The named insured is a corporation. The Articles of Incorporation state that Mr. Smith is president and Mr. Jones is a director. They are both employees of the corporation. They are the only stockholders and share the stock equally. The insurance company believes that they were acting as partners.

The endorsement does not have a definition of the word “partner.” “You” and “Your” are defined as “the person or organization named as the insured in the declarations.”

The words “your partner” in the exclusion would indicate to me that the corporation and the two individual stockholders would have to be partners (a legal concept) in order for the exclusion to validly eliminate coverage in this situation. We believe that the three entities (the corporation, Mr. Smith, and Mr. Jones) are not partners.

Massachusetts Subscriber

A

We agree that this loss would not be properly denied based upon the “your illegal acts” exclusion.

The named insured is an incorporated entity. This is a legal formation quite distinct in law and meaning from a partnership.

The exclusion eliminates recovery for loss resulting from dishonest or criminal acts that you (the named insured – a corporation) commit or that are committed by any of your partners. By definition, a corporation does not have partners.

The insurer, who preferred the policy, had knowledge that the named insured was a corporation. If it wanted to exclude acts of directors or officers of the corporation, the exclusion could easily be drafted to read: “we won't cover loss committed by you, your officers, directors, etc.”

The exclusion eliminates coverage for partners of the named insured. While the principals are officers of the corporation, they are not partners of the named insured.