Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

Stephen has a passion for helping policyholders and is a devoted Insurance Claim Software Developer who has developed iScope™ Damage Estimating Software, Contents King©, MacroNote©, Claim Doc Labeler©, PicPal©, One-Button Desktop Cleanup© and One-Button Screenshot©. These programs are all available at www.InsuranceClaimSoftware.net.

Recently, Stephen shared his insight into documenting vandalism damage of commercial properties. The extent of damage to commercial property by vandals is something Stephen says needs more recognition and understanding. In this short 3 minute video, Stephen shows the breadth of problems that can be missed if the claim is not assessed with great detail and care. Stephen explains why some graffiti vandalism claims require more evaluation, “[y]ou might think a simple paint job would be sufficient, right? However, if the tagging affected the coil, you could be in for an extensive – and costly – repair. Vandals often tag the soft metal coil by carving their tags into the metal, requiring a complete replacement. What's worse is when the coil is part of an older A/C system. If a replacement coil is not available, the entire A/C system must be replaced.” Click here to take a look at the scope of damage at various commercial properties.

At Victors, the vandals spray painted the exterior of the building, and the electrical conduit and gutters were damaged during their climb to the roof. Smashed glass from beer bottles was embedded in the plaza’s roof and caused widespread damage that might not have been noted with a cursory inspection of this loss. Copper wires were stripped from the wiring and air conditioning units, and tiles and other roof sections were also damaged by the vandals. The ability to recognize these areas of damage was crucial. All of these damages needed to be documented and presented in the insurance claim.

Stephen also provides suggestions on how to prevent vandalism claims.

The best way to deter vandals is to make sure that your building isn't an easy target by making it as unappealing to vandals as possible. Spend a few hours thinking like a vandal and assessing your property from a vandal's perspective…

Lighting – Because most vandalism occurs under the cover of darkness, dark areas may attract vandals, thieves, juveniles, transients, and others who don't want to be seen. Which areas of your building are well-lit? Which areas are not?

Location – Where your building is located could also be a problem. Highly visible locations are attractive to taggers who want recognition while secluded areas may attract juveniles and drug users. While it may not be practical to change your location, you can beef up its security. Monitored surveillance systems with speakers that allow security personnel to warn intruders that they've been spotted and that law enforcement is on the way could be an effective deterrent.

Design – Complexes with parapet roofing, hidden courtyards, and other areas where vandals can easily hide are attractive to vandals. After all, vandals don't want to be caught doing their deeds, so locations that offer the best concealment are often selected. Tearing down parapet walls may not be practical, but you could make your building less attractive to vandals by removing access routes, adding razor wire along the perimeter, and beefing up security with floodlights and surveillance systems.

Stephen Hadhazi helps policyholders who suffer various types of losses and wants policyholders to understand that the details of a claim make the difference in getting back to normal after any kind of a loss.

In Certain Underwriters at Lloyds, London v. Law, 570 F.3d 574 (5th Cir. 2009), the Fifth Circuit Court of Appeals made a landmark decision regarding the “theft vs. vandalism” issue. In Law, thieves climbed onto the roof of a Houston building and destroyed exterior panels of seventeen air conditioner units so that they could steal the copper condenser coils contained in them. The salvage value of the stolen copper was less than $2,000, but the total damage to the air conditioner was approximately $2,000,000. A policy provision provided coverage for losses caused by vandalism, but excluded coverage for damages resulting from theft. The coverage provision at issue described vandalism as “willful and malicious damage to, or destruction of, the described property.”

The Fifth Circuit concluded that damages which have no purpose other than to destroy property for the sake of destruction are considered vandalism, while incidental damage conducted in furtherance of theft falls within the category of damage resulting from theft. But did the Court intend for theft and vandalism to be mutually exclusive? Absolutely not.

[W]e should not be misunderstood to say that vandalism can never occur during a theft and vice versa. These are not per se mutually exclusive. (emphasis added).

The difference between actions falling within a given policy’s theft exclusion as opposed to its vandalism coverage “indisputably turn[s] on the purpose for which the damage at issue is done.” Id. at 578. Therefore, it is important to assess the purpose behind damage prior to categorizing it as theft or vandalism. As the Fifth Circuit explained, vandalism and theft can occur concurrently.

