Zalma on Insurance
Education • Business
Insurance Claims professional presents articles and videos on insurance, insurance Claims and insurance law for insurance Claims adjusters, insurance professionals and insurance lawyers who wish to improve their skills and knowledge. Presented by an internationally recognized expert and author.
Interested? Want to learn more about the community?
November 29, 2022
Zing Zing's Owner Barbecued

No Coverage for Theft by Persons Entrusted
Barry Zalma

Read the full article at https://lnkd.in/gebMQTZ8 and see the full video at https://lnkd.in/gWAREVQA and at https://lnkd.in/grcvX3Nk and at https://zalma.com/blog plus more than 4350 posts.

When the plaintiff turned her restaurant over to two restaurateurs when she became ill they took out all of the equipment of the restaurant and converted it to their possession. The restaurateurs claimed they purchased the equipment from plaintiff and she claimed they took advantage of her illness and stole the property. She made a claim to her insurer, State Farm, who denied the claim because either cause alleged was due to a peril not insured or a peril specifically excluded.

In Tomazina Johnson, d/b/a Zing Zing’s Wings & More, LLC v. State Farm Fire & Casualty Company, No. 2:20-cv-02912-cgc, United States District Court, W.D. Tennessee, Western Division (November 23, 2022) the USDC resolved the dispute by reading the full policy and applying its language to the facts established by State Farm’s motion.

INTRODUCTION

Plaintiff’s Circuit Court Complaint alleged two claims: breach of contract and bad-faith refusal to pay an insurance claim pursuant to Tennessee Code Section 56-7-105.

State Farm moved for Summary Judgment arguing that Plaintiff’s claim for breach of contract failed as a matter of law because the Policy does not provide coverage regardless of which version of the evidence a trier of fact would choose to accredit. Specifically, the Policy does not provide coverage either if the property was sold to third parties or if the property was entrusted to third parties and removed or stolen by them.

Plaintiff argued that the Policy provides coverage for accidental physical loss of business personal property and that she has met her initial burden of establishing that an accidental, direct loss during the Policy period.

THE INSURANCE POLICY

State Farm issued a businessowner’s insurance policy that was in full force and effect insuring Plaintiff’s restaurant business, Zing Zing’s Wings & More, LLC (“Zing Zing’s”). The Policy provides that State Farm insures for the “accidental direct physical loss to Covered Property.” However, “Section I – EXCLUSIONS” and the “Property Subject to Limitations” provisions limited the coverages available to the Plaintiff. The policy contained the following exclusion:
Dishonesty

(1) Dishonest or criminal acts by you, anyone else with an interest in the property, or any of your or their partners, “members,” officers, “managers,” employees, directors, trustees, or authorized representatives, whether acting alone or in collusion with each other or with any other party; or

(2) Theft by any person to whom you entrust the property for any purpose, whether acting alone or in collusion with any other party.

This exclusion applies whether or not an act occurs during your normal hours of operation.

This exclusion does not apply to acts of destruction by your employees; but theft by your employees is not covered.

With respect to accounts receivable and “valuable papers and records,” this exclusion does not apply to carriers for hire.

The exclusion set forth in subsection 2(g) of the Policy (“False Pretenses Exclusion”) states as follows:

False Pretense

“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.”

Evidence of Events Relevant to Plaintiff’s Claims

Plaintiff opened her restaurant Zing Zing’s. Its grand opening took place in February of 2019. However, while Plaintiff was operating the restaurant, it was operating at a loss.

On the advice of counsel Plaintiff dealt with two individuals-Curtis Braden (“Braden”) and Rayford Burns (“Burns”)- who were to take over Zing Zing’s while she was ill.

