Vision Finan Group v. Midwest Family ( 2004 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 03-1154
VISION FINANCIAL GROUP, INC.,
Plaintiff-Appellee,
v.
MIDWEST FAMILY MUTUAL INSURANCE COMPANY,
Defendant-Appellant.
____________
Appeal from the United States District Court
for the Western District of Wisconsin.
No. 02-C-416—John C. Shabaz, Judge.
____________
ARGUED SEPTEMBER 16, 2003—DECIDED JANUARY 14, 2004
____________
Before FLAUM, Chief Judge, DIANE P. WOOD, and
WILLIAMS, Circuit Judges.
WILLIAMS, Circuit Judge. Vision Financial Group, Inc.
sued Midwest Family Mutual Insurance Company to
recover for stolen computer equipment under an insurance
policy that designated Vision Financial as loss payee. The
district court granted Vision Financial’s motion for sum-
mary judgment on its claim for the loss of the equipment,
finding that it was covered property under the policy.
Midwest contends that the insurance policy did not afford
coverage for the equipment and, even if it did, two policy
exclusions preclude coverage. We agree that the equipment
was covered property under the policy, but we reverse the
2 No. 03-1154
order granting summary judgment in favor of Vision
Financial because we find that the “dishonesty” and “false
pretense” policy exclusions are applicable.
I. BACKGROUND
In May 2001, Vision Financial leased computer equip-
ment and furniture to Mufti Hospitality Group, LLC for use
at Amery’s Camelot Motel, a motel owned by Mufti. A few
days after delivery of the equipment, Mufti’s president,
Muhammad Arshad, stole the equipment and the furniture.
Midwest insured Mufti’s property on the motel’s premises
under a business owners’ insurance policy. The policy
included coverage for business personal property in Mufti’s
care, custody or control that was owned by others but
located at the motel. The policy also included both a “false
pretense” and a “dishonesty” exclusion. The “false pretense”
exclusion precluded the insured from recovering for the loss
of property if the insured was induced by a fraudulent
scheme to voluntarily part with covered property. Similarly,
the “dishonesty” exclusion provided that Midwest would not
indemnify the insured if the loss of the covered property
was a consequence of dishonest or criminal acts by the
insured or anyone to whom the insured entrusted the
property. Pursuant to Vision Financial’s lease agreement
with Mufti, the policy named Vision Financial loss payee.
Vision Financial, as loss payee, filed a claim with
Midwest to recoup the value of the stolen property, which
Midwest denied. Thereafter, Vision Financial brought suit
against Midwest in the district court and both parties
moved for summary judgment. In support of its motion,
Midwest argued that the policy did not provide coverage for
the computer equipment or the furniture. Vision Financial
disagreed and asserted that Midwest denied its claims in
No. 03-1154 3
bad faith. The district court determined Vision Financial
was entitled to summary judgment as to its claim for the
loss of the computer equipment.1 Midwest now appeals.
II. ANALYSIS
We review de novo a district court’s grant of summary
judgment, drawing all inferences in the light most favorable
to the nonmoving party. Midwest Cmty. Health Serv. v. Am.
United Life Ins. Co., 255 F.3d 374, 376 (7th Cir. 2001).
A. Policy Coverage
On appeal, Midwest first contends that Vision Financial
was not entitled to summary judgment because the policy’s
coverage provisions do not encompass the computer equip-
ment. Under Wisconsin law,2 the coverage provided by an
insurance policy is prescribed by the policy’s terms and
conditions. Ehlers v. Johnson, 476 N.W.2d 291, 293 (Wis.
Ct. App. 1991). The policy designated the following as cov-
ered property: “Business Personal Property located in or
on the buildings at the described premises . . . including
[p]roperty of others that is in [the insured’s] care, custody
or control.” The stolen computer equipment fits neatly
within this description of coverage. Vision Financial main-
tained ownership of the equipment that was located in the
1
The court granted Midwest summary judgment as to Vision
Financial’s claims regarding the furniture and the bad faith denial
of their claims; however, the sole issue on appeal is the grant of
summary judgment in favor of Vision Financial as to the computer
equipment.
