Last week I wrote about insurance policies concerning vandalism and theft. In a similar vein, this week I discuss another case involving theft; only this time the thief was no stranger to the insured.

In Bayou City Prop. v. American Econ. Ins. Co., No. 09-1720, 2010 U.S. Dist. LEXIS 51753 (S.D. Tex., May 25, 2010), the Plaintiff had purchased coverage for employee dishonesty to cover instances of theft. On April 3, 2008, the Plaintiff was a victim of theft and vandalism: computer files were permanently deleted and tangible items were stolen, but there were no signs of forced entry. A property manager for the Plaintiff was the last person seen in the office before the theft and he did not return to work after the night of the incident. Plaintiff concluded that the property manager was responsible for the theft.

Although the Plaintiff purchased employee dishonesty coverage for instances of theft, that coverage did not extend to independent contractors. The parties agreed that the property manager/thief was an independent contractor. Independent contractors fell under the policy’s exclusion for general dishonesty. The court noted the policy’s exclusion for general dishonesty “exclude[d] coverage for dishonest acts by someone who was entrusted with the property affected by the dishonesty. Coverage, thus, depends on whether [the property manager] was entrusted with [the Plaintiff’s] office property.”

Defendants argued that the Plaintiff entrusted the property manager as evidenced by the Plaintiff giving the property manager the keys to the office building and passwords to the computers. Plaintiff argued that entrustment is akin to a bailment, which it claimed requires exclusive possession. Plaintiff argued that the office was not entrusted to the property manager because several people had keys and passwords.

The Court quickly dismissed the Plaintiff’s argument, concluding that the law recognizes sole and joint bailments. The Court then went on to define entrustment as “confid[ing] something to another something of significance – an authority or object – for one’s own purposes or coincident purposes with the other person. It can be limited or limitless.”

The Court concluded that by giving the property manager access to and control over the office, the Plaintiff “commended its contents to [the property manager] for the joint work of [the Plaintiff] and [the property manager]. That others were similarly entrusted does not negate [the Plaintiff’s] entrustment of [the property manager].” Because the Court determined that the Plaintiff had entrusted the property manager with its property, any theft by the property manager was not covered under the policy.

If the Plaintiff had hired someone permanently to manage the property, instead of relying on an independent contractor to do the job, this outcome might have been avoided.