Mansion Hills Condominium Association v. American Family Mutual Insurance Company

Mansion Hills Condominium Association ("Mansion Hills") appeals the trial court's judgment entered in favor of its insurer, American Family Mutual Insurance Company ("American Family"), on its claim for coverage under the employee dishonesty provisions of its business and property insurance policy. The issue on appeal is whether the office manager who embezzled funds from Mansion Hills was the employee of an "employment contractor" within the meaning of the insurance policy, thereby allowing coverage for the financial losses Mansion Hills incurred from her acts of theft and dishonesty. We hold that the term "employment contractor" as used in the policy is ambiguous and therefore must be construed in favor of the insured. The judgment is reversed.

FACTUAL AND PROCEDURAL BACKGROUND

Mansion Hills applied for and purchased a policy of business and property insurance from American Family. The policy was in effect during all relevant time periods, and all premiums were paid. Included in the policy, for an additional premium, was a separate endorsement which provided for Employee Dishonesty coverage.
KEM Construction Company ("KEM") was created for the purpose of developing and then managing the Mansion Hills condominium complex. Mansion Hills hired KEM to manage its property and staff the condominium office; it paid KEM an annual fee to provide an on-site office manager. KEM, in turn, paid Pat Ducharme to serve as the Mansion Hills office manager. Ms. Ducharme received her W-2 form directly from KEM; Mansion Hills did not have any direct employees of its own. Ms. Ducharme's duties as the office manager included, among others, collecting monthly condominium fees from residents, paying expenses, and hiring independent contractors to perform maintenance work as needed. In carrying out her various duties as its office manager, she was subject to the direction and control of Mansion Hills. In her position, she had the authority to write checks from the Mansion Hills checking account, as well as from KEM's checking account.

Over a period of time while serving as Mansion Hills' office manager, Ms. Ducharme engaged in a pattern and practice of embezzlement. She misappropriated funds from the Mansion Hills checking account totaling $43,493.47.(FN1) As a result of the losses stemming from these acts of theft, Mansion Hills submitted a claim to American Family under the Employee Dishonesty endorsement of the insurance policy. The endorsement provided coverage for acts of employee dishonesty, and defined "employee" as either (a) any direct employee of the insured, or (b) any person employed by an "employment contractor" while the person was performing services for the insured under the insured's direction and control. American Family refused to pay the claim, contending that Ms. Ducharme was not an "employee" as defined in the endorsement. Both parties agreed that Ms. Ducharme was not a direct employee of Mansion Hills, and thus the issue is whether or not she was employed by an "employment contractor" within the meaning of the endorsement.

Mansion Hills filed a breach of contract action against American Family in circuit court, seeking to compel payment of the claim. The case was submitted to the court primarily on stipulated facts.(FN2) The trial court held that KEM was not an "employment contractor" within the meaning of the Employee Dishonesty endorsement, and hence that American Family did not breach the insurance contract with Mansion Hills by denying its claim.

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The judgment is reversed, and the cause is remanded to the trial court for further proceedings and to enter judgment in favor of Appellant consistent with this opinion.

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