Neither Crime Nor Commercial Property Policy Covered Consultant’s Theft, Seventh Circuit Rules

April 21, 2017 | Insurance Coverage

The U.S. Court of Appeals for the Seventh Circuit has affirmed a decision by a federal district court in Indiana that theft by a company’s consultant was not covered by either a crime insurance policy or a commercial property insurance policy.

The Case

Telamon Corporation, an Indiana telecommunications firm, engaged Juanita Berry – through a series of consulting services agreements with her company, J. Starr Communications – to work for it from 2005 to 2011 as its vice president of major accounts.

Berry used that position to steal over $5 million from the firm.

Upon discovering the loss, Telamon turned to two insurance policies in an effort to recover its money: a crime insurance policy and a commercial property insurance policy.

The insurers denied coverage, and Telamon sued.

The U.S. District Court for the Southern District of Indiana granted summary judgment in favor of the insurers, and Telamon appealed to the Seventh Circuit.

The Seventh Circuit’s Decision

The Seventh Circuit affirmed.

In its decision, the circuit court explained that the crime insurance policy covered theft by “an Employee,” including a “natural person” leased to Telamon under an agreement with a “labor leasing firm.”

Because Berry was not employed by Telamon, and because her company was not in the business of “leasing labor” – it was just her vehicle for providing her own services – the loss she caused was not covered by the crime insurance policy, the circuit court ruled.

The Seventh Circuit then pointed out that Telamon’s commercial property policy excluded coverage for any dishonest or criminal act by “employees” or “authorized representatives or anyone . . . to whom you entrust the property for any purpose.”

According to the circuit court, Berry was an “authorized representative” of Telamon, given that she was its most senior person in New York and New Jersey; she had operational oversight over the company’s facilities in those areas; and she hired and fired employees, ran meetings, and signed contracts on Telamon’s behalf. Indeed, the circuit court noted, she had been engaged in large part to be an “authorized representative” of Telamon.

Therefore, the circuit court concluded, the commercial property policy also did not cover the losses for which Berry was responsible.

The case is Telamon Corp. v. Charter Oak Fire Ins. Co., Nos. 16-1205, 16-1815 (7th Cir. March 9, 2017).

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