Citation Numbers: 133 Ky. 745
Judges: Lassing
Filed Date: 5/12/1909
Status: Precedential
Modified Date: 7/24/2022
Opinion of the Court by
Reversing.
The Philadelphia Casualty Company issued to the Cannon & Byers Millinery Company a “credit bond,” or policy of insurance against loss not exceeding $3,000, which it might sustain by reason of credit extended to its customers between July 1, 1903, and July 1,1904. At the end of the period covered by the policy, the millinery company claimed that it had sustained a loss in excess rof $3,000, and demanded payment of the full amount of the indemnity provided for in the policy. The insurance company denied liability, and the millinery company brought suit on the bond. Issue was joined on the question of liability under the terms of the policy, and because of the conflicting nature of the matters of account involved the case was, on motion of defendant, transferred to equity and referred to the commissioner to hear proof. This was done, and the result of the commissioner’s finding reported to court. On exceptions to this report, the case was tried by the chancellor, and judgment was returned in favor of plaintiff for $1,140.87. From that judgment this appeal is prosecuted by the casualty company, and the millinery company has prosecuted a cross-appeal.
The introduction of credit insurance in commercial life is of practically recent date, not only in Kentucky, but in the United States as well, and this court has not heretofore been called upon to construe any contract of this character; nor are we familiar with the decision of any court construing -a contract of insurance similar to that presented in this' case. Most a'll insurance of this character is based upon credit ratings as given by recognized commercial agencies, such as Dun or Bradstreet; but this contract is based upon “experience,” and the “experience” of the insured, in dealing with its customers, is made the basis of credit. Some confusion has arisen in the practical application of this term. Appellee contends that it means “business transactions,” while appellant’s interpretation of it is “a business transaction which is closed” that is, the sale of a bill of goods for which the purchaser has paid. This latter is evidently the meaning that should be given the term as used in the policy, for, in fixing the basis of credit, the policy further provides that the highest previous indebtedness shall be taken as an “experience” which will justify the indemnified in again ex
Two questions of difference have arisen in the construction of this clause of the contract: First, where goods have been sold, and later returned; and, second, where the evidence of the indebtedness for the goods sold has been changed by the execution of a note for the account. In each of these instances it is the contention of appellees that it was entitled to extend to such creditor further credit; whereas, appellant takes the contrary view. In regard to goods returned, it seems that the reason for their being returned would have to be taken into consideration in determining whether or not further credit might be extended to such customer. If the goods'had been shipped C. O. D., and were returned because the customer was unable to pay for and receive them, this would be such 'an experience as would not warrant further credit. On the other hand, if they were returned because not of the character bought or contracted for, then this transaction should be entirely ignored, and credit might be extended to such customer as though the transaction in which the return of the goods was involved had mot taken place. The execution of a note for an account in no wise lessened the creditor’s liability. It merely changed the form of the evidence of the debt, and could not be accepted as satisfying the indebtedness. While by
The policy does not insure against all losses, but only such as may be incurred under certain stipulations. It appears that the insured mu'st first sustain what is termed the “initial loss,” and this is, by the policy, fixed at three-fourths of 1 per cent, of the gross business done by the insured, based upon his experience the previous year, when his total business wlas $200,000. The initial loss which the insured must stand was, on this basis, fixed at $1,500; but the policy provided that, if his total gross business should exceed $200,000, then the initial loss would be correspondingly increased. No difficulty arose over this clause of the policy; but, by an agreement entered into after the date of the policy, and evidenced by what is termed a “rider,” the policy was made to relate back, so as to cover all outstanding- accounts which had been created during the regular course of business in the six months next before the date of the policy. Appellee contends that these accounts are covered by the policy, no matter how created, while appellant insists that they are to be treated as though they were created .after the issue of the policy, and are subject to the restrictions and limitations thrown around such accounts. As the supplemental agreement, or “rider,” provides that these accounts shall be “covered upon the same conditions, and shall be included in the same manner as if the goods had been shipped since July 1, 1903,” there
Another item of dispute is as to the meaning of the term “first bill,” as used in the policy. Appellee contends that there should be included in this term all goods, not exceeding $400 in value, that are sold and delivered between the date of the first sale and the maturity of the bill therefor; whereas, appellant urges that only such goods as were actually sold at ene time should be treated !as a “first bill.” This latter is the only reasonable construction that can be placed upon the term. Any other construction would enable the insured to hold the company liable for all goods, up to $400 in value, that it might sell during the period covered by the policy, if the time of payment of the bill of goods first ordered should be ex
Two classes of customers are dealt with in the policy; those'with whom the insured had previously dealt being- termed ,“old customers,” and all others “new customers.” The insured, under the terms of the policy, is indemnified against loss on account of goods sold to'old customers where the sale does not exceed the highest previous indebtedness of said old customer to the insured within 12 months next before the issual of the policy, and he is indemnified to the extent of 50 per cent, of any loss he may sustain on account of goods sold to new customers; provided,, however, that no sale to any new customer shall exceed $400. All customers, new and old alike, under the terms of the policy, are permitted to make additional purchases during the life of the policy, and such new purchases may, at any time, equal the full amount of the previous indebtedness, and 50 per cent, thereof in- addition. Such addition is treated as a sale to a new customer, and is'only covered to the extent of 50 per cent. Thus, if an old customer had, during- the year, purchased and paid for a bill of $800, he would be permitted, under the terms of the policy, to purchase a bill of goods of the value of $1,200, being the value of the amount of the highest previous indebtedness, plus 50 per cent, thereof; but the insured would only be indemnified, on account of this credit, to the extent of $800, plus one-half of the
Another difference of opinion has arisen as to the proper application of salvage. The policy makes no provision as to the application thereof. Appellant urges that the credit for salvage should be applied, in the absence of a contract to the contrary, to the discharge of that debt upon which, or for which, it was bound; whereas, appellee contends that any salvage recovered should be applied to the discharge of those debts for which it held no security, and for the loss of which it was not indemnified. We are of the opinion that as the policy of insurance, which is the contract between the parties, is silent upon this question, appellee had a right to make such application of the salvage as was most beneficial to its interests. In this particular the insured is certainly to be placed at no greater disadvantage than any other creditor, and the rule is well settled in this State, and elsewhere, that, where a creditor holds claims, secured and unsecured, against a debtor, and makes collection from said debtor, he has a right, in the absence of any direction to the contrary, to apply same toward the discharge of the unsecured claim, and, applying this rule to the case at bar, appellant is in no condition to complain because appellee allowed credit for salvage received, upon accounts for which appellant was not liable.
The policy provides that the insured shall be indemnified against loss on account of sales of goods of the kind usually dealt in and owned by the insured, and appellant insists that the evidence in this case
The policy should not be so narrowly construed as to place upon the insured any unreasonable or unneccessary labor or expense in the presentation of its claim. On the other hand, it should not be so liberally construed as to place upon the insurance company a liability which, by a fair construction of the terms of
Thirty-nine different accounts are involved in this litigation. There is a wide difference between the finding of the commissioner and the judgment by the court as to the extent of. the insurance company’s liability. This difference grows out of the different
For these reasons the judgment is reversed on the original appeal, and affirmed on the cross-appeal, and the case is remanded, with instructions to the chancellor to enter judgment in favor of the insured in accordance with the interpretation of the various provisions of the contract of insurance as above set out.
Petition of appellant for rehearing and extension of opinion overruled.