Applying insurance coverage to vandalism, fires and theft

During the days and weeks following the death of George Floyd at the hands of Minneapolis police officers, protests erupted in every state across the country. Although most of these protests remained peaceful, there were instances of criminal misconduct and property destruction, such as the breaking of storefront windows and doors, theft and even setting structures ablaze. For those businesses that suffered losses, we have a bit of good news; insurance may help.

A policyholder must review its specific insurance policies to analyze the policies’ scope of coverage, exclusions and terms. That said, broadly speaking, a commercial property policy covers damage to property and its contents when caused by fire, riots or civil commotion or vandalism. It also covers expediting costs, debris removal and business interruption, including from riots, malicious mischief, vandalism and civil commotion. Crime policies generally cover loss resulting from theft and resulting physical damage.

Covering buildings & property

For example, a property policy’s “building and personal property coverage” form (ISO Form CP 00 10) provides: “[Insurer] will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.” “Covered Property” typically includes the building, business personal property (including furniture and fixtures, machinery and equipment, and “stock”), and personal property of others that is in the insured’s care, custody or control and located in the building or within 100 feet of the premises. The policy also sets forth specific types of “property” that are not covered — for example, currency.

The ISO commercial property policy includes one of three different “covered cause of loss” forms. The first two forms — the basic cause of loss form, and the broad cause of loss form — are generally known as “named perils” forms. These forms specifically list the covered causes of loss. Both forms specifically cover fire, riot or civil commotion, and vandalism.

Looting & vandalism coverage

Riot or civil commotion includes “looting occurring at the time and place of a riot or civil commotion.” These forms do not define “looting.” While the origins of the word are currently under scrutiny for purposes of insurance coverage, the common understanding of the word looting (i.e., the act of robbery or theft) should apply. The Property Claim Services (an insurance industry company that monitors catastrophes) has reportedly designated the recent protests in Minneapolis and other cities as “riot and civil disorder events.” This fact should aid policyholders in making claims for coverage for merchandise stolen during the recent riots.

“Vandalism” is defined as the willful and malicious damage to or destruction of the described property. Specifically, vandalism covers damage to a building caused by the entry or exit of burglars, but there may be an exclusion for loss or damage caused by or resulting from theft. In that way, coverage for “vandalism” differs from coverage for “riot or civil commotion.”

For example, if a business is burgled and its merchandise is stolen, the carrier will argue there is no coverage for the stolen merchandise under this form because “theft” is excluded from coverage for vandalism. However, if the same theft occurs in the course of a riot or civil commotion, the stolen merchandise should be considered part of “looting” and, therefore, the resulting loss should be covered.

All-risk coverage

The third cause of loss form — the special cause of loss form — is an “all-risk” form that covers loss from all causes except those specifically excluded. It is more difficult for a carrier to deny coverage under a special cause of loss form because the carrier bears the burden of proving the cause of the loss was one specifically excluded in the policy. Although the special form excludes coverage for loss or damage caused by or resulting from dishonest or criminal acts (including theft), the exclusion is limited to acts committed by the insured, employees, representatives, etc.

There may be coverage for business interruption resulting from a riot or civil commotion. Coming off the heels of governmental shutdown orders, however, policyholders and insurers may disagree about the extent to which lost business resulted from riots or civil commotion as opposed to government shutdowns, customers’ reluctance to enter retail establishments and the like. Although many policyholders have submitted claims for business interruption coverage resulting from shutdown orders, insurers largely have denied those claims. Litigation is pending, with more cases expected to be filed.

Crime policies also may cover nonemployee theft, as well as business interruption, and loss of or damage to property resulting from an actual or attempted theft. However, these policies may contain exclusions for vandalism and malicious mischief. An insurer, therefore, may seek to distinguish that loss and damage caused by theft from that caused by vandalism and malicious mischief.

In sum, business owners should review their coverage, contact their insurers to make a claim where appropriate, and begin collecting the necessary documentation to support the claim and the measure of loss.

Joann M. Lytle, a partner in the Philadelphia office of McCarter & English, is a nationally recognized insurance coverage litigator and has represented corporate policyholders in a wide range of industries. Contact her at jlytle@mccarter.com. Jennifer Black Strutt is an associate in the insurance recovery, litigation & counseling practice group at McCarter & English. She can be reached at jstrutt@mccarter.com.

Related:

• ‘The streets have spoken.’ How will insurance respond?
• Civil unrest adds to challenges facing business interruption claims