How to manage a commercial insurance policy theft exclusion

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Question: Our office received a burglary claim after unknown person(s) broke into the insured’s restaurant, damaged merchandise and took cash.

They are claiming for the following items:

1. Cash register replacement (two registers);
2. Damages to a SentrySafe;
3. Damages to their security system (panel, video camera and wiring);
4. Refrigerated food loss and replacement;
5. Lock/door knob replacement, which was temporary so they could secure door; and
6. Loss of business income, as the cafe closed for a day due to the damages and need to replace lost food.

The insured has a commercial policy, Special Form, with a theft exclusion endorsement (CP 10 33 10/12).

The insurer declined coverage on all of the above based on the theft exclusion endorsement. The carrier added that if the insured can prove they put the door in prior to the loss, there would be coverage. We are trying to get the denial in writing from the insurer but have yet to receive it.

The theft exclusion excludes damage caused by theft, but covers loss or damage that occurs due to looting at the time and place of a riot or civil commotion, or building damage caused by the breaking in or exiting of burglars. The endorsement further states that, “…if theft results in a covered cause of loss, we will pay for the loss or damage caused by that covered cause of loss.”

The insured advised us that the electricity was “cut” during the event, which caused the food to spoil. The perpetrator turned off the circuit breakers located outside the building. There was no reason to turn off the power to the premises other than a malicious act. So we asked the insurer to re-consider paying for the food loss/replacement.

The insurer came back and said that the policy does not cover food spoilage: “When power was interrupted at time of the loss causing the refrigerator to shut off, there was a change in temperature causing the food to spoil. The policy specifically disclaims coverage for loss or damage to personal property that results from changes in temperature.”

We feel the change in temperature was caused by a malicious act that was committed by one or more unknown persons. There was no power outage from the utility company. So while the policy does say changes in or extremes of temperature is excluded, the theft exclusion gives it back by saying that if it results in a “covered cause of loss,” the company will pay for the loss or damage. Vandalism is a covered cause of loss.

The insurer cited CP 10 33 10-12 theft exclusion endorsement and said the policy excludes coverage for stolen property or any damage resulting from it.

Nothing was stolen.

The insurer also said: “The limited coverage for building damage caused by burglars would only apply to building damage and does not apply to damage to business personal property or spoilage of perishable stock. Because there is no limit of insurance for the building and the building is not scheduled as covered property, there is no coverage for the building damage caused by the thief.”

The insured does not own the building, so we did not insure it. Form CP 10 33 10 12, however, states, “We will pay for building damage caused by the breaking in or exiting of burglars.” It does not say that the insured has to own the building or have it scheduled as covered property. 

This was a break-in, so damage to the door should be covered.

We know that cash and damage to the safe and security system are not covered as the insured does not have business income coverage.

Please lend us your thoughts on this. We feel this is a covered loss:

1. With regard to the food spoilage, as it resulted from the malicious act of the power being cut, which is vandalism;
2. With regard to the door damage, as it was the result of a break in by burglars.

— Hawaii Subscriber

Answer: With regard to the food spoilage loss, the theft exclusion states that … “if theft results in a covered cause of loss, we will pay for the loss or damage caused by that covered cause of loss.”

However, the addition of the change in temperature exclusion in the policy form makes it clear that change in temperature is not a covered cause of loss, regardless of how it occurs. Therefore, even though the change in temperature would not have occurred but for the theft, it is not otherwise a covered cause of loss under the policy, so there is no coverage.

With regard to the door damage, if the building number is listed on the schedule of the theft exclusion, then there should be coverage for the door damage, since the damage occurred during the breaking in or exiting of burglars. However, if the building is not listed on the schedule of the theft exclusion, then there would be no coverage for the door damage.

See also:

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