to show the meaning and intention of the parties in relation to the alleged ambiguous provision. The contention on the other side is that the contract is perfectly plain and unambiguous, and needs only a careful reading to arrive at its true meaning. It may be remarked here for what it is worth that the contract is not so plain and unambiguous that any two of the judges of this court agree upon its precise meaning and application, and that, too, after several careful readings of the same. The provision in question constitutes one sentence, and, if it is paraphrased, will read thus: No account against any one such debtor shall be covered for more than $3,000, and only 75 per cent, of the amount so covered on said accounts shall be included in the calculation of losses under this contract, and the gross aggregate of insolvent accounts coming within the provisions of this agreement to be taken into the calculation of losses under this contract is limited to $5,000. Written thus, there can be little difficulty in concluding that the 75 per cent, limitation applies to the individual debtors’ accounts. Again: The gross aggregate of insolvent accounts coming within the provisions of this agreement, to be taken into the calculation of losses under this contract, is limited to $5,000, and only 75 per cent, of the amount so covered on said accounts shall be included in the calculation of losses under this contract; but no account against any one such debt- or shall be covered for more than $3,000. As thus written, the construction might well be that the maximum liability of the guarantor on unrated accounts would be 75 per cent, of $5,000, to wit, $3,750. If we analyze the sentence, we find contained therein the following provisions, and in this order, to wit: (1) The gross aggregate of insolvent accounts coming within the provisions of this agreement to be taken into the calculation of losses under this contract is limited to $5,000. (2) No account against any one debtor shall be covered for more than [997] $3,000. (3) Only 15 per cent, of the amount so covered bn said accounts shall be included in the calculation of losses under this contract. Stated in this way, it seems clear that the 75 per cent, applies to the amounts described as “covered”; that is, to the individual debtors’ accounts. In this connection it may be noticed that the' only debts, accounts, or amounts spoken of as “covered” in the entire memorandum or rider are the accounts of individual debtors, “which shall not be covered for more than $3,000,” and the words immediately following “so covered” may w^ell be taken as referring to such individual debtors’ accounts. If it was intended by the parties that the maximum liability of the guarantor on unrated accounts was to be $3,750, why was not plain language to that effect used in the contract, instead of the involved propositions from which it is attempted to adduce such result ? Enough has been said to show that the meaning of the sentence in question is not plain but is ambiguous and doubtful, and we find nothing in the main body of the policy nor in the memorandum oi rider attached to relieve the ambiguity. The insured might well have understood on reading the said sentence that under the rider he was insured for $5,000 on unrated accounts. The learned counsel for the plaintiff in error contends that it is thor - oughly settled that these credit guarantors are insurance companies subject to the rules of law which pertain to the latter; and, the language of the policy being their language, it must be construed most strongly against them, so that in any case of doubt arising from ambiguity in words or expression the doubt must be resolved in favor of the insured. And he cites, in support, American Credit Indemnity Co. v. Adams’ Woolen Mills, 92 Fed. 581, 584, 34 C. C. A. 161; Mercantile Credit Guarantee Company v. Wood, 68 Fed. 529, 533, 15 C. C. A. 563; Goddard v. Insurance Co., 67 Tex. 69, 71, 1 S. W. 906, 60 Am. Rep. 1; People v. Mercantile Credit Guarantee Co., 60 N. E. 24, 26, 166 N. Y. 416; Brown v. Palatine Ins. Co., 89 Tex. 595, 35 S. W. 1060; American Credit IndemnityCo. v. Wood, 73 Fed. 81, 19 C. C. A. 264 (note). The learned counsel for the defendant in error frankly admit' that where an insurance contract, ambiguous and not plain in its terms and conditions, is capable of two constructions, the construction most favorable to the insured will be adopted. This admission relieves us from the necessity of discussing the question, and leaves us free to hold, as we do, that under the proper construction of the provision in the rider above mentioned the maximum liability of the guarantor is $5,000. And this holding renders it unnecessary to pass upon the first and second assignments of error relating to the rejection of evidence. Plaintiff in error further contends that the provision in the rider, to wit, “the net amount of loss on such debtors thus ascertained shall be added to the losses covered by the terms and conditions in the body .'of-this contract, and shall be adjusted in accordance with the provisions in lines 53 to 67 of said contract,” should be construed as though the words “as far as practicable” were written therein, and that accordingly, as there was no loss on rated accounts equal to the initial loss provided for in the contract, the said initial loss is irrelevant and immaterial and so far inapplicable, and not to be taken into consideration in deter [998] mining the loss on unrated accounts; and therefore, as the loss on unrated accounts exceeded the amount of the guarantor’s liability thereon, the plaintiff in error is entitled to a judgment for the full amount of the limit. If this contention cannot be maintained, the plaintiff in error further contends that the proper adjustment under the contract would be to deduct the initial loss from the combined loss on rated accounts under the policy and on unrated accounts under the rider, which would leave $4,525.89 as the proper amount for plaintiff in error to recover. Neither of these contentions is well founded. With the exception of the involved sentence in the rider (the matter heretofore discussed), the policy and rider attached are plain and unambiguous. In fact, there is only one policy in the case. Under that, as we construe it, the liability of the guarantor to the insured is limited to $10,000 on both rated and unrated accounts, the liability on unrated accounts not to exceed $5,000. The initial loss of one-third of one per cent, on the whole business of the insured is to be deducted from the net loss on insolvent accounts coming within the terms of the agreement before any liability of the company can attach. The method of adjustment is specially provided for in the lines 53 to 67 of the contract, and it is adopted and made applicable by the last provision in the rider. Under the agreed facts, there was a loss on rated accounts of $638.25, and on unrated accounts, as we construe the contract, of $5,000, both to be taken into the adjustment. These losses aggregate $5,638.25, which we hold to be the net loss under the policy and ascertained in accordance with the terms thereof. The contract provides that from the net loss thus ascertained is to be deducted the initial or own loss to be borne by the insured, and the remainder, if any, not exceeding the limit of guarantee, is to be the amount due the insured. Applying this plain provision, we deduct from the net loss $5,638.25, the initial loss, one-third of 1 per cent., agreed to be $3,821.10, leaving a balance of $1,817.15; and this is the amount for which the plaintiff below is entitled to judgment. The judgment of the Circuit Court is reversed, and the cause is remanded with instructions to grant a new trial. SHEUBY, Circuit Judge, dissenting.