Commercial property insurers throughout the United States have seen an increase in claims for property damage arising from the removal of precious metal piping, wiring and fixtures. Factors contributing to the increase in the damage claims include the rise of vacant commercial building space, the increasing price of precious metals and a growing market for scrapped metals as a result of the price increases. A common claim scenario involves removal of wiring and piping and attendant damage to walls, ceilings, and building mechanicals. The following article analyzes the coverage issues under standard commercial property policies and applicable law that should be considered when determining whether such claims are covered.
In today’s market, many commercial properties are less than fully occupied or not occupied at all. Thus, an initial coverage consideration should be whether the property is vacant under the terms of the policy. Many property policies include an exclusion for damage arising from causes such as vandalism, water damage, theft and attempted theft when a building is vacant for a period of time (usually 60 consecutive days). Vacancy is defined in many policies by a percentage of square footage (often less than 31%) being rented for customary operations or used by the owner for customary operations. Courts generally find that such vacancy exclusions are enforceable where the property is in fact vacant under the policy terms. See Tazari, LLC v. American Family Insurance, 2011 Ohio Misc. LEXIS 527 (Ohio C.P., November 2, 2011). Even if the building is partially occupied, the actual percentage occupancy of the property at the time of the loss should be considered as part of a coverage analysis.
After vacancy is considered, it is essential to undertake a thorough review of the facts of the loss in comparison to the specific language of the policy provisions on coverage for theft and vandalism. Damage due to precious metal removal is typically argued by insureds to constitute vandalism because in many property policies damage arising from vandalism is covered, while damage arising from theft is excluded. The application of these provisions is largely dependent on the language of the policy and the nature of the loss.
A review of the recent law analyzing coverage for damage arising from precious metal removal reflects that courts have often found that damage occurring during or in conjunction with the theft is excluded under theft exclusions and does not fall under the vandalism provisions of a policy.
For example, in General Star Indemnity Co. v. Zelonker, 769 S.2d 1093 (Fla. App. 2000), the insured owned a warehouse which was insured under a named peril policy. The insured brought a claim after perpetrators entered the warehouse, made holes in the electric meter box and electrical conduits, and then removed and stole copper electrical wiring. Id. at 1094. The policy covered "vandalism," but did not cover loss or damage "[c]aused by or resulting from theft . . ." Id. The court held that the damage to the meter box and electrical conduits was excluded under the policy because the damage was created to pull out the copper wiring and, therefore, was the result of theft. Id.
In Certain Underwriters at Lloyds London v. Law, 570 F.3d 574 (5th Cir. 2009), the copper condenser coils of seventeen roof air conditioning units were stolen after the exterior panels were torn off the units. The salvage value of the stolen copper coils was less than $2,000, but the total damage to the air conditioning units to remove the coils was closer to $200,000. Id. at 575. The property policy issued to plaintiff covered losses caused by vandalism, but excluded losses caused by or resulting from theft. Id. at 576. The insurer denied coverage under the theft exclusion. Id. The 5th Circuit found that the purpose for which the damage was done was important in applying the policy exclusions. Id. at 578. In its view, damage done for no purpose other than to destroy property for destruction's sake was "vandalism," and incidental damage done in furtherance of thievery was damage from “theft.” Id. Accordingly, the court held that damage done in furtherance of a theft or attempted theft was damage within the theft exclusion. Id. at 579. The 5th Circuit then concluded that the damage to the air conditioning units fell squarely within the theft exclusion because it was created solely in furtherance of stealing the copper coils. Id.
In Essex Insurance Co. v. Eldridge Land, LLC, 2010 Tex. App. LEXIS 3758 ( Tex. Ct. App. May 20, 2010), persons broke into a building and damaged sheet rock, ceiling tiles, electrical conduit boxes and wall coverings to steal copper wiring and pipe. The policy covered vandalism but excluded damage "[c]aused by or resulting from theft." Id. at *2. The insurer denied coverage primarily based on the theft exclusion. Id. at *8. The court found that the evidence established that all damage was done for the purpose of stealing the pipes and wiring. Id. at *18. Thus, the theft exclusion applied and no coverage was provided for the damage caused by or resulting from theft. Id. at *19.
The case of Riverbend Capital, LLC v. Essex Insurance Co., 2010 U.S. Dist. LEXIS 16281 (E.D. La. October 5, 2010) involved damage and theft at an apartment complex. Under the policy, "vandalism" was covered but loss or damage from theft was not. Id. at *8-9. The court noted that the ordinary meaning of "vandalism," as well as the policy definition, would encompass theft-related property damage, but to construe "vandalism" in that way would render the theft exclusion meaningless. Id. at *9. The court then drew a distinction based upon intent, finding that property was damaged by vandalism when the property was damaged by an act undertaken with the intent to injure the property, without the intent to steal. Id. at *11. In contrast, property was damaged by theft when property was damaged by an act undertaken with the intent to injure property, with the intent to steal. Id. at *11. Accordingly, the theft exclusion encompassed property damage with the intent to injure property and steal it. Id. at *19.
Historically, however, some courts have focused on the proximate cause of the damage to find for coverage. In such cases, the courts have often found the policies did not contain language that prohibits coverage where there are multiple concurrent causes of the loss.
For example, in Haas v. Audubon Indemnity Co., 722 So.2d 1022 (La. App. 1998), perpetrators broke into a building and removed copper pipes and wiring, causing extensive damage during the removal. Id. at 1023. The perpetrators also turned off the water valve to the building during the removal, and the building flooded due to the pipe removal once the valve was opened in the days following the removal. Id. The policy covered vandalism, defined as “willful and malicious damage to, or destruction of the described property,” and excluded loss or damage “caused by or resulting from theft.” Id. at 1026. The insurer paid the water damage portion of the claim, but denied the claim for the remaining damage under the theft exclusion. Id. at 1024. The trial court found that the extensive damage to the building revealed the required degree of malice and qualified as vandalism under the policy. Id. at 1025. In considering the theft exclusion, the court found the exclusion did not exclude vandalism caused prior to or concurrently with a theft. Id. at 1027. The appellate court affirmed the decision, construing the theft exclusion narrowly. Id.
Another case analyzing proximate cause is Beauty Supplies, Inc. v. Hanover Insurance Co, 526 S.W.2d 75 (Mo. App. 1975), where perpetrators entered the vacant second floor of a building and tore out plumbing fixtures from the walls and floor. As a result, water flowed out and leaked into the first floor, which was leased by the insured. Id. at 76. The insured filed a claim under its property policies, which covered vandalism as a specified peril but excluded theft. Id. The policy’s extended coverage endorsement specifically stated that coverage “was extended to include direct loss by Vandalism and Malicious Mischief,” but excluded loss by “pilferage theft, burglary or larceny, except that this Company shall be liable for willful damage to the building(s) covered hereunder caused by burglars.” Id. The court determined that the loss was covered because vandalism was the proximate cause. Id. at 76. The court viewed theft as a concurrent cause but not the proximate cause of the damage. Id. at 77-78.
As illustrated by the preceding examples, the coverage for a precious metal removal damage claims is dependent on upon a number of factors, but it appears most courts will enforce theft exclusions in standard property policies when it is clear the damage at issue arose during or in conjunction with the act of stealing or intent to steal. A complete coverage analysis of these claims should include an investigation of the properties occupancy, the specific facts surrounding the damage, the type of damage, the applicable policy provisions related to theft, vandalism and concurrent causation, and a review of the applicable legal precedent from the jurisdiction in question.