A.M.I. Diamonds Company v. Hanover Insurance Company
397 F.3d 528, 2005 U.S. App. LEXIS 1978, 2005 WL 287978 (2005)
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Rule of Law:
An insurance policy exclusion requiring an employee to be 'actually in or upon' a vehicle for coverage to apply will be interpreted based on its purpose, which is to curb moral hazard and limit coverage for high-risk situations created by the insured's carelessness.
Facts:
- Maged Solimán, a salesman for A.M.I. Diamonds, was transporting a briefcase containing over $100,000 worth of diamonds in his car.
- He stopped at a gas station to use a pay phone, parking his car just steps away.
- After finishing his call and as he was about to re-enter his car, a woman in a nearby minivan asked him for directions.
- Solimán walked a few feet over to her van to assist, leaving his own car door unlocked but keeping the car in his line of sight.
- The woman dropped a map, and when Solimán bent down to pick it up, he briefly lost sight of his car.
- During this moment of distraction, an accomplice stole the briefcase of diamonds from Solimán's unlocked vehicle.
Procedural Posture:
- A.M.I. Diamonds' insurance claim for the stolen diamonds was denied by Hanover Insurance Company.
- A.M.I. Diamonds filed a diversity suit against Hanover Insurance in federal district court for breach of the insurance contract.
- The district court granted summary judgment in favor of the defendant, Hanover Insurance.
- A.M.I. Diamonds, as the appellant, appealed the district court's decision to the U.S. Court of Appeals for the Seventh Circuit.
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Issue:
Does a jeweler's insurance policy exclusion, which denies coverage for property stolen from a vehicle unless an employee is 'actually in or upon' it and has the property in 'close personal custody', apply when the employee steps a few feet away from the unlocked vehicle to give directions and is momentarily distracted while the property is stolen?
Opinions:
Majority - Posner, Circuit Judge
Yes. The insurance policy exclusion applies, and the loss is not covered. The court must interpret the policy's text in light of its purpose, which is to curb 'moral hazard'—the tendency for an insured person to be less careful—and to exclude coverage in high-risk situations. Solimán was careless by leaving the car unlocked for an optional reason (giving directions) when he could have easily secured it. This carelessness created the exact type of high-risk scenario the exclusion was designed to prevent. Unlike a necessary act such as refueling a locked car, Solimán's actions meant he was no longer 'actually in' the vehicle in a legally meaningful sense, nor did he have 'close personal custody' of the diamonds. Therefore, the loss falls squarely within the policy's exclusion.
Analysis:
This decision is a prominent example of a purposive approach to contract interpretation, where the court looks beyond the literal text to the underlying objectives of the contractual language. It establishes that terms like 'actually in or upon' are not interpreted in a vacuum but in light of their function, which here is to allocate risk by excluding coverage for losses stemming from the insured's preventable carelessness. The ruling distinguishes between necessary, low-risk activities incidental to vehicle use (like refueling) and optional, high-risk actions. This creates a precedent that reinforces the insured's implicit duty to take reasonable precautions and clarifies that courts will enforce policy exclusions designed to combat moral hazard.
