United States District Court, N.D. Illinois, Eastern Division
December 12, 2005.
F.D. STELLA PRODUCTS COMPANY, Plaintiff,
GENERAL STAR INDEMNITY COMPANY, Defendants.
The opinion of the court was delivered by: JOAN LEFKOW, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff-insured, F.D. Stella Products Company ("Stella"),
filed suit against Defendant-insurer, General Star Indemnity
Company ("General Star"), for breach of an insurance contract.
General Star filed a counterclaim for declaratory judgment.
Diversity jurisdiction is properly invoked pursuant to
28 U.S.C. § 1332, as the amount in controversy exceeds $75,000, Stella is a
Michigan corporation with its principal place of business in
Michigan, and General Star is a Connecticut corporation with its
principal place of business in Connecticut. Venue is properly
invoked pursuant to 28 U.S.C. § 1391, as a substantial portion of
the events giving rise to this claim occurred in Lombard (DuPage
Because the General Star insurance policy in question does not
contain a choice of law provision, the court must look at the
choice of law factors set forth by the Illinois Supreme Court in
Lapham-Hickey Steel Corp. v. Protection Mut. Ins. Co.,
665 N.E.2d 842, 845 (Ill. 1995). These factors require the court to
consider (1) the location of the policy's subject matter; (2) the
place of the policy's delivery; (3) the domicile of the insured and
insurer; (4) the place of the last act giving rise to a valid
contract; (5) the location of performance; and (6) any other
place bearing a rational relationship to the general contract.
Because the policy's subject matter was at all relevant times
located in Lombard, Illinois and because the General Star policy
was underwritten and delivered in Illinois, the court holds that
Illinois law should be applied to resolve this dispute.
Before the court are Stella's and General Star's cross-motions
for summary judgment. For the reasons stated below, Stella's
motion is denied and General Star's motion is granted.
SUMMARY JUDGMENT STANDARDS
Summary judgment obviates the need for a trial where there is
no genuine issue as to any material fact and the moving party is
entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c).
To determine whether any genuine fact exists, the court must
pierce the pleadings and assess the proof as presented in
depositions, answers to interrogatories, admissions, and
affidavits that are part of the record. Fed.R.Civ.P. 56(c)
Advisory Committee's notes. The party seeking summary judgment
bears the initial burden of proving there is no genuine issue of
material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986). In response, the non-moving party cannot rest on bare
pleadings alone but must use the evidentiary tools listed above
to designate specific material facts showing that there is a
genuine issue for trial. Id. at 324; Insolia v. Philip Morris,
Inc., 216 F.3d 596, 598 (7th Cir. 2000). A material fact must be
outcome determinative under the governing law. Insolia,
216 F.3d at 598-99. Although a bare contention that an issue of fact
exists is insufficient to create a factual dispute, Bellaver v.
Quanex Corp., 200 F.3d 485, 492 (7th Cir. 2000), the court must
construe all facts in the light most favorable to the non-moving
party, as well as view all reasonable inferences in that party's
favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). On cross-motions for summary judgment, the court must
consider the merits of each motion and assess the burden of proof
that each party would bear on an issue at trial. Santaella v.
Metro. Life Ins. Co., 123 F.3d 456, 461 (7th Cir. 1997).
Stella leases and refurbishes restaurant equipment. (General
Star L.R. 56.1 ¶ 2). On or about March 11, 1997, Stella entered
into an agreement with Ser-Ven Pizza, Inc. d/b/a Venditti's
Ristorante to lease restaurant furniture, equipment, and fixtures
("the subject property"). (Stella L.R. 56.1 ¶ 7). Stella and
Bancorp Group, Inc. ("Bancorp") financed a portion of the lease
of the subject property, and, in return, both received a security
interest in the property. (Stella Ex. D). Sometime prior to
December of 1999, Ser-Ven Pizza ceased operating Venditti's
Ristorante and left the subject property at the premises. (Stella
L.R. 56.1 ¶ 8).
As of December 14, 1999, Chicago Pizza Kitchen occupied the
restaurant space formerly used by Venditti's Ristorante and used
the subject property in its restaurant operations with Stella's
and Bancorp's knowledge.*fn1 (General Star L.R. 56.1 ¶ 10).
