Tuesday, April 9, 2019

Entrustment Clause of Property Damage Policy Upheld To Preclude Coverage For Acts of Vandalism To Rental Property

In the case of KA Together, Inc. v. Aspen Specialty Ins. Co., No. 18-CV-142 (E.D. Pa. Jan. 24, 2019 Slomsky, J.), the court granted a Defendant carrier’s Motion for Summary Judgment on a property damage insurance claim presented by the Plaintiff for water damages.  

According to the Opinion, the Plaintiff alleged claims for breach of contract and bad faith stemming from a Defendant’s denial of an insurance claim made by the Plaintiff for losses at the Plaintiff’s property.   The Plaintiff had filed the insurance claim for water damage caused by two (2) individuals who had been residing in a third floor apartment on the property.  

The Defendant carrier filed a Motion for Summary Judgment asserting that the Plaintiff’s claims were barred by the “entrustment exclusion” of the insurance policy at issue, which expressly excluded coverage for all losses resulting from dishonest or criminal acts by person to whom the Plaintiff entrusted the property.  

The Plaintiff opposed the Motion for Summary Judgment by arguing that the entrustment exclusion did not apply because the Plaintiff never entrusted the property to the two (2) individuals responsible for causing the water damages.  

By way of further background, the property at issue was a mixed commercial residential building.   There was a rental apartment of the third floor.   The carrier insured the property with a commercial property policy which, as noted, included an “entrustment exclusion” which allowed the carrier to deny coverage for any losses resulting from dishonest or criminal acts by the insureds or anyone to whom the insured entrusted the property for any purpose.  

According to the Opinion, at some point, the person who had signed a Lease for the third floor apartment had his girlfriend move into the apartment.  Thereafter, the tenant and his girlfriend were arrested on separate criminal charges and removed from the property.   

The manager of the property was then made aware that another person claimed that he had signed a sublease for the apartment with the girlfriend.   That person was told that the Lease Agreement with the girlfriend would not be accepted by the landowner as the girlfriend had no authority to sublease the property to that person.  

After that person was asked to leave the premises, the landowner received a phone call the day after the person vacated the premises from the business that operated in the same building at the first and second floor, claiming that there is water flowing and flooding down into the office and store.   

When the manager went to the property, he found that there were three (3) sources of running water with the drains purposefully blocked in the third floor apartment.   The manager called the police and filed an incident report.   Thereafter, the insurance claim was submitted to the carrier.  

The landowner believed that the damage was covered under the policy as an act of vandalism. However, as noted above, the carrier relied upon the entrustment exclusion to deny coverage.   

The court found that the entrustment exclusion was not ambiguous and must be enforced.   The court emphasized that the entrustment exclusion broadly applies to dishonest or criminal acts by “anyone to whom [the landowner] entrust[s] the property for any purpose.”   The court ruled that, under the plain meaning of the policy, the carrier is entitled to summary judgment under the exclusion at issue.  

Anyone wishing to review a copy of this decision may click this LINK

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