In a case of first impression, Essex Ins. Co. v. Eldridge Land, L.L.C., no. 14-09-619, 2010 WL 1992833 (Tex. App. - Houston [14th], May 20, 2010, pet. pending), the Texas Court of Appeals for the 14th District in Houston interpreted provisions in a commercial property insurance policy concerning vandalism and damage from theft. In Essex, Eldridge owned a vacant building insured by Essex. On March 28, 2006, Eldridge’s property sustained considerable damage when some intruders forced their way into the building and damaged sheetrock, ceiling tiles, electrical conduit boxes, and wall coverings. They also removed copper wiring and copper pipe from the building.

With respect to vandalism, the policy stated:

8. Vandalism, meaning willful and malicious damage to, or destruction of the described property. We will not pay for loss or damage . . . [c]aused by or resulting from theft, except for building damage caused by the breaking in or exiting of burglars.

Eldridge argued that: (1) the damage caused to the property in the course of removing the copper wiring and pipes was vandalism and was not excluded from coverage by the theft exclusion; (2) alternatively, the damage was caused by the intruders “breaking in” to parts of the building to retrieve the copper and thus fell under the exception to the theft exclusion; and (3) at a minimum, Eldridge’s interpretation was reasonable and the contract should be construed in its favor.

The Court construed the policy “in accordance with the ordinary rules of construction,” according to the ordinary and generally accepted meaning of the terms used unless the policy states otherwise. With respect to ambiguous policy language, the Court “construe[s] an ambiguous insurance policy strictly against the insurer and liberally in favor of the insured.”

The Court ruled in favor of the insurer for two reasons. First, the Court did not believe the language was ambiguous. Second, the Court concluded that the evidence was clear that all of the damage was done for the purpose of removing the stolen pipes and wiring, which the Court determined was not “breaking in,” and was not covered by the policy. The Court decided that the only damage covered by the policy was that caused by the intruders in entering and exiting the building – as in through a door or window.

Because Essex was a case of first impression, you should expect additional case law in the future that will better define what is and is not covered under theft exclusions. For the time being, however, be aware that insurers with policies having language addressing “breaking in or exiting” the building may attempt to disclaim coverage because of the language in this opinion.

Coverage is provided on a storage facility under the CP 10 20 06 95 cause of loss form. Two of the units were rented by an individual who became delinquent, so the insured padlocked the units. After a couple of months, the insured learned the tenant had moved and could not be located. The insured cut off thee locks and entered the units to discover food containers, appliances, and trash abandoned by the tenant. Grease had spilled (or been poured) on the concrete floor. This grease ran into two other units. As this is named peril coverage, we do not believe there is coverage. However, the insured is arguing that the damage is the result of vandalism. The tenant had not been in the units for several months as they had been padlocked and there had been no tampering of the locks prior to entry. There is no way to verify if the tenant poured the grease on the floor, however, there was no other evidence of malicious damage to indicate it was an intentional act. Is the loss excluded?

The answer provided is sound assuming that proof of how the loss occurred cannot be found:

It is our opinion that the insured would have to prove that the loss was intentionally caused, which does not sound like a possibility. Without evidence showing this was an intentional act, it could not be considered a vandalism loss.

The important point has to do with burdens of proof which often become play when the loss is discovered and the cause uncertain. The general rule is that all risk is afforded so long as there is damage within the policy term and the burden is on the insurer to prove that the damage falls within an exclusion. If the coverage is under a named peril basis, the proof of the peril causing the damage is upon the insured.

Regarding exclusions in all risk policies, insurers sometimes wrongly give exclusionary language too broad an interpretation. In an excellent post on the Tennessee Insurance Litigation Blog, Rules of Interpretation for Insurance Policies, Brandon McWherter noted:

Exclusionary clauses are to be strictly construed against the insurer when drafted by the insurer. Palmer v. State Farm Mut. Auto. Ins. Co., 614 S.W.2d 788, 789 (Tenn. 1981).
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In Tennessee, exceptions, exclusions, and limitations in insurance policies must be construed against the insurance company and in favor of the insured. Allstate Ins. Co. v. Watts, 811 S.W.2d 883, 886 (Tenn. 1991). The entire policy, however, including insuring clauses and exceptions thereto, must be read as a whole. Am. Sav. & Loan Ass'n v. Lawyers Title Ins. Corp., 793 F.2d 780, 782 (6th Cir. 1986). Further, exceptions should not be construed so narrowly as to defeat their evident purpose. Standard Fire Ins. Co. v. Chester-O'Donley & Assocs., Inc., 972 S.W.2d 1, 8 (Tenn. Ct. App. 1998).

