We have a client who suffered a lightning strike, which disabled the phone system. While the firewall was down, an outside party hacked into the system and used it to place a large number of metered, per-minute international long distance calls to the tune of $25,000.The client is insured under a Businessowners policy with an endorsement that provides up to $5,000 for computer fraud. The carrier has denied the claim for the phone charges on the basis the charges  are not “covered property.”   

 The computer fraud coverage states that the insurer “will pay up to $5,000 in any one occurrence for physical loss of or physical damage to 'money', 'securities', and other property having intrinsic value resulting directly from computer fraud. Computer fraud means any act of stealing property following and directly related to the use of any computer to fraudulently cause a transfer of that property from inside your premises or from a banking institution or similar safe depository, to a person (other than a 'messenger') outside those premises or to a place outside those premises.”

 Phone Usage

 Similarly, another subscriber wondered if a homeowners HO 03 form covered unauthorized use of cell phone minutes:

 The insured left her car parked in a locked garage while she was out of town. When she returned she found the garage had been broken into, as had her car. Nothing appeared to have been stolen.

 However, later that month when her phone bill arrived she found someone managed to access her cellular phone to make extensive long distance calls, for which she is being held responsible. The policy provides $1,000 coverage for electronic apparatus in or upon a motor vehicle. 

 In both of these instances, we said that phone time is not personal property, so it would not be considered covered property. While both of the policies could cover losses to the phones or phone systems themselves, there is no coverage for the loss of intangible property—phone time. 

 Stolen Rights

 None of the actual equipment was stolen; only the phone minutes were stolen. This type of loss is closely allied to the theft of a utility, but what has been stolen is the insured's right to access the utility. The right to use the phone service is simply that—a right, and not personal property, as would be the case if, say, water had passed through a water meter and thus become the insured's personal property. Since personal property has not been stolen, there is no coverage for these losses. 

 Property policies are not the only forms that address whether intangible property is covered. The commercial general liability form (CGL) defines property damage as physical injury to tangible property, including all resulting loss of use of tangible property that is not physically injured. 

 Courts have found many instances where the criteria for tangible property was not met. For instance, the court in Mitchell, Best & Visnic, Inc. v. Travelers Property Cas. Corp., 121 F.Supp. 2d 848 (D. Maryland 2000) held that obstruction of a view did not constitute property damage as the obstruction was damage to intangible property only. Likewise, in Allstate Ins. Co. v. Chesler, 478 F.Supp. 2d 1220 (D. Hawaii 2007), the court said that construction of a house that interfered with the neighbor's light, air, and view did not make a claim for destruction of tangible property, as required by the liability section of the insured's homeowners policy. 

 Real Property and Goods

 In a somewhat surprising decision, the court in Citation Ins. Co. v. Newman, 951 N.E.2d 974 (2011) found that an easement, that is, a right to use property, should not be considered as merely an intangible interest. The insured's through-the-wall air conditioner unit projected into a yard to which his neighbor held an exclusive easement. The neighbor said that the output from the air conditioner hindered her enjoyment and use of the yard. The insurer claimed that the homeowners policy did not provide coverage because the claim did not allege property damage, and any possible physical loss or damage affected only an easement, which is an intangible interest in property.

 The court, however, said that an easement is an interest in real property, albeit one that is nonpossessory. The court ruled that whether the claimant owns, rents, or holds an easement to real property, the property itself is tangible. And, a claim about loss of use of that property is a claim for loss of use of real and tangible property as required by the definition in the policy.

 Some jurisdictions may or may not recognize the tort of conversion for intangible property, which can affect insurance claims. In Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 1786 (2nd Cir. 2006), the court said that New York law of conversion does not usually apply to intangible property. Nationwide contended that electronic data is intangible property, and thus not subject to conversion. The court certified a question to the New York Court of Appeals to determine if a claim for conversion of electronic data is cognizable under New York law.

 The appeals court concluded that conversion applies to intangible electronic records that are stored on a computer and are indistinguishable from printed documents. [Thyroff v. Nationwide Mut. Ins. Co., 8 N.Y.3d 283 (2007).] However, many polices explicitly exclude electronic data from coverage or provide only additional minimal coverage for this type of property.

 On the other hand, in Joe Hand Promotions, Inc. v. Lynch, 822 F.Supp.2d 803 (N.D. Ill. 2011), the court held that the tort of conversion did not extend to an unauthorized TV broadcast of a boxing match, which was deemed intangible property. 

 The distinction between tangible and intangible property may be as simple as noting that an object like a book is tangible, but the ideas expressed in the book are not. A computer is definitely tangible, but how to classify the data stored on it can get complicated. Sometimes courts must intervene to determine the difference.