What is Entrustment in Insurance?

17.08.2021
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Entrustment exclusions are a type of clause found in many insurance policies. No coverage will be provided for losses or damages originating from dishonest or illegal conduct by the insured, agents, or anyone to whom the insured has entrusted the insured’s covered property, according to a standard entrustment exclusion clause. Entrustment exclusions are designed to prevent an insured from receiving benefits from an insurance contract for losses caused by dishonest conduct, such as theft, committed by either the insured or anybody with whom the insured has entrusted the insured property. Insurance companies do not want to pay for catastrophes that occur as a consequence of the insured’s bad assessment of character since the trustee is in a position of trust with the insured. The validity of these provisions, according to insurance firms, stems from the fact that the insured is in the greatest position to safeguard the property and so should incur the risk of loss. However, unless you have experienced a loss, you may not know that this provision applies to your circumstance.

In some situations, the entrustment exclusion has been ruled to apply. A lessor insured leased his building to a lessee who ran a business on the premises in a commercial property lawsuit. When the landlord reclaimed the property, he discovered that the lessee had caused severe structural damage and had taken things from the inside. The lessor submitted a claim with his insurance carrier, but it was refused due to the policy’s exclusionary provision. The insured sued for breach of contract, but the court ruled in favour of the insurer, citing the landlord-tenant connection as creating a trustee-type relationship that was covered by the exclusion.

Because of the entrustment exception, consignors in jewellery consignment instances that ended in employee theft have been unable to collect the value of their items, even when the commodities were insured. The salesman in a case concerning the delivery of autos sold the vehicles and used the money to pay for personal expenses. Because he was found to have entrusted the automobiles to the salesman, the insured was unable to recoup under his insurance policy. A similar issue arose in the case of an alcohol distributor and a carrier. Over time, the transporter stole boxes of booze worth a few million dollars. Even though the insurance limitations would have allowed for a complete recovery minus the deductible, the supplier was found to have entrusted the products to the carrier, triggering the exclusion.

If your property is destroyed or stolen while in the hands of another, your claim will most likely be determined by whether your policy excludes coverage for entrustment, the language of your policy, and your connection with that person. If you find yourself in this scenario, don’t hesitate to call an expert insurance claims attorney who can assist you in determining your options.

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