Immediately thereafter, Stella sent documents related to the
financing of the subject property to Sam Miceli, owner of Chicago
Pizza Kitchen, but no agreement was reached regarding the lease,
sale or use of the subject property. Id. at ¶ 11. At some point between December 1999 and March 2001, Jason and
Anthony Brown ("the Browns") assumed ownership of Chicago Pizza
Kitchen. Id. at ¶ 12. The Browns, like their predecessor, used
the subject property in their restaurant operations with F.D.
Stella's and Bancorp's knowledge but without any agreement
between Chicago Pizza Kitchen and Bancorp or Stella for the
lease, sale or use of the subject property.*fn2 Id.
On June 19, 2000, Bancorp filed a replevin suit against Chicago
Pizza Kitchen, seeking, among other things, surrender of the
subject property and an order 1) declaring that Bancorp had a
superior right, title to, and interest in the property, 2)
ordering that Chicago Pizza Kitchen relinquish possession of the
subject property to Bancorp, and 3) empowering Bancorp to enter
the premises where the subject property was located to take
possession of it. Id. at ¶ 13. On November 15, 2000, the Court
granted all of Bancorp's requests. Id. at ¶ 14.
Effective March 2001, Bancorp assigned all of its rights,
title, and interest in the subject property to Stella. Id. at ¶
15. On March 21, 2001, Stella sent its agent to the Chicago Pizza
Kitchen premises to inventory the subject property. Id. at ¶
16. On April 1, 2001, Stella's agent reported to Stella that a
double deck pizza oven, espresso machine, vertical cutter mixer,
slicer, under-the-counter cash drawer, range, and glass washer
had been removed from the restaurant premises. Id. at ¶ 17;
see (Stella Ex. I). Of the subject property, a fire protection
system, shelving, refrigerators and freezers, a dish washer,
fryers, booths, and tables remained at the premises. Id. On or about April 16, 2001, Stella's attorney informed the
Browns by letter of the outcome of the replevin suit and of
Bancorp's assignment of all of its rights in the subject property
to Stella. Id. at ¶ 19. In the same letter, Stella advised the
Browns of its intention to remove the subject property from the
restaurant immediately unless adequate financial arrangements
were promptly made and Stella also informed the Browns that any
prior sale or transfer of the subject property without
authorization from Bancorp or Stella was fraudulent. Id.
Between April 2001 and August 2001, Stella attempted to negotiate
with the Browns regarding the lease or purchase of the subject
property. Id. (Stella L.R. 56.1 ¶ 16). Throughout this period,
the subject property remained in the Browns' custody at the
Chicago Pizza Kitchen. Id. at ¶ 21.
On August 8, 2001, Stella was notified that the Browns had
vacated the property without leaving a forwarding address and
removed all of the subject property from the restaurant premises.
Id. at ¶ 22. Subsequently, Stella filed a police report on
September 4, 2001 concerning the alleged loss or theft of the
subject property. Id. at ¶ 22; (Stella Ex. K).
Thereafter, on or about August 21, 2001, Stella submitted a
claim for coverage of the alleged theft of the subject property
from the restaurant premises to General Star. Id. at ¶ 24.
(Stella Ex. L). General Star denied coverage for Stella's claim
on October 22, 2002, because:
. . . loss or damage resulting from a criminal act by
anyone to whom you entrust property, voluntary
parting with any property if induced so by a
fraudulent scheme, trick or false pretense, and loss
or damage where the only evidence of loss is
determined upon taking inventory or any other
instance where there is no physical evidence to show
what happened to the property, are all causes of loss
that are specifically excluded under your policy.
Id. at ¶ 28. (Stella Ex. M. at 3-4). B. The General Star Policy
General Star issued a commercial property insurance policy to
Stella with a policy coverage period of December 31, 2000 to
December 31, 2001. (Stella Ex. B at 1). The policy stated, in
part, "We will pay for direct physical loss of or damage to
Covered Property at the premises described in the Declarations
caused by or resulting from any Covered Cause of Loss." (Stella
Ex. B at 9). The policy defined "Covered Causes of Loss" as "RISK
OF DIRECT PHYSICAL LOSS unless the loss is . . . Excluded in
Section B., Exclusions; or . . . Limited in Section C.,
Limitations . . ." (Stella Ex. B at 20). Section B, Exclusions,
stated, in part,
2. We will not pay for loss or damage caused by or
resulting from any of the following:
h. Dishonest or criminal act by you, any of your
partners, employees (including leased employees),
directors, trustees, authorized representatives or
anyone to whom you entrust the property for any
(1) Acting in collusion with others; or
(2) Whether or not occurring during the hours of
This exclusion does not apply to acts of destruction
by your employees (including leased employees); but
theft by employees (including leased employees) is
i. 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.
