Summary
In Graphic Arts Mutual Insurance Co. v. C.W. Warthen Co., 240 Va. 457, 397 S.E.2d 876 (1990), in which the embezzlement also occurred over a number of years, the Virginia Supreme Court found the non-cumulative provision to be clear and gave it effect, limiting recovery to one of the policies.
Summary of this case from Reliance Ins. v. Treasure CoastOpinion
46458 Record No. 900070
November 9, 1990
Present: All the Justices
Since an insurance contract explicitly limited the insurance company's liability for employee dishonesty to a maximum of $10,000 for the entire coverage period, regardless of the number of years the coverage was in effect, and the Court must interpret the contract as written, the decision of the trial court is reversed and final judgment entered on behalf of defendant.
Insurance — Contracts — Employee Dishonesty — Policy Limits — Period of Coverage — Construction of Contract Terms — Interpretation of Contract as Written — Ordinary and Customary Meaning of Terms
In 1983, the defendant insurance company issued multi-peril insurance to the plaintiff which included an employee dishonesty endorsement commonly referred to as comprehensive crime coverage. The plaintiff was required to pay a premium each year and the policy expired in 1987. The plaintiff discovered that a bookkeeper had embezzled approximately $114,000 from the company during a ten-year period. During the four year period in which the policy was in effect, the company incurred losses from the embezzlement in excess of $10,000 each year. The plaintiff filed suit, asserting that it was entitled to recover that much for each year the policy was in effect. The defendant argued that its total liability for employee dishonesty was $10,000. The court concluded that the policy provided coverage to the plaintiff for employee dishonesty in the amount of $10,000 per year, and defendant appeals.
1. An insurance policy is a contract and the words used in it are to be given their ordinary and customary meaning when they are susceptible to such construction.
2. In the absence of ambiguity, the contract must be interpreted by examining the language explicitly contained therein and the court is not at liberty to search for meaning beyond the instrument itself.
3. Here, the language of the insurance contract explicitly limits the insurer's liability to a maximum of $10,000 for the entire coverage period, regardless of the number of years the coverage was in effect. The contract must be interpreted as written and the court is not free to rewrite its terms and thereby extend coverage.
Appeal from the Circuit Court of the City of Lynchburg. Hon. Mosby G. Perrow, III, judge presiding.
Reversed and final judgment.
Floyd C. Jennings, Jr. (Petty, Livingston Dawson, on briefs), for appellant.
Norman A. Kinnier (Fralin, Freeman Kinnier, on brief), for appellee.
The sole issue that we consider in this appeal is whether a provision in an insurance contract, which contains an employee dishonesty commercial blanket coverage endorsement, limits the liability of the insurance company that issued the policy.
On August 1, 1983, Graphic Arts Mutual Insurance Company issued a special multi-peril insurance policy to C.W. Warthen Company, Inc. The policy included an employee dishonesty endorsement commonly referred to as a Comprehensive Crime Coverage Endorsement. Coverage commenced on August 1, 1983 and terminated on August 1, 1986. Warthen was required to pay $757 on August 1 of each policy year for a total fixed premium amount of $2,271. Graphic Arts renewed the insurance policy for a one-year period commencing August 1, 1986, and expiring August 1, 1987.
In July, 1987, Warthen's chief executive officer, H.B. Brooks, Jr., learned that a bookkeeper had embezzled approximately $114,000 from the Company during a ten-year period. During the four-year period of August 1, 1983 through August 1, 1987, when Graphic Arts' insurance policy was in effect, Warthen incurred losses attributed to the bookkeeper's acts of embezzlement in excess of $10,000 each year.
A dispute arose between Warthen and Graphic Arts regarding the amount of insurance coverage provided by the policy. Warthen filed a suit for declaratory judgment and asserted that it was entitled to recover $10,000 for each year the policy was in effect, for a total of $40,000. Graphic Arts argued that its total liability was $10,000 and that it had fulfilled its contractual obligation by issuing and delivering to Warthen a draft in the amount of $10,000.
The case was tried before the court without a jury. The court considered testimony, memoranda, and argument of counsel, and concluded that the policy provided coverage to Warthen for employee dishonesty in the amount of $10,000 for each year the policy was in effect. We disagree.
[1-2] Familiar principles of contract interpretation guide our consideration of this issue. "An insurance policy is a contract, and, as in the case of any other contract, the words used are given their ordinary and customary meaning when they are susceptible of such construction." Hill v. State Farm Mutual Auto. Ins., 237 Va. 148, 152, 375 S.E.2d 727, 729 (1989). Additionally, in the absence of an ambiguity, which the trial court correctly concluded did not exist in this case, we must interpret the contract by examining the language explicitly contained therein. "[W]here an agreement is complete on its face, is plain and unambiguous in its terms, the court is not at liberty to search for its meaning beyond the instrument itself." Globe Company v. Bank of Boston, 205 Va. 841, 848, 140 S.E.2d 629, 633 (1965) (citations omitted).
The language contained in the Comprehensive Crime Coverage Endorsement limits Graphic Arts' liability to $10,000. Paragraph IA of the endorsement, in part, provides that the insurer promises to pay the insured for:
Loss of Money, Securities and other property which the Insured shall sustain, to an amount not exceeding in the aggregate the amount stated in the Table of Limits of Liability applicable to this Insuring Agreement IA, resulting directly from one or more fraudulent or dishonest acts committeed [sic] by an Employee, acting alone or in collusion with others.
The "Table of Limits of Liability" states: "Insuring Agreement IA Employee Dishonesty (Commercial Blanket) Coverage $10,000." Section 11 of the Comprehensive Crime Coverage Endorsement states, in part:
Regardless of the number of years this endorsement shall continue in force and the number of premiums which shall be payable or paid, the limit of the Company's liability as specified in the Table of Limits of Liability of this endorsement shall not be cumulative year to year or period to period.
The insurance contract explicitly limits Graphic Arts' liability to a maximum of $10,000 for the entire coverage period, regardless of the number of years the coverage was in effect. We must interpret the contract as written. We are not free to rewrite its terms and thereby extend coverage:
It is the function of the court to construe the contract made by the parties, not to make a contract for them. The question for the court is what did the parties agree to as evidenced by their contract. The guiding light in the construction of a contract is the intention of the parties as expressed by them in the words they have used, and courts are bound to say that the parties intended what the written instrument plainly declares.
Magann Corp. v. Electrical Works, 203 Va. 259, 264, 123 S.E.2d 377, 381 (1962) (citations omitted).
Accordingly, we will reverse the judgment of the trial court and enter final judgment on behalf of Graphic Arts.
Reversed and final judgment.