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FEDERAL SAVINGS & LOAN INS. v. AETNA INSURANCE

February 20, 1968

FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, A CORPORATION, PLAINTIFF,
v.
AETNA INSURANCE COMPANY, A CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Robson, District Judge.

MEMORANDUM ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

Plaintiff moves for summary judgment in this declaratory judgment suit for construction of a fidelity savings and loan blanket bond issued by the defendant, insuring against defalcations by the officers of the Beverly Savings and Loan Association. The Bank's obligations were insured by the plaintiff, which assumed them when the Bank liquidated.

The alleged multiple misdeeds of Howard B. Quinn, the director and chairman of the Board of the Bank, are the bases for the instant suit and other suits*fn1 pending in this court. Many of the facts of this controversy are stated in the February 28, 1967, memorandum of Judge Hubert L. Will wherein he denied defendant's motion to dismiss the suit.

The very narrow issue is whether defendant's liability under Section 6 of the bond is limited to $470,000 for all of Quinn's defalcations, or whether a sum up to that limitation is recoverable for each instance of loss due to his misconduct. Section 6 provides:

    "Non-Reduction of Liability. * * Payment of loss
  under this bond shall not reduce the liability of
  the Under-writer under this bond for other losses
  whenever sustained; PROVIDED, however, that the
  total liability of the Underwriter under this bond
  on account of * * * (c) any loss other than those
  specified in (a) and (b) preceding, caused by acts
  or omissions of any one person * * * or acts * * *
  in which such person is concerned or
  implicated. * * *" (Italics supplied.)

The plaintiff draws favorable inferences from the fact that prior to September, 1960, subsection (c) had read "any loss or losses" and therefore it is evident from the deletion of the word "losses" that the $470,000 limitation was not intended to ceiling a plurality of losses, but only that of a particular loss. Defendant says that the "substitution was made in the interests of clarity and simplicity because it understood and believed that the word `loss' is a generic term which includes both the singular and the plural. * * * No change in coverage was intended thereby." Defendant's position is supported by the affidavit of John F. Fitzgerald, secretary of the Surety Association.

Defendant states the revision in the language was merely an "editorial" change as evidenced by the fact that the deletion was not even noted or explained in the statement covering the bond revisions.

Plaintiff relies heavily on the established principle that where there is an ambiguity in an insurance instrument it is construed against the party who drafted it. Paddleford v. Fidelity & Casualty Co. of New York, 100 F.2d 606 (7th Cir. 1938).

The form of the bond was drafted and issued by the Surety Association of America in collaboration with the United States Savings & Loan League as Standard Form Number 22, Revised to September, 1960. Defendant was a member of that Association whose members are surety companies.

Plaintiff in its complaint cites the statement in the Manual of the Association:

"BLANKET BONDS-FINANCIAL INSTITUTIONS

Scope of Coverage.

  Limit of Liability for Single Loss — Non Reduction
  of Liability.
  Coverage under each bond is written for a
  specific amount which is the limit of liability
  for any single loss, as that term is defined in
  the bond, but any number of separate losses may
  be recovered ...

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