An Insurance Claim Attorney in Chicago discusses Theft Loss Coverage

  In 1997, Peter Schaufler and Christiane Schaufler-Muench obtained a room at the Ritz-Carlton Water Tower hotel. The couple put $1million in jewelry and cash in a wall safe in their room on and left to tour the City of Chicago. When they returned, they discovered that the jewelry and cash were missing. The couple later filed suit against Ritz-Carlton for negligently failing to prevent unauthorized duplication of the room and safe keys.     The Ritz-Carlton tendered defense of the suit to its primary insurer, Zurich Insurance Company and its excess insurer, Liberty Mutual Insurance Company.  While both insurance companies disputed the amount of primary coverage, they agreed on the value of the Schauflers' claim. The insurers and Ritz-Carlton settled the claim made by the Schauflers' for $1 million. In settling the claim, Zurich paid $250,000, Liberty paid $375,000 and Ritz-Carlton paid the remaining $375,000.     However, this was not the end of the dispute over the insurance claim.  Though the Schauflers' recovered for the theft loss, the insurers continued to fight among themselves over coverage.  Liberty Mutual and Ritz-Carlton filed suit against Zurich to recover the $750,000 that Liberty and Ritz-Carlton paid in the settlement.  Zurich responded by arguing that it had paid its applicable limit of liability.  See, Liberty Mutual Insurance Co. and Ritz-Carlton Water Tower v. Zurich Insurance Co., No. 1-08-2927.

    Coverage L of the Zurich policy, which covered the Ritz-Carlton, provided that the limit of its liability for hotel guests' property was $250,000.  The policy's Coverage A contained a $750,000 limit of liability for property damage.  However, the Zurich policy contained an exclusion for property damage to "personal property in the care, custody or control of the insured."  The trial court found that Zurich had liability only under Coverage L which limited its liability to $250,000.  The trial court then ruled in favor of Zurich and held that the exclusion in Coverage A for property in the hotel's care, custody or control applied to the Schauflers' claim. 

    The appeals court agreed and affirmed the finding of the trial court. The appeals court held the exclusion in Coverage A for property in the hotel's care, custody or control applied to the dispute and precluded coverage. Thus, Zurich had paid the limits it was obligated to pay under Coverage L.  The parties then asked the appeals court to construe the policy's exclusion for property in the "care, custody or control" of the hotel. The appeals court stated that if the property damaged is within the possessory control of the insured at the time of the loss and is a necessary element of the work performed, the property is considered to be in the care, custody or control of the insured. The court further held that the owner's simultaneous access to the property did not preclude a finding of care, custody or control.The appeals court held that as an innkeeper, Ritz-Carlton had a duty to safeguard the property of its guests. The court specifically stated that "[t]he guests' property falls in possessory control of the hotel, and it forms an essential part of the hotel's work of protecting its guests' property." The hotel had, "for some purposes," care and control of its guests' property and fully controlled the security arrangements for property left in the hotel room. "The passive duty of guarding the property gave Ritz-Carlton care, custody or control of the property, even without any direct contact with the stored goods," the appeals court said.

    Thus, the appeals court held that since Ritz-Carlton had possessory custody of the Schauflers' valuables, the exclusion in Coverage A for property in the hotel's care, custody or control applied and precluded coverage.  As Zurich had paid the limit it was obligated to pay under Coverage L, it owed no further duty to pay for the Schauflers' loss.  See, Liberty Mutual Insurance Co. and Ritz-Carlton Water Tower v. Zurich Insurance Co., No. 1-08-2927.