In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 04-3152

A.M.I. DIAMONDS COMPANY,

Plaintiff-Appellant,

v.

HANOVER INSURANCE COMPANY,

Defendant-Appellee.

____________

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 03 C 7959—Samuel Der-Yeghiayan, Judge.

____________

ARGUED JANUARY 18, 2005—DECIDED FEBRUARY 8, 2005

____________

Before POSNER, EASTERBROOK, and ROVNER, Circuit Judges.

POSNER, Circuit Judge. Wholesale jewelry salesman Maged

Soliman, after a sales visit to a retail jewelry store in a

Chicago suburb, stopped at a gas station to phone his office.

He was careful to park his car just steps away from the

station’s pay phone because in a briefcase wedged between

the driver’s and front passenger’s seats were more than

$100,000 worth of finished diamonds. After finishing his

phone call Soliman opened the door of the car on the

driver’s side to get back in when he was distracted by a

young woman in a minivan a few feet away who asked him

for help with directions. He walked over to her, keeping his

car with its precious cargo in sight. But when he reached
2 No. 04-3152

her, she dropped the map she was holding in her hand and

he stooped to pick it up. At that moment he lost sight of the

car and an accomplice of the woman stole the diamonds,

which were never recovered. The thieves had probably kept

watch on the retail jewelry store, identified Soliman as a

wholesale jewelry salesman, and followed him from the

store to the gas station.

Hanover Insurance Company had issued to Soliman’s

employer, A.M.I. Diamonds, what is called a “Jewelers’

Block Policy,” a standard insurance policy that protects

jewelers against a broad range of risks of loss or damage.

E.M.M.I. Inc. v. Zurich American Ins. Co., 84 P.3d 385, 388-

89 (Cal. 2004); Woods Patchogue Corp. v. Franklin National Ins.

Co., 158 N.E.2d 710, 712-13 (N.Y. 1959); 1 Lee R. Russ &

Thomas F. Segalla, Couch on Insurance § 1:57 (3d ed. 1997

and supp. 2004). If, however, the diamonds are lost “while

in or upon any vehicle,” coverage is forfeited unless “at

the time the loss occurs, there is actually in or upon

such vehicle . . . a permanent employee of the Insured” and

“the property insured is in the close personal custody and

under the direct control of [the employee].” Hanover

refused to pay A.M.I.’s claim and A.M.I. brought this

diversity suit, governed by Illinois law. The district judge

granted summary judgment for the insurer.

Neither party has bothered to consider the purpose of

the exclusions on which the judge based his decision, and as

a result have treated us to a parade of absurdities. A.M.I.

argues that Soliman, even when he was bending over to

pick up the map, was “in or upon” his car because he had

not abandoned it, and Hanover ripostes that yes, he had

temporarily abandoned it. See Revesz v. Excess Ins. Co., 106

Cal. Rptr. 166, 168 (App. 1973). Hanover contends that the

terms “in or upon” must be interpreted literally, but

inconsistently it concedes that had Soliman merely been
No. 04-3152 3

filling his gas tank when the diamonds were stolen

he would have been “in or upon” his car—“actually in

or upon” his car. Star Diamond, Inc. v. Underwriters at Lloyd’s,

965 F. Supp. 763, 767-68 (E.D. Va. 1997); cf. JMP Associates,

Inc. v. St. Paul Fire & Marine Ins. Co., 693 A.2d 832, 839-40

(Md. 1997). Hanover further represents to us that if, while

driving, Soliman had left the diamonds in full view on the

passenger seat beside him and had picked up a hitchhiker

who proceeded to steal the diamonds, the loss would be

covered by the policy, but if they were stolen from his

locked trunk or even from the kind of secret compartment

in which drug couriers conceal illegal drugs, the loss would

not be covered because the diamonds would then not have

been in his “direct custody.”

