Insurance Only Pays for Fortuitous Losses

Misplaced Trust Excluded

Post 4750

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W.W. Contracting, Inc. and its owner, Doug Williams (collectively, W.W.), entrusted tools to a W.W. employee but demanded their return at the end of his employment. When the now-former employee allegedly failed to return all the tools, W.W. reported them as stolen and sought insurance coverage for the alleged theft. W.W.’s insurance company denied the claim primarily because W.W.’s insurance policy excluded coverage for property loss “caused by or resulting from dishonest acts by anyone entrusted with the property.”

In  Doug Williams and W.W. Contracting, Inc. v. Pekin Insurance, Inc., No. 23A-PL-995, Court of Appeals of Indiana (March 4, 2024) the Court of Appeals resolved the dispute.

THE LITIGATION

W.W. sued its insurance company for breach of contract, but the trial court granted summary judgment in the insurer’s favor. On appeal, W.W. claimed there remains a genuine issue of material fact as to whether a dishonest act occurred because the insurer was unable to determine if W.W.’s former employee actually stole its tools. Assuming a dishonest act occurred, W.W. also claimed its former employee was no longer a person entrusted with the tools after W.W. demanded their return.

FACTS

W.W. employed Dante Wells from December 2017 to January 2019. During this time, Wells allowed W.W. to store its company tools on a piece of real estate Wells owned in Tippecanoe County. In exchange, W.W. allowed Wells to use the tools for “side work” in his own name.

In March 2019, after Wells stopped working for W.W., the company demanded that Wells return the tools stored on his property. When Wells refused, W.W. reported the tools as “stolen” to the Tippecanoe County Sheriff’s Department and sued Wells for replevin. Wells eventually returned what he claimed were all of W.W.’s tools. But upon inventorying the returned items, W.W. determined that “a lot of tools” were missing. W.W. therefore submitted an insurance claim to its insurance company, alleging Wells stole the missing tools.

The Insurer investigated W.W.’s insurance claim by interviewing Williams and Wells about the loss. Williams assumed the tools were still in Wells’s possession, but he did not “know that for a fact.” If Wells no longer had the tools, Williams had “no idea what happened to them.”

The Insurer was not able to determine if Wells actually stole W.W.’s tools. Regardless, the Insurer concluded W.W.’s loss was excluded from the Policy’s insurance coverage and denied W.W.’s insurance claim on the two alternative bases.

THE POLICY

At all relevant times, W.W. Contracting, Inc. was the named insured on a commercial insurance policy (the Policy) issued by Pekin Insurance (the Insurer). Among other things, the Policy provided coverage for “accidental loss” to W.W.’s tools. The Policy, however, also contained the following exclusions: “Dishonest Act/Entrusted Person, We will not pay for a ‘loss’ caused by or resulting from dishonest acts by anyone entrusted with the property.” It also excluded “Unexplained Disappearance We will not pay for a ‘loss’ caused by or resulting from unexplained disappearance.”

DISCUSSION

W.W.’s allegation that Wells stole its tools established the occurrence of a dishonest act for purposes of the Insurer’s motion for summary judgment. Wells was also a person entrusted with W.W.’s tools.

In raising the exclusions as affirmative defenses, the Insurer essentially accepted as true W.W.’s allegation of Wells’s undisputedly dishonest act. Thus, to prove the dishonest act/entrusted person exclusion barred coverage of W.W.’s loss, the Insurer was only required to establish that Wells was a person entrusted with W.W.’s tools.

Wells Was a Person Entrusted with W.W.’s Tools

To “entrust” means to commit to another with confidence. W.W. does not dispute that it entrusted Wells with its tools by storing them on Wells’s property during his employment with the company. In the absence of any ambiguity, the language of the Policy’s dishonest act/entrusted person exclusion must be given its ordinary meaning. Nothing in the language of the exclusion requires that the dishonest act be contemporaneous with the insured’s confidence in the entrusted person. The exclusion applies broadly to loss “caused by or resulting from” an entrusted person’s dishonest act.

The intent of the dishonest act/entrusted person exclusion is to bar coverage for the insured’s “misplaced confidence” in another. By entrusting its tools to Wells, W.W. placed its confidence in Wells not to steal the tools. This misplaced confidence resulted in W.W.’s loss. The fact that W.W. no longer had confidence in Wells at the time of his alleged theft is irrelevant under the terms of the Policy. The Court of Appeals affirmed the judgment in favor of the insurer.

ZALMA OPINION

When an insurance policy excludes certain potential losses in clear and unambiguous language a court must apply the exclusion as written. There was no question that WW entrusted the tools to Wells and claimed he either stole the tools or they disappeared mysteriously. Both potential events were excluded and the policy excluded the claimed loss.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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