While the Policy remained in effect, Plaintiff testified that she “entrusted” her “business property and business” to Braden and Burns, provided them keys to the business, allowed them to temporarily operate her restaurant, allowed them to use her property and equipment, allowed them to sell food that she had already purchased, and allowed them to use the services of her employees for at least some period of time. Plaintiff testified that, while Braden and Burns were doing so, she would continue to pay her employees’ wages, the utilities, and all other bills related to the business, but Braden and Burns would pay the rent and keep the profits. During this arrangement, Plaintiff did not characterize Braden and Burns as her employees.

Plaintiff testified that, after entrusting Zing Zing’s to Braden and Burns, she was contacted by the landlord of Zing Zing’s who told her that the business was shut down. After receiving this phone call, Plaintiff went to Zing Zing’s and encountered two neighbors of the business who told her that the individuals she had allowed to operate the restaurant had removed everything out of the restaurant through the back door. Plaintiff reported to State Farm that Braden and Burns stole all of her property from Zing Zing’s.

Braden’s version of events is substantially different. He testified that Plaintiff transferred Zing Zing’s and its equipment and property to Burns by way of Bill of Sale. Braden testified that he observed Plaintiff initial and sign the Bill of Sale and that he notarized it. Plaintiff continued to testify that she has “no idea” why her initials and signature were on the Bill of Sale and contends that it is a fraudulent document.

Ultimately, State Farm denied Plaintiff’s claim under the Policy.

Plaintiff provided an itemized list of property related to her claim that totals $20,052.48.

ANALYSIS & CONCLUSIONS OF LAW

Breach of Contract Claim

Plaintiff’s first claim alleges breach of contract by State Farm. There is no dispute that State Farm issued the Policy and that it was in effect at all times relevant to Plaintiff’s claim. Thus, the legal question at issue here is whether State Farm failed to perform its obligations under the Policy by denying Plaintiff’s claim for coverage.

The evidence before the Court failed to show that any dispute exists as to who removed the property. Plaintiff informed State Farm that Braden and Burns stole the property, and she personally continues to believe that Braden and Burns are responsible. She entrusted the property to Braden and Burns if they stole the property as alleged the theft was excluded.

Statutory Bad Faith Claim

Plaintiff’s second claim alleges a statutory claim for bad faith refusal to pay pursuant to Tennessee Code Annotated Section 56-7-105. To prevail on such a claim, the following elements must be met:

the policy of insurance must, by its terms, have become due and payable;

a formal demand for payment must have been made;

the insured must have waited sixty days after making his demand before filing suit (unless there was a refusal to pay prior to the expiration of the 60 days); and, the refusal to pay must not have been in good faith.

The Court determined that the Policy did not provide coverage for Plaintiff’s claim as a matter of law since both possible causes of loss were excluded. Since Plaintiff’s claim has never been “due and payable” Plaintiff’s statutory claim for bad faith refusal to pay fails as a matter of law.

ZALMA OPINION

A sad tale of a person who – because she was ill – entrusted her property to two individuals who claimed they purchased the property and who she claimed stole the property. Unfortunately for the plaintiff either occurrence was specifically, clearly and unambiguously excluded.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

Go to substack at substack.com/refer/barryzalma Consider subscribing to my publications at substack at substack.com/refer/barryzalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected].

Write to Mr. Zalma at [email protected]; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

00:10:48
Interested? Want to learn more about the community?
What else you may like…
Videos
Posts
15 hours ago
Ambiguity in Insurance Contract Resolved by Jury

Jury’s Findings Interpreting Insurance Contract Affirmed
Post 5105

See the full video at https://lnkd.in/gPa6Vpg8 and at https://lnkd.in/ghgiZNBN, and at https://zalma.com/blog plus more than 5100 posts.

Madelaine Chocolate Novelties, Inc. (“Madelaine Chocolate”) appealed the district court’s judgment following a jury verdict in favor of Great Northern Insurance Company (“Great Northern”) concerning storm-surge damage caused by “Superstorm Sandy” to Madelaine Chocolate’s production facilities.

