The insured is a contractor developing a residential community and performing site work and excavation. After the end of the workday on a Friday, the last employee at the site was waiting on a ride home and decided to drive the company pickup truck around the property, only to get it stuck in some mud. He used a front-end loader in an attempt to free it. However, all he accomplished was getting the loader stuck and “blowing out” the hydraulics. He reported this to the contractor that night.

A claim for damage to the front-end loader was reported to the agent the next day and the claim was turned over to the carrier. The contractor told the carrier that, because the truck was used after hours, the employee did not have permission. He also fired the employee and filed a police report against him. As a result of this information, the adjuster has denied the claim for damage to the front-end loader, citing this exclusion in the inland marine policy:

This insurance does not apply to loss or damage caused by or resulting from fraudulent, dishonest, or criminal acts or omissions committed alone or in collusion with others by you, your partners, directors, trustees, and employees or by anyone authorized to act for you, or anyone to whom you have entrusted covered property for any purpose….

Frankly, I don’t see how what the employee did was “dishonest,” especially if you review dictionary or Black’s Law definition of the term. “Dishonest” in this context implies a conscious and dishonorable intent to damage property. Definitions refer to cheating, deceiving, defrauding, etc. The employee made an error in judgment AND he did the right thing by reporting it to his employer almost immediately. He did something dumb or foolish, but there doesn’t appear to be any malicious intent to damage property that would rise to the level of a “dishonest” act.

There is an accounting adage that if torture numbers, they’ll confess to anything. Similarly, this appears to be an attempt to torture a policy exclusion until it fits the “crime.” And that’s likely not even necessary given this exclusion in the policy:

Weight Load
This insurance does not apply to loss or damage caused by or resulting from the weight of a load exceeding the manufacturer’s rated lifting capacity for the contractors’ equipment, as specified in load charts, brochures and/or manuals published by the manufacturer of the contractors’ equipment.

While we don’t have all the facts, it’s likely that the damage to the front-end loader is excluded because of this policy provision, not the Dishonesty exclusion. But, while the end result might be the same, it’s important to deny uncovered claims for the correct reason. If the exclusion don’t fit, you must acquit…unless there’s another exclusion that applies.

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Bill Wilson

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One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America. Reprint Request Information