open stock burglary policy and contained no provision for recovery in the case of losses caused by unidentifiable employees. In addition, recovery on the policy there was conditioned on the insured maintaining records in such a manner that the insurer could accurately determine the amount of loss. The court found that the records were not so maintained.
In the case of Cobb v. American Bonding Co. of Baltimore, 5 Cir., 1941, 118 F.2d 643, relied on by the defendant here, suit was brought under a fidelity bond where the terms of the contract indicated that recovery was to be allowed for 'that part of any inventory shortage which the Insured shall conclusively prove is caused by the dishonesty of any Employee or Employees'. The insured there employed a retail perpetual control of inventory which allegedly revealed shortages in eight of the insured's retail stores. The Court there concluded:
'Under the bookkeeping system used by the plaintiffs shortages would be reflected by any number of things other than dishonest conduct of employees. Moreover, it is highly improbable that employees in eight separate and independent stores were at the same time making shortages in a dishonest or fraudulent manner.
'Viewing all the evidence in the light most favorable to the plaintiffs it, at most, creates no more than a surmise or suspicion that some of the shortage reflected by the inventories might have been due to dishonesty on the part of an employee or employees.'
The Cobb case is one of the leading cases denying recovery to an insured for inventory shortages claimed to be due to employee dishonesty. However, the Fifth Circuit followed the Morrow case in a recent opinion, which, while it does not overrule the Cobb case, indicates the reluctance of the appellate courts to upset a determination drawn by the lower court as to whether the evidence is 'conclusive' or amounts to mere 'surmise or suspicion' that the inventory shortage is due to dishonesty on the part of unidentified employees. New Amsterdam Casualty Co. v. W. D. Felder & Co., 5 Cir., 1954, 214 F.2d 825. The suit in the Felder case was on a fidelity bond, as was the suit in the Cobb case, and the bond covered losses of property by acts of dishonest employees, including inventory shortages, and if the insured was unable to designate the specific employee causing the loss, the insured was still to recover for the loss if the evidence conclusively established that the loss was in fact due to the fraud or dishonesty of the employee or employees. The court found for the insured by placing what it characterized as a reasonable construction on the need for 'conclusive' evidence.
The defendant here also relies on the case of Gaytime Frock Co. v. Liberty Insurance Co., 7 Cir., 1946, 148 F.2d 694, 696. In that case, an employer sued on a fidelity bond similar to that in force in the Cobb case, and the court followed the ruling in the Cobb case. In Gaytime Frock case, a porter was arrested but acquitted of theft where 39 dresses were found missing from a storeroom within 3 or 4 minutes after a saleslady had finished counting them before closing for the evening. The Seventh Circuit, on an appeal from a judgment for the insurer, upheld the trial court, but care was taken to point out that the sole question involved revolved 'about the propriety of the inferences * * * drawn from the evidence by the trial judge'.
The court in the more recent case of Glens Falls Indemnity Co. v. National Floor & Supply Co., 5 Cir., 1957, 239 F.2d 412, cited the Felder, Cobb and Morrow cases, but because the appellant there treated the matter in the argument as requiring only the usual standards of proof, the requirement that the insured prove 'conclusively' that the loss was caused by the dishonesty of employees was not gone into.
The general rule has been stated to be that 'conclusive' evidence in burglary and theft policies should be interpreted so as not to give the term its strict technical meaning, but rather it should be given a reasonable construction, i.e., evidence reasonably establishing a loss.
Morrow Retail Stores v. Hartford Accident & Indemnity Co., supra. It has been held in this jurisdiction that where the provisions of a policy of insurance are reasonably susceptible of two constructions consistent with the object of the obligation, the one favorable to the insured and the other favorable to the insurer, the former will be adopted. Pennsylvania Indemnity Fire Corporation v. Aldridge, 1941, 73 U.S.App.D.C. App.D.C. 161, 117 F.2d 774, 133 A.L.R. 914. The court there refused to apply a strict construction to a word in the policy disputed by the parties, and found for the insured.
The plaintiff here by means of a strict inventory and stock control system has proved in great detail, i.e., by item number, size, etc., a loss or disappearance. The size of the loss, the short time in which it disappeared, and the downward revisions in the claim, help to rule out losses by certain imponderable factors such as accounting errors. By a process of elimination of other causes, except the alternative theory for recovery due to burglary, the plaintiff has attributed the inventory shortage to theft by unknown employees.
This Court is of the opinion that in this case, after a full and careful consideration of all the evidence, and a review of the term 'conclusively' as used in the insurance policy in the context in which it appears, i.e., taking the policy as a whole into consideration as well as what appears to have been the purposes and intentions of the parties when the contract was entered into,
but for the probability of loss by burglary, that the requirement that the evidence in the case must 'conclusively' establish that the loss was due to the dishonesty of employees, was met by the plaintiff here by a showing of clear, satisfactory, and convincing evidence.
