In Telamon v. Charter Oak, the Seventh Circuit ruled against coverage for employee theft.

Underlying this insurance dispute is a regrettably common tale of greed and dishonesty. Telamon, an Indiana telecommunications firm, engaged Juanita Berry to work for it from 2005 to 2011 as its Vice President of Major Accounts. Berry used that position to steal over $5 million from the firm. Upon discovering this loss, Telamon then turned to two insurance policies in an effort to recover its money: a crime insurance policy with Travelers Casualty & Surety (Travelers), and a commercial property policy with Charter Oak Fire Insurance (Charter Oak). At that point, Telamon crashed into a brick wall. Travelers denied coverage because Berry was not, legally speaking, an employee. And Charter Oak refused to pay because, in practice, she was.

Telemon sued the insurance companies, and lost. The Seventh Circuit affirmed. The Traveler’s policy covered thefts by employees, including a person “leased to the Insured under a written agreement between the Insured and a labor leasing firm, while that person is subject to the Insured’s direction and control and performing services for the Insured.” But Berry was working for Telemon through consulting agreements between Telemon and Berry’s company, J. Starr. J. Starr was not a labor leasing firm – its only client was Berry. Thus Berry was not an employee under the Travelers policy.

The Charter Oak policy excluded dishonest acts by employees, authorized representatives, or anyone to whom [the insured] entrust[s] the property for any purpose. The court said an “authorized representative” is “a person or company empowered to act on an entity’s behalf.” This described Berry, a Vice President of Telemon, so the exclusion applied and there was no coverage under the Charter Oak policy either.

Note:  Most commercial general liability policies do not cover theft by employees.  That is why one buys crime insurance policies.  The crime insurance policy would likely have covered at least part of the loss if this had been a normal employer/employee situation.