The purpose of the exclusions is twofold: to curb what

is called “moral hazard” and to limit coverage in highrisk settings even when there is no moral hazard. Moral

hazard refers to the effect of insurance in causing the

insured to relax the care he takes to safeguard his property

because the loss will be borne in whole or part by the

insurance company. May Department Stores Co. v. Federal Ins.

Co., 305 F.3d 597, 601 (7th Cir. 2002); Alma Cohen & Rajeev

Dehejia, “The Effect of Automobile Insurance and Accident

Liability Laws on Traffic Fatalities,” 47 J.L. & Econ. 357

(2004); Steven Shavell, “On Moral Hazard and Insurance,”

93 Q. J. Econ. 541 (1979). (The policy in this case had a

$100,000 limit.) It is the reason insurance companies will not

insure property for more than the property is worth.

Soliman was careless in failing to lock his door when he left

his car, instead relying on his ability to keep it in sight and

rush to the rescue of the diamonds if he saw someone trying

to purloin them. Saritejdiam, Inc. v. Excess Ins. Co., 971 F.2d

910, 912 (2d Cir. 1992); Tivoli Corp. v. Jewelers Mutual Ins. Co.,

932 S.W.2d 704, 707, 710-11 (Tex. App. 1996); Revesz v. Excess
4 No. 04-3152

Ins. Co., supra, 106 Cal. Rptr. at 168; see Transnational Ins.

Co., 785 N.E.2d 816, 817 (Ohio App. 2003); Starfire Diamond

Rings, Ltd. v. Angel [1962] 2 Lloyd’s Rep. 217, 218. His

employer’s failure to equip him with a cellphone was also

careless, but probably did not contribute to the theft, which

did not occur while he was at the pay phone—though if

he’d been calling on a cellphone from within the car he

might not have left the car to help the damsel in apparent

distress, as distinct from walking over to her when he was

already outside the car, having left it to use the pay phone.

Even if there were no moral hazard, an insurer might

want to exclude coverage in especially risky situations;

more precisely, the insured might agree to accept less

coverage in exchange for a reduced premium. Suppose

Soliman had an unforeseen heart attack while driving his

diamond-laden car, was removed unconscious from the

car by paramedics, and the diamonds disappeared. He

would not be at fault, but the policy would not cover the

loss, for when the theft occurred he would neither have

been “actually in or upon” the car nor have had the diamonds in his personal custody. See Phil G. Ruvelson, Inc. v.

St. Paul Fire & Marine Ins. Co., 50 N.W.2d 629 (Minn. 1951);

cf. Starfire Diamond Rings, Ltd. v. Angel, supra.

We have identified the purposes of the exclusions; but

as is often the case with contracts and statutes, the text is not

written in terms of its purposes, and in such a case the task

for the court is to interpret the text in light of its purposes.

We can begin by setting aside “or upon,” an archaic reference to open vehicles (the Jeweler’s Block Policy dates from

the beginning of the twentieth century, E.M.M.I. Inc. v.

Zurich American Ins. Co., supra, 84 P.3d at 388-89; Woods

Patchogue Corp. v. Franklin National Ins. Co., supra, 158 N.E.2d

at 712-13; 1 Russ & Segalla, supra, § 1:57), such as the early

automobile (“horseless carriage”), which had no roof.
No. 04-3152 5

William Kinscherf Co. v. St. Paul Fire & Marine Ins. Co., 254

N.Y.S. 382, 383 (App. Div. 1931) (per curiam); E.M.M.I. Inc.

