The insured sold her $29,000 ring…or so she thought. When she attempted to deposit the cashiers check, she learned that it was forged and the forger was long gone. When she reported the claim to her insurer, it was denied. The adjuster said this was voluntary parting, not theft. In this article we’ll show you why we believe that’s wrong and why, under the circumstances, it doesn’t matter.
Below is an “Ask an Expert” email received by the Big “I” Virtual University when I was the director, along with a coverage analysis. As you read, I believe you’ll discover why this was one one of the most frustrating claims of my career. The following is reprinted, with permission, from the IIABA.
“Would this claim be covered? A diamond ring is scheduled on an HO3 policy. The insured decided to sell the ring and listed it in the paper. An individual called and wanted to buy the ring. The insured accepted what he thought was a cashier’s check for the ring. It turns out the check was a forgery. The ring and buyer have disappeared. It turns out that he gave false information regarding name, address, etc. The police are investigating but have little hope of any recovery.
“Will the policy pay? I turned the claim in to the insurer and they have denied it, saying that this was not a theft…it was voluntary parting, trickery, scam, etc. According to the adjuster, since the insured willingly parted with the property, the claim isn’t for theft, but for possession of a counterfeit check and they are only willing to pay $500 under that additional coverage.”
Well, just when you think you’ve heard them all, a claim like this comes along. This was clearly a theft. “Theft” is about the broadest type of illegal taking of property that you can have. Here’s how Black’s Law Dictionary defines it [emphasis added]:
“Theft. A popular name for larceny. The act of stealing. The taking of property without the owner’s consent. The fraudulent taking of personal property belonging to another, from his possession, or from the possession of some person holding the same for him, without his consent, with intent to deprive the owner of the value of the same, and to appropriate it to the use or benefit of the person taking.
“It is also said that theft is a wider term than larceny and that it includes swindling and embezzlement and that generally, one who obtains possession of property by lawful means and thereafter appropriates the property to the taker’s own use is guilty of a ‘theft.’
“Theft is any of the following acts done with intent to deprive the owner permanently of the possession, use or benefit of his property: (a) Obtaining or exerting unauthorized control over property; or (b) Obtaining by deception control over property; or (c) Obtaining by threat control over property; or (d) Obtaining control over stolen property knowing the property to have been stolen by another.”
Theft is also defined statutorily in many, or most, states. For example, here’s a typical definition: “”A person commits theft of property if, with intent to deprive the owner of property, the person knowingly obtains or exercises control over the property without the owner’s effective consent.”
Could it be any clearer? Theft includes fraud, swindling, deception, etc. In fact, even if someone “obtains possession of property by lawful means and thereafter appropriates the property to the taker’s own use” (e.g., conversion), they have committed a theft. So, even if the “purchaser” had given the insured a valid check and later stopped payment on it with the intent of depriving the insured of its possession, a theft has been committed.
The insurer’s reference to “voluntary parting” is immaterial. Voluntary parting is a loss often excluded by commercial property and crime forms. For example, the CP 10 30 10 00 covers theft but has the following exclusion:
“Voluntary parting with any property by you or anyone else to whom you have entrusted the property if induced to do so by any fraudulent scheme, trick, device or false pretense.”
That doesn’t mean that voluntary parting isn’t theft…what it means is that the form covers theft but not when the theft occurs through voluntary parting due to fraud, trick, etc. More important, that language does not appear in the HO forms.
We ran this claim by our faculty members and every single one of them said this was a theft…pure and simple. The position of the insurer that the insured no longer owns the ring and the claim is for a counterfeit check she now owns is a laughable premise (if this was a laughing matter). The insured’s loss is the ring, not the monetary funds represented by a counterfeit check (which is the purpose of that Additional Coverage). At the precise moment the insured exchanged the ring for a check known to be worthless by the other party, a theft occurred.
However, this isn’t the point. In this case, the ring was scheduled on the HO 04 61 04 91 – Scheduled Personal Property Endorsement. This endorsement doesn’t cover theft as a named peril. It provides “all risks” coverage, so the only thing that matters is what is excluded. Here’s what the form says:
PERILS INSURED AGAINST
We insure against risks of direct loss to property described only if that loss is a physical loss to property; however, we do not insure loss caused by any of the following:
1. Wear and tear, gradual deterioration or inherent vice.
2. Insects or vermin.
3. War, including the following and any consequence of any of the following:
a. Undeclared war, civil war, insurrection, rebellion or revolution;
b. Warlike act by a military force or military personnel; or
c. Destruction, seizure or use for a military purpose.
Discharge of a nuclear weapon will be deemed a warlike act even if accidental.
4. Nuclear Hazard, to the extent set forth in the Nuclear Hazard Clause of Section I – Conditions.
Other than Exclusions 5 (fine arts) and 6 (stamps and coin collections), these are the only exclusions in the endorsement. We don’t see anything for “voluntary parting,” whether you consider that theft or not.
