The Seventh Circuit Holds That the “In Care of” and “Business” Exclusions Preclude Coverage Under a Homeowner’s Policy


In Nationwide Insurance Co. v. Central Laborers’ Pension Fund, No. 12-1784 (7th Cir. Jan. 11, 2013), the United States Court of Appeals for the Seventh Circuit affirmed that a homeowner’s insurer was entitled to deny coverage on grounds that the “in care of” and “business” exclusions applied.

Jeanne Hentz worked as an accountant with Kevin W. Bragee, CPA, LLC.  Among the firm’s clients were a group of investment funds (the Funds).  Hentz placed a CD containing confidential information relating to participants and beneficiaries of the Funds into her laptop.  The laptop was stolen from her car and the CD was lost. 

The Funds brought a state action in Illinois against Hentz, alleging that she had negligently breached her duty to safeguard the information contained on the CD.  Hentz tendered the defense of the action to her homeowner’s insurance carrier, Nationwide.

Nationwide brought a federal diversity action seeking a declaration that it did not have a duty to defend or indemnify Hentz.  It argued that Hentz’s claim was not covered because of an “in care of” exclusion, which precluded coverage for damage to property “in care of the insured.” Nationwide also argued that the policy’s “business” exclusion applied, which precluded coverage for property damage arising out of, or in connection with, a business.  Nationwide filed a motion for summary judgment. 

The district court granted Nationwide’s motion, concluding that the policy’s “in care of” exclusion applied, but it did not address Nationwide’s argument regarding the “business” exclusion.  The Funds appealed.

The Seventh Circuit affirmed the district court’s judgment in relation to the “in care of” exclusion.  Under Illinois law, an “in care of” exclusion applies if the following two conditions are met: the property lost or stolen was both (1) within the exclusive possessory control of the insured at the time of the loss, and (2) a necessary element of the work performed by the insured. 

Regarding the first element, the court reasoned that Hentz’s possession of the CD and her duty to safeguard it amounted to the “exercise [of] some type of possessory control over the” CD, which became exclusive when Hentz placed the CD in her car.  Regarding the second element, the court concluded that the CD was necessary to her ordinary employment activities because the handling and care of confidential information was vital to her work as an accountant.

The Seventh Circuit went on to find that the “business” exclusion applied because Hentz’s failure to safeguard the CD was an omission amounting to a breach of duty arising in connection with her employment with the audit firm. 


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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