An Illinois appellate court was asked whether an employer can recover for an employee's wage theft under the terms of the employer's business insurance. The plaintiff (collectively 3BC Properties, LLC or "3BC") owns and operates four Dunkins Donuts franchisees in Du Page County. 3BC purchased a business owner's insurance policy for each restaurant through State Farm Fire and Casualty Company (State Farm). All policies had the same language. I 3BC Properties, LLC; 3BC Properties-Mitchell, LLC; 3BC Properties-Daniel, LLC; and 3BC Properties -Taylor, LLC v. State Farm Fire And Casualty Company 2020 IL App (2d) 190501, no. 2-19-0501, Appellate Court Of Illinois Second District (July 27, 2020) appellate court resolved the issue raised by the employer.
The State Farm policy included a rider and an exclusion, which insured 3BC against losses due to employee dishonesty. In insurance contracts, this type of rider is known as a "fidelity loan" or "exclusion of salary and benefits." The provision in question here reads as follows:
“Employee Dishonesty ***” b. Receive financial benefit ( other than salaries commissions fees bonuses promotions awards profit sharing pensions or other "employee" benefits received during normal employment ) for: (1) All "employees"; or (2) any other person or organization intended by the "employee" to receive that benefit. "(Emphasis added.)
State Farm denied coverage with reference to the italicized language. 3BC is suing for an explanatory judgment to establish the coverage. bona fide wage disputes. "Since there was no dispute that Vazquez committed fraud by falsifying time records, 3BC claimed that"
In this case, the first clause in insurance no one says that the insurer will cover all losses intentionally caused by an employee to receive a financial benefit " other than salaries, commissions, fees, bonuses, promotions, dividends, profit sharing, pensions or other" employees " benefits received during the normal course of employment. "(Emphasis added.)
Contrary to 3BC's interpretation, the phrase" normal employment process " does not change the word" salaries. " Rather, it changes the phrase "other" employee benefits "and describes a characteristic of an extra, general type of payment that is excluded from coverage.
The first eight nouns are "salaries", "commissions", "fees, & # 39; & # 39; bonuses, & # 39; & # 39; campaigns, & # 39; & # 39; dividends, & # 39; & # 39; profit sharing, & # 39; & # 39; pensions. & # 39; The ninth noun, the phrase, & # 39; benefits of other employees earned in normal employment & # 39; describe, in unspecified form, all other forms of compensation that are generally earned during the normal course of employment. This general description is necessary because of course the list cannot go on forever. In other words, the parenthetical is just a list where the last article is a catch – the equivalent of writing "etc."
The language of this credibility has been an industry-wide standard since the mid-1970s and there are many cases that interpret the same provision in similar circumstances. As the court found, almost all of these decisions consider that unpaid wages and unpaid commissions are nonetheless wages and commissions. That is, they do not lose their essential character as financial transactions between employers and employees simply because they were obtained through fraud.
Coherence throughout the policy led the Court of Appeal to conclude that "salary payments" are the type of typical transactions between employers and employees that are exempt from coverage under the fidelity bond. Ambiguity is established not only because the courts achieve inconsistent results. The opposite interpretation must be reasonable. The Court of Appeal concluded that it was not.
Had Ms. Vazquez used the contents of the storage room as collateral for a loan or helped herself to all the monks in the restaurant or sold one of the cappuccino machines on eBay, then 3BC's loss would be covered. As exact as the example, given that there is an exclusion, the policy was clearly not designed to cover all conceivable criminal behavior of employees.
Wage theft is simply a form of indirect theft of employees that is excluded from coverage.
The Illinois Court read the full policy (RTFP) and concluded that the exclusion was clear and unequivocal and excludes the excess wages that Vazquez paid to himself and her relatives. No question about what she did was a theft but it was a theft that was clearly and unequivocally ruled out. RTFP is necessary in any interpretation of coverage.
© 2020 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to working as an insurance consultant specializing in insurance coverage, handling insurance claims, bad faith insurance and insurance fraud almost equally for insurers and policyholders. He also acts as an arbitrator or mediator for insurance-related disputes. He practiced law in California for more than 44 years as an insurance coverage and attorney handling attorney and more than 52 years in the insurance industry. He is available at http://www.zalma.com and email@example.com.
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