Sadly, all of this information was presented to the insurer and it made its way all the way to the corporate claims department which was reportedly advised by their legal department not to pay the claim. Their attorney is relying on the 1963 Mississippi court case of Peerless Insurance Company v. Simon St. Laurent, 154 So.2d 135, 247 Miss. 134 (Miss. Supreme Court, 1963) which involved a PAP policy where an insured let his son-in-law take a vehicle out of state to pick up a trailer and the son-in-law did not return the truck.
We took a look at this almost 40 year old auto case and made the following observations:
First, the decision they cite seems to SUPPORT coverage in this case. The court distinguishes theft/larceny from other types of stealing which must be statutorily based, following criminal codes, in Mississippi (personally, I think their logic is faulty, but it’s a MS supreme court decision…I’d guess that the attorneys involved didn’t do a good job of pointing out the difference between insurance contract construction and criminal statutes). In any case, though, the court’s opinion seems to side with the insured in this claim….
The insurance company’s basis for denying the claim was, in part, that it was not a “theft” because “the original taking was lawful….” In this claim (involving the taking of jewelry), the original taking was unlawful…the ring was taken in exchange for a forged check which, the last time I looked, is unlawful in pretty much all states.
Again, in this claim, the taking was not lawful or bona fide…when the ring was exchanged for a bogus cashier’s check, a crime occurred and there was never a consummated sale nor bailment. So, the whole premise of this 1963 case appears to be inapplicable to this loss (not to mention the fact once again that the HO 04 61 doesn’t even mention coverage being dependent on theft or larceny…it only requires a loss).
Second, as outlined above, the issue of theft/larceny vs. embezzlement/voluntary parting/etc. is, again, not an issue in this claim. The HO 04 61 does not cover “theft” per se because the word isn’t even mentioned in the form. All it requires is a loss that isn’t excluded, and there are no exclusions that apply. Why the insurer cannot understand this is beyond our feeble minds to comprehend.
Finally, with regard to the insurer’s position that this was “voluntary parting” and not theft, we’d point out again that ISO has policy forms (which the insurer probably uses) such as the CP 10 30 that cover theft…actually, like the HO 04 61, the CP 10 30 is silent and only includes exclusions such as the one for voluntary parting cited above.
In the case of the HO 04 61, or even the unendorsed HO policy, if such losses weren’t intended to be covered, they could have been excluded just like they are in the CP 10 30. Since they aren’t specifically excluded, the insured should have the reasonable expectation that they’re covered.
Once all of the information above was provided to the agency, they sent it to the insurer. In her own words, here’s how the CSR described their communications:
I argued that the guy knowingly took my property knowing the check was no good. The claims VP insists that this is not theft nor loss of my ring. He insists I cannot have had a theft as I have a check. According to him, my claim is for a counterfeit check, not a ring. He said I will have a contractual suit against the guy for the bad check. I said, well if you don’t think this is a theft, then why does the Secret Service, the DA’s office and the sheriff’s dept say they will prosecute the guy for crossing state lines (from MS to TN) with stolen property? He said the law did not consider my ring stolen. I said, Well, then your saying the law enforcement agencies are wrong? He said, Well, I am saying that the law says you have a bad check, not stolen property.
I told him at that point that I do not agree with them, that my ring was stolen. I also informed him that I was willing to pursue this as it is fairly obvious we are in disagreement with the claim. He said their attorney should be finished evaluating the case by this week and would send me their final decision. I have a feeling I know what the attorney’s “research” will find, as he is the one who decided my ring was not stolen or taken by illegal means.
Here’s a subsequent update from the CSR:
I received a letter today from [the insurer] that says they still hold to their position that I only have a claim for a counterfeit check, not a ring.
I am in the process of completing the paperwork to file a complaint with the Department of Insurance. I have to decided to pursue this to the fullest extent possible.
Check back later and we’ll try to keep you informed of this claim’s progress. The CSR (who, incidentally, is also the insured in this claim) has indicated that, if her appeal to the DOI is unsuccessful, she plans to retain counsel and pursue the claim in court.
The insured has retained counsel. Upon initial contact by the attorney, the insurer offered to settle the claim for $16,000. The insured and her attorney have refused this offer and are preparing to litigate. We’ll keep you posted.
The claim was settled.
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So..who was the carrier? This feels like a national carrier.
I honestly don’t remember. I probably have the correspondence somewhere. When I wrote the article originally, I worked for the Big “I” trade association and “naming names” potentially could violate anti-trust laws, so I rarely mentioned carriers by name.
I hope a bad faith claim is the next update
This was a number of years ago. It was more an issue of training, competency, and idiocy.
This kind of behavior by carriers is precisely why I have such difficulty convincing young people to pursue RMI education and careers.
As you correctly pointed out, a voluntary parting exclusion might have defeated the claim. The lack of it in this policy really makes one question the basis for denial, except that the carrier simply did not want to pay.
Do you know the settlement amount?