We are told that protection against losses arising from acts of dishonesty in trading is the main object of this type of insurance and that the language of the bond indemnifying appellant for the dishonesty of his employees should not be limited by excluding trading losses resulting from dishonesty, since to do so would deny the broker the very protection he contracted for. The sole authority directly in support of appellant's view is Paddleford v. Fidelity Casualty Co. of New York, 1938, 100 F.2d 606, wherein the Seventh Circuit, in construing a broker's blanket bond containing language substantially similar to that found here, held that the only trading losses excepted from coverage were those not resulting from the dishonesty of an employee, e.g., those caused by mistake, negligence, failure to record trades, etc. In so holding the court said it was invoking the familiar rule that a construction should be had, if possible, which would effectuate the insurance, not defeat it.
As Amended on Denial of Rehearing March 14, 1990. This opinion was circulated to all the judges in regular active service pursuant to Circuit Rule 40(f) because it overrules a prior decision of this court, Paddleford v. Fidelity Casualty Co. of New York, 100 F.2d 606 (7th Cir. 1938). None of the judges favored a rehearing en banc.
To adopt a more restrictive interpretation tied to the policy's definition of the medium by which loss may be represented, such as "currency, coins" and the like, is not required, particularly since the whole of the definition leaves unclear what is intended by the loss of "other property." While there are cases which point in a direction favorable to appellant, the case of Paddleford v. Fidelity Casualty Co., 100 F.2d 606 (7th Cir. 1938), cert. denied, 306 U.S. 664, 59 S.Ct. 789, 83 L.Ed. 1060 (1939), gives support to Imperial's position that coverage extends beyond loss of money or property by physical expropriation or destruction. There the loss was due to fictitious and fraudulent trades carried on by the manager of the insured.
f these provisions, certain allegations were made. In substance, they were — that at the time the loss was discovered, plaintiff's attorneys and the attorneys for the defendant were one and the same; that a fiduciary relation existed between said attorneys and the plaintiff; that the said attorneys, while acting for and in behalf of plaintiff and defendant, advised them there could be no recovery under said policies because of a certain provision contained therein, referred to as the (f) clause; that the plaintiff acted upon such advice and was thereby induced not to bring action under said policies until after the expiration of the limitation period; that the statements made by the attorneys in this respect were incorrect; that such action on the part of the defendant estops and precludes it from taking advantage of the provision requiring that suit be brought within one year from the loss; that plaintiff did not know until the month of June, 1939, after the decision of this court in Paddleford v. Fidelity Casualty Company of New York, 7 Cir., 100 F.2d 606, that it was entitled to indemnification for loss under said policies. It was further alleged that plaintiff again requested defendant to pay, which defendant refused to do about the month of October, 1939. The prayer for judgment was that the said policies or bonds be reformed and corrected by inserting therein plaintiff's name as an additional insured, and that plaintiff have judgment for the amount of its alleged loss.
See Walker v. Gravier, La.App. 1961, 131 So.2d 553; Dalgarn v. New Orleans Land Co., 1927, 162 La. 891, 111 So. 271; Bush Wine and Liquor Co. v. Wolff, 1896, 48 La.Ann. 918, 19 So. 765; Heirs of Delogny v. Mercer, 1891, 43 La.Ann. 205, 8 So. 903; Labiche v. Jahan, 1844, 9 Rob. 30; Suarez v. Duralde, 1830, 1 La. 260. See also 3 Williston on Contracts (rev. ed.), Section 628; Bell v. The Western Marine Fire Ins. Co., 1843, 5 Rob. 423, 442; Paddleford v. Fidelity Casualty Co., 7 Cir., 1939, 100 F.2d 606; cert. den'd. 306 U.S. 664, 59 S.Ct. 789, 83 L.Ed. 1060; Corley v. Travelers' Protective Ass'n, 6 Cir., 1900, 105 F. 854.
Finally, the Seventh Circuit in Continental Corp. v. Aetna Cas. Sur. Co., 892 F.2d 540 (7th Cir. 1989), reexamined its earlier construction of a trading loss exclusion in light of the evolution of fidelity insurance, a subsequent decision by Wisconsin Supreme Court, and Roth. 892 F.2d at 545-546. In Paddleford v. Fidelity Casualty Co. of New York, 100 F.2d 606 (7th Cir. 1938), the court had limited the trading loss exclusion to honest trading by the insured's employees. However, in Continental, the Seventh Circuit adopted the Third Circuit's reasoning in Roth, and overruled Paddleford.
Several decisions have acknowledged the possibility that loss or destruction of currency could be considered loss or destruction of tangible property. See e.g., Security State Bank of Kansas City v. Aetna Cas. Sur. Co., 825 F. Supp. 944, 947 (D.Kan. 1993); Travelers Indem. Co. v. State, 140 Ariz. 194, 197, 680 P.2d 1255, 1258 (App. 1984); Temco Metal Products Co. v. St. Paul Fire Marine Ins. Co., 273 Or. 716, 543 P.2d 1, 2 (1975); see also Paddleford v. Fidelity Cas. Co. of New York, 100 F.2d 606, 613 (7th Cir. 1938) (brokers' fidelity bond protected against loss of money, currency, bullion," etc. held to cover intangible losses caused by employee dishonesty), overruled on other grounds, Continental Corp. v. Aetna Cas. Sur. Co., 892 F.2d 540 (7th Cir. 1989); Degener v. Hartford Acc. Indem. Co., 92 F.2d 959, 960-61 (3d Cir. 1937) (broker's fidelity bond against theft of "money, currency, bullion," etc. held limited to theft or other loss of "tangible articles, such as those mentioned in the bond"). The insurance cases are good reminders about the need to interpret language in context.
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.
That rule is that insurance policies will be interpreted to effect the broad purpose of coverage when this can be done without doing violence to the language of the policy. Paddleford v. Fidelity Casualty Co. of New York, 7 Cir., 1938, 100 F.2d 606, certiorari denied 306 U.S. 664, 59 S.Ct. 789, 83 L.Ed. 1060. 17) This is a Mississippi contract. Although negotiations for it were conducted in Tennessee and it was countersigned there, it was delivered by mail to Mississippi and was for coverage of a Mississippi airplane and a Mississippi owner.
Subsection (f) clearly excludes all trading losses, whether resulting from honest or dishonest acts. Plaintiff predicates his right to recovery largely upon the authority of the case of Paddleford v. Fidelity Casualty Co. of New York, 7 Cir., 1939, 100 F.2d 606. Unquestionably the holding in that case supports plaintiff's contention that the trading loss exclusion in the bond (which appears to be substantially the same form of bond involved in the Paddleford case) does not apply to trading losses incurred through dishonest acts.