2
The parties agree that Wisconsin law governs the interpretation
of the policy language in this diversity case.
4 No. 03-1154
motel and leased to Mufti for use in the motel business.
Midwest argues that, notwithstanding the policy’s terms,
the computer equipment is not covered property, as it was
stolen from the motel’s premises before it was actually used
in Mufti’s business. We find this argument unpersuasive, as
such a position would impose an impractical requirement of
actual use of business property before it is insured.
B. Policy Exclusions
Midwest also contends, and we agree, that the district
court erred because the policy’s “false pretense” and “dis-
honesty” exclusions each bar Vision Financial’s recovery
under the policy. In response, Vision Financial argues that
the policy exclusions are not applicable to Vision Financial
because it is a loss payee. This assertion is belied by the
policy’s loss payable provision. The loss payable provision
provides that the loss payee generally will not be denied
coverage due to the acts of the insured; however, “[a]ll
terms of the [policy] will then apply directly to the Loss
Payee.” Wisconsin courts interpret similar clauses in
mortgage contracts, known as standard mortgage clauses,
as creating a separate contract between the loss payee and
the insurer. See Estate of Ensz v. Brown Ins. Agency, Inc.,
223 N.W.2d 903, 909-10 (Wis. 1974). Both parties concede
that the loss payable clause in the instant contract is akin
to a standard mortgage clause and it too creates a separate
contract between the loss payee and the insurer. Thus, a
separate agreement exists between Vision Financial and
Midwest that makes all the terms of the policy, including
the policy exclusions, applicable to Vision Financial.
The policy’s “false pretense” exclusion precludes recovery
for a loss caused by voluntarily “parting with any prop-
erty by you or anyone else to whom you have entrusted
the property if induced to do so by any fraudulent scheme,
No. 03-1154 5
trick, device or false pretense.” Wisconsin courts have
deemed policies with substantially similar language to pre-
clude an insured’s recovery for a loss resulting from prop-
erty theft. See, e.g., Waters Motor v. Grain Dealers, 107
N.W.2d 129, 130-31 (1961) (precluding recovery for the loss
of a stolen vehicle when the insured entrusted the vehicle
to a prospective purchaser and recounting numerous
instances in which the court had taken similar action). Sim-
ilar treatment is warranted here. Vision Financial volun-
tarily parted with the computer equipment when it leased
the property to Mufti and it was induced to do so by
Arshad’s fraudulent scheme. Although this case is distin-
guishable from other cases with similar exclusions in that
it involves a claim by a loss payee rather than an insured,
that is not a meaningful distinction. The loss payable
provision dictates that the policy’s exclusions be applied to
the loss payee and the insured equally. Thus, we find that
the policy’s “false pretense” exclusion bars recovery by
Vision Financial. A contrary decision would afford the loss
payee greater protection under the policy than the insured.
Because we find the “false pretense” exclusion precludes
coverage, we need only briefly address whether the policy’s
“dishonesty” provision also bars recovery. The “dishonesty”
exclusion precludes indemnification if the loss was caused
by a “[d]ishonest or criminal act by you . . . or anyone to
whom you entrust the property for any purpose. . . .” By its
terms, the “dishonesty” provision also precludes Vision
Financial’s recovery. Vision Financial entrusted the com-
puter equipment to Mufti. The dishonest and criminal act
of Mufti’s president (the theft of the equipment) caused the
loss.
Because we conclude that the policy exclusions are
applicable, the district court erred by granting Vision
Financial summary judgment on its claim for the loss of the
computer equipment.
6 No. 03-1154
III. CONCLUSION
For the foregoing reasons, we REVERSE the district court’s
order granting summary judgment in favor of Vision
Financial and REMAND with directions to enter summary
judgment for Midwest.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—1-14-04