Welcome to Affinity Loss Prevention Services “It’s Not Covered” series. For a fuller introduction of the series, read HERE. We hope these quick reads help you increase your understanding of your insurance coverage, clear up confusion and avoid preventable losses!
So, what’s the confusion?
There are several layers of confusion relating to coverage for Theft and Vandalism. First, many people are unclear about what constitutes Theft versus Vandalism or even Burglary. Another confusion is whether the Theft, Vandalism and Burglary coverages are available under the 3 main policy formats: Basic, Broad and Special. Lastly, the coverages of Theft, Vandalism and Burglary can be limited. The cost on a single break-in for a vacant or renovation property can be over four times the national average, so it is important to understand the differences and limitations.
What constitutes a Theft vs. Vandalism & Malicious Mischief? What falls under Burglary?
Theft: the taking and carrying away of the personal goods or property of another without permission.
Vandalism & Malicious Mischief: the intentional injury or destruction of property. i.e. someone spray painting the walls with graffiti, breaking sinks and toilets or punching holes in walls.
Burglary: includes damage to your property caused by burglars, but not theft of property. An example would be the damage done to an entry door when burglars pry it open.
If my tenant purposefully damages a unit, is that considered Vandalism?
No, a tenant intentionally damaging your property is not considered Vandalism from an insurance perspective. Depending upon the laws of the state, they may have committed a crime, but your tenant is not a stranger that has broken into your home. Tenants are treated differently within the insurance contract because you have allowed them to be a caretaker of your home through the lease agreement.
Basic, Broad and Special – Which coverage is available under each format?
Though the most common policy formats used for real estate investment properties tend to be Basic and Special Form, below is a summary of what coverages are available under each of the three policy formats.
Basic Form: Includes Vandalism & Malicious Mischief (VMM)
Broad Form: Includes VMM and adds Burglary Damage
Special Form: Includes VMM, Burglary Damage and adds Theft
Can coverage for Theft, Vandalism or Burglary be limited?
Yes. Unlike perils such as Fire, these coverages may have a “sublimit” underneath the main property coverage limit. Even if you have coverage for Theft, VMM or Burglary, the limits of coverage may still be restricted for just those perils. So, while you may have insured your property for $100,000, you may only have $30,000 worth of coverage for Theft, Vandalism (VMM) or Burglary, for example. That stated, your deductible would still be the same for all types of losses. Check your policy for specific details or contact your agent if you have questions.
What about my contractor’s tools? Are those covered?
If they aren’t covered under another policy, tools may be covered. Coverage can vary widely in this area though, so it is best to check the details of your specific policy. Some Builder’s Risk policies include coverage for equipment and uninstalled materials, but may have limits on the type of equipment – bulldozers and other heavy equipment may not be included, for example, or there may be no coverage for tools at all.
How could vacancy affect my ability to get coverage for Theft or Vandalism?
If your property is vacant, your insurer may require certain “protective safeguards” to reduce the risk of theft and vandalism. They may require your property be “boarded and secured,” meaning that all windows and glass doors should be protected against glass breakage, for example. They also may require you or your property manager to keep up on maintaining the property (i.e. cut the lawn, perform routine repairs, stay current with local codes) and visit on a weekly basis to ensure the property remains secure. If these “protective safeguards” are not in place at the time of loss, coverage for Theft, VMM or Burglary may be excluded.
What happens if I forget to tell my insurer about a change in occupancy?
Some standard insurance carriers don’t insure vacant properties, which could become very problematic if you have anytype of loss. Even if a carrier insures vacants, your coverage still may be reduced if you don’t report a change in occupancy within a specified time frame. Why is this? The insurance contract they have with you is written for a specific stated risk and its related premium. The new vacant status puts the insurer at an increased risk for which there is also an increased cost. If they haven’t agreed to the new risk, and you haven’t paid them for that new risk, they aren’t bound to pay claims on that new risk. As such it is crucial to report any changes in occupancy to your insurer as soon as possible.
Can you add coverage for Theft, Vandalism or Burglary and does it cost extra?
While Vandalism is typically included in all three “tiers” of coverage, you will need to either purchase Theft or Burglary in addition to the Basic Form or purchase a Special Form policy. When you consider how many more perils are insured, it’s easy to understand the additional cost.
What does the lawyer-y-speak version of this exclusion look like in my policy?
Sample policy language may look similar to this:
From a sample Basic Form policy:
“When Basic is shown in the Declarations, Covered Causes of Loss means the following…
Vandalism, meaning the willful and malicious damage to, or destruction of, the described property.
We will not pay for the loss or damage caused by or resulting from theft, except for building damage caused by the breaking in or exiting of burglars.”
From a sample Special Form policy:
“We will not pay for loss of or damage to property, as described and limited in this section…
Building materials and supplies not attached as part of the building or structure, caused by or resulting from theft.”
Sub limits for the Theft and VMM Perils:
“When the Special Cause of Loss form is applied a combined sublimit applies for Vandalism and Malicious Mischief and Theft at $30,000 per loss, per location.”
Reductions in Coverage in Relation to Occupancy Status:
“If a scheduled occupied location is found at the time of Loss to have been vacant for more than 60 days, the perils of VMM and/or Theft are now excluded from coverage.”
*As insurance policies may vary, please check your own policy for language specific to your covered property.
How much can this type of damage cost me?
Theft & Vandalism losses can vary from a few hundred dollars to tens of thousands. It all depends upon what a thief is after and what they are able to carry out before the threat of discovery scares them off. The items that thieves are looking for will not surprise you: copper pipe, appliances, A/C condensers, HVAC systems, water heaters, sinks, toilets and cabinetry. If your house is a rehab, add contractors’ tools and uninstalled materials to that list. Anything that can be re-sold is fair game. One investor from Detroit even had their gutters and siding stolen.
Vandalism can also be quite costly. A vandal can do as much damage as a thief if they go so far as to break plumbing systems or damage appliances. Those items may not be removed from the property, but they may be damaged to the point of becoming unusable.
What can I do to protect myself?
First, know what is in your policy: Read the sections of your insurance policy that address Theft, Vandalism and Burglary. It is important to know both what you are and are not covered for. If you don’t understand your coverage or have questions, don’t hesitate to ask your agent who should be happy to help you!
- Deterrence is the first step: make your property appear to be lived in.
- Layer your security: add extra lighting, door reinforcement, an alarm and more!
- Monitor vacant properties closely: drive by regularly to make sure the house is still secure.
- Enlist the neighbors: have them contact the police if they see any suspicious activity or unfamiliar faces.
- Maintain a good working relationship with tenants: use a thorough screening process and build a good relationship during their stay.
- Make sure your tenant understands their personal property isn’t covered by your insurance: Require your tenants to carry renter’s insurance in the lease and enforce it.
About the Author
BreAnn Stephenson is the Assistant Vice President at Affinity Loss Prevention Services (ALPS). ALPS is your source for finding out how to avoid a loss. For more articles, checklists and access to discounted products go to affinitylps.com.