In the

United States Court of Appeals

For the Seventh Circuit

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No. 03-1154

VISION FINANCIAL GROUP, INC.,

Plaintiff-Appellee,

v.

MIDWEST FAMILY MUTUAL INSURANCE COMPANY,

Defendant-Appellant.

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Appeal from the United States District Court 

for the Western District of Wisconsin.

No. 02-C-416—John C. Shabaz, Judge.

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ARGUED SEPTEMBER 16, 2003—DECIDED JANUARY 14, 2004

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Before FLAUM, Chief Judge, DIANE P. WOOD, and

WILLIAMS, Circuit Judges.

WILLIAMS, Circuit Judge. Vision Financial Group, Inc.

sued Midwest Family Mutual Insurance Company to

recover for stolen computer equipment under an insurance

policy that designated Vision Financial as loss payee. The

district court granted Vision Financial’s motion for summary judgment on its claim for the loss of the equipment,

finding that it was covered property under the policy.

Midwest contends that the insurance policy did not afford

coverage for the equipment and, even if it did, two policy

exclusions preclude coverage. We agree that the equipment

was covered property under the policy, but we reverse the
2 No. 03-1154

order granting summary judgment in favor of Vision

Financial because we find that the “dishonesty” and “false

pretense” policy exclusions are applicable.

I. BACKGROUND

In May 2001, Vision Financial leased computer equipment and furniture to Mufti Hospitality Group, LLC for use

at Amery’s Camelot Motel, a motel owned by Mufti. A few

days after delivery of the equipment, Mufti’s president,

Muhammad Arshad, stole the equipment and the furniture.

Midwest insured Mufti’s property on the motel’s premises

under a business owners’ insurance policy. The policy

included coverage for business personal property in Mufti’s

care, custody or control that was owned by others but

located at the motel. The policy also included both a “false

pretense” and a “dishonesty” exclusion. The “false pretense”

exclusion precluded the insured from recovering for the loss

of property if the insured was induced by a fraudulent

scheme to voluntarily part with covered property. Similarly,

the “dishonesty” exclusion provided that Midwest would not

indemnify the insured if the loss of the covered property

was a consequence of dishonest or criminal acts by the

insured or anyone to whom the insured entrusted the

property. Pursuant to Vision Financial’s lease agreement

with Mufti, the policy named Vision Financial loss payee. 

Vision Financial, as loss payee, filed a claim with

Midwest to recoup the value of the stolen property, which

Midwest denied. Thereafter, Vision Financial brought suit

against Midwest in the district court and both parties

moved for summary judgment. In support of its motion,

Midwest argued that the policy did not provide coverage for

the computer equipment or the furniture. Vision Financial

disagreed and asserted that Midwest denied its claims in
No. 03-1154 3

1 The court granted Midwest summary judgment as to Vision

Financial’s claims regarding the furniture and the bad faith denial

of their claims; however, the sole issue on appeal is the grant of

summary judgment in favor of Vision Financial as to the computer

equipment.

2 The parties agree that Wisconsin law governs the interpretation

of the policy language in this diversity case.

bad faith. The district court determined Vision Financial

was entitled to summary judgment as to its claim for the

loss of the computer equipment.1

 Midwest now appeals.

II. ANALYSIS

We review de novo a district court’s grant of summary

judgment, drawing all inferences in the light most favorable

to the nonmoving party. Midwest Cmty. Health Serv. v. Am.

United Life Ins. Co., 255 F.3d 374, 376 (7th Cir. 2001).

A. Policy Coverage

On appeal, Midwest first contends that Vision Financial

was not entitled to summary judgment because the policy’s

coverage provisions do not encompass the computer equipment. Under Wisconsin law,2

 the coverage provided by an

insurance policy is prescribed by the policy’s terms and

conditions. Ehlers v. Johnson, 476 N.W.2d 291, 293 (Wis.

