What is an Entrustment Exclusion in an Insurance Policy?

J.P. Gonzalez-Sirgo
Founder of J.P. Gonzalez-Sirgo, P.A.

Insurance policies commonly come equipped with clauses known as “entrustment exclusions.” A typical entrustment exclusion clause will say something like this: no coverage will be afforded for losses or damages resulting from dishonest or criminal acts by the insured, agents, or anyone to whom the insured has entrusted the insured’s covered property. The basic idea behind entrustment exclusions is to disallow an insured from benefiting from an insurance contract for losses that result from dishonest acts, such as theft, by either the insured or anyone whom the insured has entrusted the insured property with. Since the trustee in this situation is in a position of confidence with the insured, insurance companies do not want to pay for the mishaps that occur as a result of the insured’s poor judgment of character. Insurance companies claim that the legitimacy of these clauses is that the insured is in the best position to protect the property, and thus should bear the risk of loss. However, you may not even realize that this clause applies to your situation until you have suffered a loss.

The entrustment exclusion has been held to apply in a variety of contexts. In a commercial property case, a lessor-insured leased his building to a lessee who operated a business on the property. When the landlord took back the premises he discovered that the lessee had caused extensive damages to the structure and had stolen content from inside building. The lessor filed a claim with his insurance company, which was denied on the grounds of the exclusionary clause in the policy. The insured filed suit for breach of contract but the court found for the insurer reasoning that the landlord-tenant relationship created a trustee-type relationship that fell within the scope of the exclusion.

In consignment of jewelry cases that resulted in theft by employees, consignors have been unable to recover the value of their goods even though the goods were insured, because of the entrustment exclusion. In a case involving the delivery of automobiles to a salesperson, the salesperson sold vehicles and used the proceeds to pay for personal expenses. The insured was unable to recover under his insurance policy because he was held to have entrusted the vehicles to the salesperson. A similar situation occurred in connection with an alcohol supplier and a transporter. The transporter stole crates of alcohol over time totaling a few million dollars. Although the policy limits would have provided for a full recovery, minus the deductible, the supplier was held to have entrusted the goods to the transporter thus falling within the exclusion.

Typically the issues in these cases revolve around whether an entrustment actually occurred. Entrustment is generally defined in ordinary terms as the acted of trusting someone with something, so the types of relationships and associations that the exclusion will apply to may be vast. In the business context it can be a partner, an agent, an employee, or a contractor. We’ve seen it apply in the landlord tenant context. The exclusion applies to other rental agreements as well. You can see the extent of the exclusions reach. This exclusion could reach as far as a room rental in your home.

The test for determining whether the entrustment exclusion will apply is the intent of the person delivering the property to another. In other words, whether the insured entrusted the person receiving the item with the property, and not whether the person receiving the item intended to return or preserve the property. Even if theft is a covered loss in your property, if there is an entrustment exclusion to that coverage, your insurer may deny your coverage if they believe you entrusted it to the thief.

As is always the case with insurance contracts, the language of the clause will determine the scope of the exclusion. Although these clauses are typically drafted to apply as broadly as possible, the wording is instrumental. If the language in the clause requires the person receiving the property to be in lawful possession, then a situation involving an embezzler or someone obtaining the goods by conversion may not fall within the scope of the exclusion. However, if the language of the clause does not require the person to be in lawful possession of the property then an insured that is duped or tricked into placing the property in the hands of an individual with “dishonest character” would fall within the exclusion and would not be entitled to recover.

If your property has been damaged or stolen while in possession of another, chances are your claim will depend on whether your policy excludes coverage for entrustment, the language of your policy, and the relationship you have with that individual. If you find yourself in this situation you should not hesitate to contact an experienced insurance claims attorney to can help you evaluate your options.

You can reach Miami Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email Attorney Gonzalez-Sirgo directly at [email protected].

Sources

Grover Commercial Enterprises, Inc. v. Aspen Ins. UK, Ltd., 202 So. 3d 877 (Fla. 3d DCA 2016)

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