The Court turns its attention next to the second theory advanced by the plaintiff as a ground for recovery. This refers to Insuring Agreement No. 7 which added burglary coverage (see portion of agreement quoted earlier in this opinion) to the plaintiff's comprehensive policy.
The main point of contention with respect to the claim for recovery under the burglary provisions of the policy centers around the question as to whether there was, as required by the policy, 'entry * * * or exit * * * by actual force and violence as evidenced by visible marks made by tools, explosives, electricity or chemicals upon * * * the exterior or interior of the Premises at the place of such entry or exit'. As noted in the annotation appearing at 169 A.L.R. 236, this question is a factual one that is normally determined upon the facts as they exist in the specific case before the court. As recited in the cases appearing there, the requirement that there by visible marks varies from a requirement of slight to substantial evidence.
In this case, the plaintiff introduced evidence that the electric burglar alarm wire, installed at the trapdoor on the roof of the plaintiff's building as part of the burglar alarm system installed by the ADT, had been spliced. There was also evidence that there was a slack in this wire at the trapdoor that permitted the door to be opened to a certain extent without setting off the burglar alarm, that is, the wire did not set off the alarm until a certain amount of tension was placed on it. The plaintiff introduced testimony to the effect that the trapdoor could be opened 15 inches (room to permit a man's body to pass through) without setting off the alarm, while the defendant introduced testimony that the door could be opened only 4 to 6 inches without setting off the alarm. The plaintiff also introduced evidence to show that the fastening hooks on the trapdoor were found hanging loose when an investigation was made after the loss was discovered. In addition, the ADT employees testified that four night burglar alarms had been registered at their central station from the plaintiff's retail store during the six-week period here in question. This was more than the number of such alarms reported at the store in the following eight months. While it was suggested that some of these alarms might be explainable by faulty electric circuits, etc., no specific explanation was given by the ADT for each of the four alarms at the retail store during the time here in question.
The defendant relies on the case of Paper v. Boston Insurance Co., supra, as stating the law in this jurisdiction with respect to visible evidence of outside breaking and entering. In that case, the insured found that a skylight or manhole in the roof over the second floor of the stockroom of the store had been broken through. However, the holding of the court there was that there was 'no indication that any shortage was caused by any particular burglary, or at what time the shortage, if any, occurred, or what goods were missing.' (100 U.S.App.D.C. 178, 243 F.2d 602.) The court then went on to hold that this point was dispositive of the case. Dictum in the case indicates that the court failed to find evidence of felonious entry when the premises were not open for business, or evidence of any visible marks upon the exterior of the premises as required by the contract. The dictum in that case was a factual finding which is not binding on this court. With respect to the holding in that case, as it applies to this case, there is a shortage proved here within a six-week period, and specific goods have been identified as missing, as a result of the plaintiff's detailed accounting methods. In the Paper case, the court found that a reduction suffered by the plaintiffs in the percentage of their gross profits over a period of time was attributed by them to a loss of inventory. Also, in that case, there was no alarm system installed in the building such that particular burglaries could be ascertained, if they occurred at all. Here we have four burglar alarms reported to the ADT central station within the six-week period and a special audit conducted at the end of that period which showed an unexplained inventory shortage by itemized descriptions of the items missing. While a particular burglary cannot be shown to have occurred on any one specific date of the reported alarms in February, 1957, this Court is satisfied that a particular burglary occurred on one of those dates.
Visible marks made by tools or electricity upon the exterior of the entry or exit satisfies the requirements of Insuring Agreement No. VII of the insurance policy. A reasonable interpretation placed on the facts as they exist in this case, i.e., the spliced wire, the slack in the wire, and the unfastened hooks on the trapdoor, are evidence of visible marks at the exterior of the place of entry. Here the tampering with the electrical alarm wire and the hooks of the door permitted the door to be opened without setting off the alarm. Whether the opening provided by the slack alarm wire was wide enough to permit the ingress and egress of a man's body is open to inferences as arrived at from the facts.
Since there is affirmative evidence of tampering with the trapdoor, the frequent burglar alarms were not satisfactorily explained, and there was an inventory shortage, the Court finds that plaintiff has established by a preponderance of the evidence the inventory loss was caused by burglary under Agreement VII of the insurance policy.
The Court, therefore, finds for the plaintiff in the sum of $ 3,072.43.
Counsel for plaintiff is directed to submit an appropriate order granting judgment in the amount noted above.