(Stella Ex. B at 21-22). Section C, Limitations, stated, in part,
We will not pay for loss or damage to property, as
described and limited in this section. In addition,
we will not pay for any loss that is a consequence of
loss or damage as described in this section.
e. Property that is missing, where the only evidence
of the loss or damage is a shortage disclosed on
taking inventory, or other instances where there is no physical evidence to show
what happened to the property.
(Stella Ex. B at 23-24).
C. The Present Action
Stella filed this action against General Star on July 24, 2003,
alleging that General Star breached its contract with Stella when
it denied Stella's policy claim for theft of the subject
property. On August 27, 2004, General Star filed a counterclaim
for declaratory judgment, requesting that the court determine
whether any coverage obligation exists between General Star and
Stella and alleging that the General Star policy did not cover
Stella's claimed loss of the subject property because it fell
within one or more of the policy's exclusions and/or limitations.
Specifically, General Star claimed that Stella's loss was
excluded from the policy's coverage because Stella "entrusted"
the property to the Browns; Stella was induced to voluntarily
part with the property by a "fraudulent scheme, trick or false
pretense;" and, alternatively, to the extent that there is
insufficient proof of theft and Stella's claim is one for an
"unexplained loss," the subject property "mysteriously
disappeared." On May 12, 2005, Stella filed for partial summary
judgment, arguing that General Star's policy exclusions and
limitations were inapplicable to the loss at hand because the
subject property was not entrusted to the Browns, Stella did not
voluntarily part with the subject property due to a "fraudulent
scheme, trick, device or false pretense," and the disappearance
of the subject property did not fall within the policy's
"mysterious disappearance" exclusion. On August 3, 2005, General
Star filed a cross-motion for summary judgment, arguing that
General Star does not have any coverage obligations to Stella
because Stella's loss of the subject property fell within one or
more of the General Star policy's exclusions. DISCUSSION
I. "Entrustment Exclusion" Defined.
In support of its motion for summary judgment, General Star
argues that the "entrustment exclusion" precludes Stella from
being compensated under the General Star policy for the alleged
theft of the subject property. Stella counters that this
exclusion does not apply as a matter of law because it did not
"entrust" the property to the Browns.
According to the policy, General Star will not pay for loss or
damage caused by or resulting from a "[d]ishonest or criminal act
by you, any of your partners, employees (including leased
employees), directors, trustees, authorized representatives or
anyone to whom you entrust the property for any purpose." (Stella
Ex. B at 21-22). Because the General Star policy does not define
"entrust," the court must apply established rules of contract
construction and give this term its common and ordinary meaning.
See Prudential Ins. Co. of America v. Miller Brewing Co.,
789 F.2d 1269, 1275 (7th Cir. 1986). The common and ordinary meaning
of "entrust," as found in Webster's Third New International
1. to confer trust upon; deliver something to
(another) in trust.
2. to commit or surrender to another with a certain
confidence regarding his care, use or disposal of.
Webster's Third Int'l Dictionary 759 (1993); see also Deluxe
Black's Law Dictionary 533 (6th ed. 1991) (defining "entrust" as
"[t]o give over to another something after a relation of
confidence has been established. To deliver to another something
in trust or to commit something to another with a certain
confidence regarding his care, use or disposal of it."). The parties do not cite to and the court was unable to locate
an Illinois case explicitly defining or interpreting the term
"entrust" used by the General Star policy. Other jurisdictions
interpreting similar "entrustment exclusions," however, have
found that "[w]hen the word entrusted appears in the contract the
parties must be deemed to have entertained the idea of a
surrender or delivery or transfer of possession with confidence
that the property would be used for the purpose intended by the
owner and as stated by the recipient." Nat'l American Ins. Co.
v. Columbia Packing Co., Inc., 2003 WL 21516586*4 (N.D. Tex.
2003). See also Balogh v. Pennsylvania Millers Mut. Fire Ins.
Co., 307 F.2d 894
, 896 (5th Cir. 1962); Abrams v. Great
American Ins. Co., 199 N.E. 15, 16 (N.Y. 1935). Consistent with
these authorities, the court adopts the Webster's definition of
II. Stella's Conduct.
With that definition in mind, it appears beyond question that
Stella "entrusted" the subject property to the Browns when it
knowingly permitted the Browns to maintain custody and control
over the subject property for nearly five months while the
parties attempted to negotiate a purchase or lease agreement for
the subject property.