Ct. App. 1991). The policy designated the following as covered property: “Business Personal Property located in or

on the buildings at the described premises . . . including

[p]roperty of others that is in [the insured’s] care, custody

or control.” The stolen computer equipment fits neatly

within this description of coverage. Vision Financial maintained ownership of the equipment that was located in the
4 No. 03-1154

motel and leased to Mufti for use in the motel business.

Midwest argues that, notwithstanding the policy’s terms,

the computer equipment is not covered property, as it was

stolen from the motel’s premises before it was actually used

in Mufti’s business. We find this argument unpersuasive, as

such a position would impose an impractical requirement of

actual use of business property before it is insured.

B. Policy Exclusions

Midwest also contends, and we agree, that the district

court erred because the policy’s “false pretense” and “dishonesty” exclusions each bar Vision Financial’s recovery

under the policy. In response, Vision Financial argues that

the policy exclusions are not applicable to Vision Financial

because it is a loss payee. This assertion is belied by the

policy’s loss payable provision. The loss payable provision

provides that the loss payee generally will not be denied

coverage due to the acts of the insured; however, “[a]ll

terms of the [policy] will then apply directly to the Loss

Payee.” Wisconsin courts interpret similar clauses in

mortgage contracts, known as standard mortgage clauses,

as creating a separate contract between the loss payee and

the insurer. See Estate of Ensz v. Brown Ins. Agency, Inc.,

223 N.W.2d 903, 909-10 (Wis. 1974). Both parties concede

that the loss payable clause in the instant contract is akin

to a standard mortgage clause and it too creates a separate

contract between the loss payee and the insurer. Thus, a

separate agreement exists between Vision Financial and

Midwest that makes all the terms of the policy, including

the policy exclusions, applicable to Vision Financial.

The policy’s “false pretense” exclusion precludes recovery

for a loss caused by voluntarily “parting with any property by you or anyone else to whom you have entrusted

the property if induced to do so by any fraudulent scheme,
No. 03-1154 5

trick, device or false pretense.” Wisconsin courts have

deemed policies with substantially similar language to preclude an insured’s recovery for a loss resulting from property theft. See, e.g., Waters Motor v. Grain Dealers, 107

N.W.2d 129, 130-31 (1961) (precluding recovery for the loss

of a stolen vehicle when the insured entrusted the vehicle

to a prospective purchaser and recounting numerous

instances in which the court had taken similar action). Similar treatment is warranted here. Vision Financial voluntarily parted with the computer equipment when it leased

the property to Mufti and it was induced to do so by

Arshad’s fraudulent scheme. Although this case is distinguishable from other cases with similar exclusions in that

it involves a claim by a loss payee rather than an insured,

that is not a meaningful distinction. The loss payable

provision dictates that the policy’s exclusions be applied to

the loss payee and the insured equally. Thus, we find that

the policy’s “false pretense” exclusion bars recovery by

Vision Financial. A contrary decision would afford the loss

payee greater protection under the policy than the insured.

Because we find the “false pretense” exclusion precludes

coverage, we need only briefly address whether the policy’s

“dishonesty” provision also bars recovery. The “dishonesty”

exclusion precludes indemnification if the loss was caused

by a “[d]ishonest or criminal act by you . . . or anyone to

whom you entrust the property for any purpose. . . .” By its

terms, the “dishonesty” provision also precludes Vision

Financial’s recovery. Vision Financial entrusted the computer equipment to Mufti. The dishonest and criminal act

of Mufti’s president (the theft of the equipment) caused the

loss. 

Because we conclude that the policy exclusions are

applicable, the district court erred by granting Vision

Financial summary judgment on its claim for the loss of the

computer equipment.
6 No. 03-1154

III. CONCLUSION

For the foregoing reasons, we REVERSE the district court’s

order granting summary judgment in favor of Vision

Financial and REMAND with directions to enter summary

judgment for Midwest.

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—1-14-04