Price, Gaulkin and Foley. The opinion of the court was delivered by Foley, J.A.D.
Defendant appeals from a judgment entered in the Law Division on a jury verdict. On December 3, 1952 the plaintiff purchased from defendant a comprehensive Dishonesty, Disappearance and Destruction Policy which contained the following relevant clauses:
"EMPLOYEE DISHONESTY COVERAGE -- FORM B
1. Through any fraudulent or dishonest act or acts committed anywhere by any of the Employees acting alone or in collusion with others, including loss of Money and Securities and other property through any such act or acts of the Employees, and including that part of any inventory shortage which the Assured shall conclusively prove to have been caused by the fraud or dishonesty of any of the Employees, the amount of insurance on each of such Employees being the Limit of Liability applicable to this Insuring Agreement 1.
Loss Caused by Unidentifiable Employees
If a loss is alleged to have been caused by the fraud or dishonesty of any one or more of the Employees and the Assured shall be unable to designate the specific Employee or Employees causing such loss, the Assured shall nevertheless have the benefit of this Insuring Agreement 1, provided that the evidence submitted reasonably (in case of inventory shortage, conclusively) establishes that the loss was in fact due to the fraud or dishonesty of one or more of the said Employees, and provided further that the aggregate liability of the Company for any such loss shall not exceed the Limit of Liability applicable to this Insuring Agreement 1." (Emphasis added.)
In 1954, while this policy was in effect, the plaintiff for "merchandising purposes" created a tire department or division which it named "State Tire Company." The business of this division was conducted in a building a few blocks away from that in which the corporation's automobile sales business was operated. In the early part of 1955 the corporation was in the process of closing out the division because that operation had been unprofitable. At that time plaintiff's president, Frank Reese, was induced to continue the operation by one Chester A. Schultes, an employee who was in charge of it. In April 1955 an arrangement was made
between Reese and Schultes whereby the latter undertook the operation of the tire department for 40% of the profits. The supplier of tires was then the General Tire and Rubber Company. On Schultes' recommendation this connection was severed and the Seiberling Tire and Rubber Company became the supplier. When Schultes took over there were no tires in stock. Shortly after April 22, 1955, the date of the first Seiberling invoice, the tire department actively resumed business.
Schultes' duties were those of a manager; he ordered tires, made out invoices, made entries in the daily cash sheets which he took to the corporation's accounting department at the end of each month; he turned in cash daily to the accounting department, took monthly inventories, made up a monthly list of sales from information procured from sales slips which showed the name of the customer, the number of tires sold and the proceeds of the sale. In brief, he was in complete charge of the entire operation. His only assistant was a man who did the manual work of mounting tires for customers. Only Schultes and Reese had keys for the building.
In May 1956 Schultes received his last salary payment which represented his share of the earnings for the preceding month. Thereafter the department operated without profit. On August 31, 1956 Schultes and Reese took an inventory which showed an apparent shortage of stock of the value of $3,200. In September Reese called in his accountants to make an audit and on October 3 they notified him that "there was without question a shortage of stock." The same day Reese reported to Stricker, the insurance agent who had sold him the policy, that "there was a loss, that there was definitely something the matter," and in due course Stricker informed the defendant of the claim. At the end of October a second inventory was taken by Schultes and another of plaintiff's employees. This revealed an additional shortage of tires having a value of approximately $1,000. Reese then sought an explanation from Schultes. The latter said that
"a combination of things were wrong." The bookkeeping records might be inaccurate, and credits were due from Seiberling which "would reestablish whatever losses were indicated on [the] books at the time." Reese communicated with Seiberling and learned that Schultes' claim of substantial credits was without foundation. During November, at Reese's request, a representative of Seiberling came to the corporation's place of business. In Schultes' presence Reese informed the representative that Schultes claimed that credits were due from Seiberling which would "reestablish the loss." Thereafter Seiberling "reconfirmed or confirmed that all the credits" due "had come through." On a Saturday morning in November (the date does not appear in the record) Schultes' assistant reported that his superior had not appeared for work. On the following Monday Reese called the hotel at which Schultes had been living and learned that he had checked out and had left no forwarding address. He has been neither seen nor heard of since that day.
On June 21, 1957 plaintiff submitted a proof of loss to defendant on forms supplied by it. This document set forth the loss as being $4,149.33, ...