As of November 15, 2000, Bancorp had obtained a court order
empowering Bancorp to enter the premises of the Chicago Pizza
Kitchen and to retake possession of the subject property.
Effective March 2001, Stella similarly possessed an undisputed
right to the subject property and the authority to retake
possession because Bancorp had assigned to Stella all of its
rights, title, and interest in the subject property. Yet, Stella
elected to leave the subject property in the custody and control
of the Browns. Despite knowing that certain items were missing
and warning the Browns that it intended to immediately retake
possession of the remaining subject property and that any prior
sale or transfer of the subject property was fraudulent.
Frank Stella testified that Stella did not retrieve the subject
property from the restaurant premises when the Chicago Pizza
Kitchen changed ownership because he viewed the Browns as a good
faith prospective purchaser/lessee of the subject property, and
Stella had wanted to establish good will with the Browns in hopes
of consummating a lease or purchase agreement. See Stella Exam.
Under Oath Trans., pp. 25-27, 30-31, 34-36, 40-42, 56-57; see
also Stella Dep. Trans., pp. 12-16. Frank Stella further
testified that he knew the Browns were using the subject property
in the operation of their restaurant and that he intended for
them to do so because he believed that it would persuade the
Browns to ultimately lease or purchase the subject property.
Id. Stella thus placed its confidence in the Browns not to
damage, steal or otherwise dispose of the subject property.
As General Star notes, other courts have found that an
"entrustment exclusion" barred coverage where an insured
voluntarily transferred or surrendered possession of insured
property to a prospective purchaser who then absconded with the
property. See Balogh v. Pennsylvania Millers Mut. Fire Ins.
Co., 307 F.2d 894, 896 (5th Cir. 1962) (finding that an
"entrustment exclusion" barred coverage where the insured
entrusted an emerald to someone who then entrusted it to a third
party and the third party absconded); Abrams v. Great American
Ins. Co., 269 N.Y. 90, 92, 199 N.E. 15, 16 (N.Y. 1935) (holding
that a jeweler entrusted insured property when he turned property
over to a third party in an attempt to effectuate a sale);
Pacific Indemnity Co. v. Harrison, 277 S.W.2d 256
(Tex.Civ.App. 1955) (on rehearing) (finding that an insured automobile
dealership had entrusted an automobile when it allowed a
purported buyer to test drive the vehicle and the vehicle was never returned). These
cases are consistent with the purpose of an "entrustment
exclusion," which is "to exclude from the risk undertaken by the
insurer those losses that arise from the `misplaced confidence'
of the insured in those to whom it entrusts its property."
Bainbridge, Inc. v. Calfarm Ins. Co., 2004 WL 2650892*6
(Cal.App. Ct. 2004) (citing Van Sumner, Inc. v. Pa. Nat. Mut. Cas.
Ins., 329 S.E.2d 701, 704 (N.C.App.Ct. 1985).
Stella argues that the absence of a written contractual
agreement between the parties demonstrates that Stella and the
Browns did not have the necessary relationship of trust or
confidence. While a written contractual agreement would show that
an entrustment had occurred, parties need not comply with the
formal requirements of a contract to manifest a relationship of
trust or confidence. Indeed, courts have held that "entrustment
exclusions" operate even where the insured had no contractual
relationship with the recipient of the subject property. See
Abrams, 199 N.E. at 16 (N.Y. 1935) (insured "entrusted" $15,000
in jewelry when he surrendered the insured property based only on
the recipient's previously demonstrated creditworthiness and her
supposed integrity); see also Pacific Indemnity Co.,
277 S.W.2d 256 (insured "entrusted" an automobile when he surrendered the
vehicle based on the recipient's execution of a tax affidavit and
application for Texas Certificate of Title). The determinative
factor as to the existence of an entrustment is simply whether
the insured surrendered or transferred the subject property with
confidence regarding its care, use or disposal. In this case,
Stella knowingly permitted the Browns to possess and use the
subject property in the operation of their business for nearly
five months. Stella further suggests that an entrustment of the subject
property did not occur because the Browns did not receive the
subject property directly from Stella but instead inherited it
when the prior restaurant venture went out of business. The
manner in which the Browns initially took possession of the
subject property would be relevant if the Browns stole the
property immediately or soon after inheriting the property from
the previous owners. Stella, however, cultivated a relationship
with the Browns during five months of negotiations. Throughout
that period, Stella permitted the Browns to use the subject
property in an effort to avoid the expense of removing the
property from the premises and to induce the Browns to enter into
a purchase/lease agreement. By failing to exercise its authority
to retake possession, Stella's conduct implicitly sanctioned the
previous owner's transfer of the subject property to the Browns
and the Brown's continued possession of the subject property.