In Madelaine Chocolate Novelties, Inc., d.b.a. The Madelaine Chocolate Company v. Great Northern Insurance Company, No. 23-212, United States Court of Appeals, Second Circuit (June 20, 2025) affirmed the trial court ruling in favor of the insurer.

BACKGROUND

Great Northern refused to pay the full claim amount and paid Madelaine Chocolate only about $4 million. In disclaiming coverage, Great Northern invoked the Policy’s flood-exclusion provision, which excludes, in relevant part, “loss or damage caused by ....

00:07:02
June 23, 2025
The Clear Language Of The Insurance Contract Controls

Failure to Name a Party as an Additional Insured Defeats Claim
Post 5104

Read the full article at https://lnkd.in/gbcTYSNa, see the full video at https://lnkd.in/ggmDyTnT and at https://lnkd.in/gZ-uZPh7, and at https://zalma.com/blog plus more than 5100 posts.

Contract Interpretation is Based on the Clear and Unambiguous Language of the Policy

In Associated Industries Insurance Company, Inc. v. Sentinel Insurance Company, Ltd., No. 23-CV-10400 (MMG), United States District Court, S.D. New York (June 16, 2025) an insurance coverage dispute arising from a personal injury action in New York State Supreme Court.

The underlying action, Eduardo Molina v. Venchi 2, LLC, et al., concerned injuries allegedly resulting from a construction accident at premises owned by Central Area Equities Associates LLC (CAEA) and leased by Venchi 2 LLC with the USDC required to determine who was entitled to a defense from which insurer.
KEY POINTS

Parties Involved:

CAEA is insured by Associated Industries Insurance Company, Inc. ...

00:08:22
June 20, 2025
Four Corners of Suit Allows Refusal to Defend

Exclusion Establishes that There is No Duty to Defend Off Site Injuries

Post 5103

Read the full article at https://lnkd.in/geje73Gh, see the full video at https://lnkd.in/gnQp4X-f and at https://lnkd.in/gPPrB47p, and at https://zalma.com/blog plus more than 5100 posts.

Attack by Vicious Dog Excluded

In Foremost Insurance Company, Grand Rapids, Michigan v. Michael B. Steele and Sarah Brown and Kevin Lee Price, Civil Action No. 3:24-CV-00684, United States District Court, M.D. Pennsylvania (June 16, 2025)

Foremost Insurance Company (“Foremost”) sued Michael B. Steele (“Steele”), Sarah Brown (“Brown”), and Kevin Lee Price (“Price”) (collectively, “Defendants”). Foremost sought declaratory relief in the form of a declaration that

1. it owes no insurance coverage to Steele and has no duty to defend or indemnify Steele in an underlying tort action and
2. defense counsel that Foremost has assigned to Steele in the underlying action may withdraw his appearance.

Presently before the Court are two ...

00:08:29
May 15, 2025
Zalma's Insurance Fraud Letter - May 15, 2025

ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional

See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.

Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:

Health Care Fraud Trial Results in Murder for Hire of Witness

To Avoid Conviction for Insurance Fraud Defendants Murder Witness

In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...

May 15, 2025
CGL Is Not a Medical Malpractice Policy

Professional Health Care Services Exclusion Effective

Post 5073

See the full video at https://lnkd.in/g-f6Tjm5 and at https://lnkd.in/gx3agRzi, and at https://zalma.com/blog plus more than 5050 posts.

This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.

In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:

Insurance Coverage Dispute:

Travelers issued a Commercial General Liability ...

April 30, 2025
The Devil’s in The Details

A Heads I Win, Tails You Lose Story
Post 5062

Posted on April 30, 2025 by Barry Zalma

"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the ­­­Perpetrators than any Other Crime."

Immigrant Criminals Attempt to Profit From Insurance Fraud

People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.

The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...

post photo preview
See More
Available on mobile and TV devices
google store google store app store app store
google store google store app tv store app tv store amazon store amazon store roku store roku store
Powered by Locals