v. Zurich American Ins. Co., supra, 84 P.3d at 402 (dissenting

opinion); but see Star Diamond, Inc. v. Underwriters at Lloyd’s,

supra, 965 F. Supp. at 767. Hanover was correct to concede,

though it does violence to the policy language, that Soliman

would have been “actually in” his car if he had locked it and

then refueled and gotten back in. There would be no moral

hazard—a driver needs gas whether or not the property

he is carrying in the car is insured, and most gas pumps

nowadays are self-service—and the risk of robbery or

other theft would be little if any greater than if he had

been stopped at a traffic light. A salesman who makes

his rounds in a car, as most salesmen do, cannot avoid

stopping from time to time to refuel, so the insurance policy

would have a gaping hole in it if coverage were suspended

whenever the salesman was refueling. It is different if he

stops for lunch. For he is leaving the car unattended, and

should either take the briefcase containing the diamonds

with him or, better perhaps—now that there are highly

effective auto alarm systems and some cars come equipped

with cryptographic keys that block thieves from starting the

engine even if it could be hotwired—lock it in the trunk. But

it would be absurd to insist that when he leaves his car

merely to refuel he take the briefcase with him, holding it in

one hand while he fills the gas tank with the other.

But Soliman left the car unattended for an optional reason,

without clutching the briefcase or locking it in the

trunk—without even locking the car. By leaving the car as

he did, he no longer was “actually in” the vehicle even in an

extended sense and he no longer had personal custody of

the diamonds. His effort to keep his eye on the car was a

pathetic effort at precaution, when he could have locked the

car with a twist of his wrist. His carelessness, and the risky
6 No. 04-3152

situation that it created, are just the reasons why the policy

contains the exclusions that it does, although, presumably

for the sake of precision, the policy does not contain a

general exclusion for “carelessness” by the insured or the

insured’s agents.

The approach that we’ve sketched, which relates the

meaning of “actually in or upon” to its purpose, is consistent with the cases, e.g., Phil G. Ruvelson, Inc. v. St. Paul

Fire & Marine Ins. Co., supra, 50 N.W.2d at 633-34; Princess

Ring Co. v. Home Ins. Co., 161 A. 292 (R.I. 1932); Williams

v. Fallaize Ins. Agency, Inc., 469 S.E.2d 752, 755 (Ga. App.

1996); Royce Furs, Inc. v. Home Ins. Co., 291 N.Y.S.2d 529

(App. Div. 1968); Star Diamond, Inc. v. Underwriters at

Lloyd’s, supra, 965 F. Supp. at 767, with the exception of

E.M.M.I. Inc. v Zurich American Ins. Co., supra. The salesman in that case was driving with the jewelry in the trunk

when he heard a clanking sound in the rear of the car. He

stopped without locking the car or turning off the engine,

got out, walked to the rear, crouched down to inspect

the exhaust pipe—and as he did so someone got in and

drove the car away. The court thought the policy ambiguous

because of “or upon,” missing the point that the phrase is a

vestige of an era of open vehicles. The court may also have

been influenced by the fact that it was an unusual case, in

which both the element of moral hazard and the risk of theft

were minimal. In this case they were not.

E.M.M.I. is an outlier. To read “upon” to mean “near”

would open a large loophole of uncertain limits, something

the cases we’ve cited, and others as well, such as Thomas

Noe, Inc. v. Homestead Ins. Co., 173 F.3d 581, 583 (6th Cir.

1999); Equity Diamond Brokers, Inc. v. Transnational Ins. Co.,

785 N.E.2d 816, 819-20 (Ohio App. 2003), and Nissel v.

Certain Underwriters at Lloyd’s of London, 73 Cal. Rptr. 2d 174,

181 (App. 1998), have refused to do. Remember, too, that “in
No. 04-3152 7

or upon” is used twice in the policy exclusion: once with the

diamonds as a subject (the diamonds must be “in or upon”

the vehicle) and once with the salesman as the subject. If “in

or upon” is given the same meaning in both places, and

“upon” means “near,” then the exclusion is inapplicable if

the diamonds are merely near the vehicle, and not in

it—which would be preposterous.

AFFIRMED.

A true Copy:

Teste:

 _____________________________

Clerk of the United States Court of 

Appeals for the Seventh Circuit 

USCA-02-C-0072—2-8-05