No Coverage for Consultant’s Theft Under Company’s Crime or Property Policies

Applying Indiana law, the United States Court of Appeals for the Seventh Circuit has held that neither a company’s crime policy nor its commercial property policy provided coverage for theft of company property by a consultant who worked for the company.  Telamon Corp. v. Charter Oak Fire Ins. Co., 2017 WL 942656 (7th Cir. Mar. 9, 2017).

A telecommunications company hired an individual to work as the company’s Vice President of Major Accounts for six years by way of a series of consulting services agreements between the telecommunications company and the individual’s solo consulting company.  The individual had primary responsibility for removal of old telecommunications equipment and resale of the equipment to salvagers.  In reselling the equipment, however, she pocketed the profits.

The company sought coverage for the theft under its crime insurance policy, which covered theft by “an Employee,” and defined “Employee” as “any natural person . . . who is leased to the Insured under a written agreement between the Insured and a labor leasing firm, while that person is subject to the Insured’s direction and control and performing services for the Insured.”  In the coverage litigation following the insurer’s denial of coverage, the court held that the individual was not an “Employee” because her services were governed by a written agreement between the insured and her own consulting firm, which was not a firm in the business of leasing labor, but instead was merely her own vehicle for providing her services.  Accordingly, the court held that no coverage was available for the theft under the crime policy.

The company also sought coverage under its commercial property policy, which covered risks of direct physical loss.  The policy contained an exclusion for any “dishonest or criminal act by . . . employees (including leased employees), directors, trustees, authorized representatives or anyone (other than a carrier for hire or bailee) to whom you entrust the property for any purpose.”  The court held that the individual was an “authorized representative” of the company because she was the senior-most person with authority over certain of the company’s facilities and she was entrusted with the property that she stole.  Therefore, the court held that the exclusion was triggered and no coverage was available for the theft under the property policy.