In Ensuing or Resulting Loss, and the Burden of Proving Causation Explained Simply, I quoted a speaker who provided a fairly simple rule for the factual and legal burden of the policyholder in a typical all risk situation:

An insured seeking to recover under an "all risks" insurance policy merely has the burden of proving only that direct physical loss or damage occurred to covered property while the policy was in force. Once the insured establishes a loss apparently within the terms of an "all risks" policy, the burden shifts to the insurer to prove that the loss arose from a cause which is excluded. The insured is not required to disprove any excluded cause of loss.
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Exclusion clauses are generally considered contrary to the fundamental protective purpose of insurance. Thus, the courts give a strict interpretation to exclusion clauses, as opposed to the liberal interpretation afforded coverage protections.

For all my Texas friends that are crying their eyes out after losing to Alabama in the BCS Championship, I would like to warn that Texas has a slightly different view of burdens of proof even in an all risk situation, as I noted in, Causation Issues to Note in Texas Property Insurance Coverage Disputes-Part II.

Underwriters sought declaratory judgment in the U.S. District Court for the Southern District of Texas, arguing it had no duty to indemnify the Laws' claim based on the theft exclusion in the policy. The Laws counter-sued, seeking declaratory judgment that their claim was covered under the vandalism exception to the theft exclusion. The District Court granted the Laws' motion, finding coverage under the ingress/egress exception to the theft exclusion, and awarded the Laws $177,150.00. The Fifth Circuit Court of Appeals reversed.

On appeal, the Laws' argued that the damage was covered by the vandalism provision of the policy as well as the ingress/egress exception. The Court of Appeals looked to Texas law to decide the issue. Under Texas law, the Court was required to interpret the contract in a manner that gives effect to every provision and to the "intention of the parties as expressed in the instrument." Words not defined are to be understood "according to their plain and ordinary meaning. Any ambiguity is construed in favor of the insured.

The policy defined vandalism as "willful and malicious damage to, or destruction of, the described property," but specifically excluded damage caused by or resulting from theft. The policy did, however, provide an exception for the theft exclusion if the loss was caused by "the breaking in or exiting of burglars."

Focusing on the policy's language defining vandalism, "willful and malicious" (emphasis added), the Court concluded that the interpretation of the provisions turned on the purpose for which the damage was done. The Court then reasoned that vandalism was damage done for no purpose other than to destroy property. Thus, incidental damage done in furtherance of a thievery was not vandalism. Because the damage to the air-conditioning units was done to steal the copper coils, it was not done solely to damage the property, and was not covered under the vandalism provision.

The Court then turned to the policy's "breaking in or exiting" exception to the theft exclusion. Again, the Court found no ambiguity and interpreted the policy's language according to its plain meaning. In Texas, “breaking in” is commonly understood by Texas courts as burglary. Texas Penal Code Ann. § 30.02 (2008) provides, in pertinent part, that a "burglar" is one who, without the owner's consent,

"(1) enters a habitation, or a building (or any portion of a building) not then open to the public with intent to commit a felony, theft, or an assault; . . . (3) enters a building or habitation and commits or attempts to commit a felony, theft, or an assault."

The Court rejected the Law’s argument that the air conditioning units’ casings were fixtures, and since fixtures were covered under the policy, the damage to the casings was covered. The Court concluded that the plain meaning of the policy's "breaking in or exiting" language was intended to cover damage by burglars gaining entry into the interior of the building. Because the damage did not occur while the thieves entered or exited the building itself, the thieves were not burglars. Thus, unfortunately for the Laws, the Court concluded that the parties did not intend to extend the policy's "breaking in or exiting" exception "to include damage caused by rooftop thieves to freestanding air-conditioning units." Accordingly, the Court reversed the district court's judgment and held that the air-conditioning unit damage was not covered under the policy.

You can read the full opinion by clicking here.