III. Theft of the Subject Property by the Browns.
Finally, Stella argues that even if a relationship of
confidence had been established during the five months of
negotiations, that relationship had terminated by the time of its
loss because Stella had intended to retake possession of the
subject property two weeks after it was stolen. The "entrustment
exclusion," however, applies even if the dishonest or criminal
act occurs after the entrustment has terminated. Bainbridge,
Inc., 2004 WL 2650892 *6; see also Plaza 61,
446 F.Supp. at 1171 (finding similar "entrustment exclusion" applicable even
though property was stolen by general contractor after he had
been terminated and ordered to leave the site). Since the
parties' had established a relationship of confidence and the
loss suffered by Stella was a direct result of that relationship,
Stella's intent to terminate the relationship prior to the theft
of the subject property fails to negate the "entrustment
exclusion." Having decided that Stella entrusted the subject property to
the Browns, the only question that remains is whether the Browns
actually committed a dishonest or criminal act that resulted in
the subject loss. Or, more simply, did the Browns steal the
subject property.*fn3 (Stella Ex. B. at 21-22) ("We will not
pay for loss or damage caused by or resulting from any of the
following . . . dishonest or criminal act by you, any of your
partners, employees (including leased employees), directors,
trustees, authorized representatives or anyone to whom you
entrust the property for any purpose."). Both parties arguably
leave open the possibility that the subject property mysteriously
disappeared or was stolen by someone other than the Browns, but
neither party seriously disputes that the Browns were responsible
for the subject loss.*fn4
Stella has maintained since it first learned of the subject
loss that the Browns stole the subject property. On August 8,
2001, Peter Coules, the agent of the landlord of the restaurant
premises, notified Stella that the Browns had vacated the
premises and taken all of the subject property with them. Stella
immediately filed a police report for theft with the DuPage
County Sheriff's Office. While the police report does not
specifically accuse the Browns of theft, it clearly contemplates
that the Browns were responsible for the subject property's
disappearance. Stella then formally accused the Browns of
stealing the subject property when the submitted a claim under the General Star insurance policy. (Stella Ex. K).
The "Property Loss Notice," dated August 21, 2001, states that
"Mr. Brown took all the equipment out of the restaurant." (Stella
Ex. L). Stella now tempers its accusation but nevertheless makes
clear that it still believes that the Browns stole the subject
"[T]his Court may rest assured that the restaurant
equipment did not get up and wander away. The
equipment was of sufficient size where it could not
simply be misplaced or lost. Moreover, there
obviously would be no evidence of forced entry given
the fact that the individuals most likely to have
left with the restaurant equipment had keys to the
space where it was last present." (Stella Mem. in
Supp. at 11-12).
Not coincidentally, the evidence overwhelmingly demonstrates
that the Browns took the subject property when they vacated the
restaurant's premises. There was no evidence of forced entry at
the restaurant to suggest that someone other than Browns took the
subject property. The Browns were the last known party in
possession of the subject property and the only party, aside from
Stella, with access to it. In addition, the subject property
disappeared at the same time the Browns vacated the restaurant's
premises without notice and without leaving a forwarding address.
Further, the Browns believed, however mistakenly, that they had
already lawfully purchased the subject property from the
restaurant's previous owners.
Thus, the evidence supports one conclusion: the Browns stole
the subject property. There is simply no evidence in the record
from which a jury could reasonably conclude that someone other
than the Browns caused the subject loss, and "[s]peculation is
insufficient to withstand summary judgment." Ortiz v. John O.
Butler Co., 94 F.3d 1121, 1127 (7th Cir. 1996). Accordingly, the
"entrustment exclusion" in the General Star insurance policy bars
Stella's recovery, since they entrusted the property to the
Browns and the Browns' dishonest or criminal act caused the subject loss. In light of this determination, it
is unnecessary for the court to reach General Star's argument
that two other exclusions apply.
For the reasons stated above, Stella's Motion for Partial
Summary Judgment (#25) is denied and General Star's Cross-Motion
for Summary Judgment (#35) is granted.
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