Theft and Vandalism coverage can be one of the most confusing aspects of a property insurance policy. What are the differences between theft, vandalism, and burglary? Are these coverages available under Basic, Broad, and Special Form coverage?
Coverage for these perils can be limited. The cost of a break-in for a vacant or renovation property can be over four times the national average. It is of the upmost importance that you and your investor clients understand the differences and limitations of coverage.
How do insurance carriers define theft, vandalism & malicious mischief, and 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 walls with graffiti, breaking sinks and toilets, or punching holes in walls.
Burglary: This includes damage to your property caused by burglars, but not theft of property. E.g., the damage done to an entry door from burglars prying it open.
If a tenant purposefully damages a unit, is that considered vandalism?
No, a tenant intentionally damaging the investor’s property is not considered vandalism from an insurance perspective. Depending upon the laws of the state, they may have committed a crime, but the tenant is not a stranger that has broken into the home. Tenants are treated differently within the insurance contract because your investor client has allowed the tenant to be a caretaker of the home through the lease agreement. (See Is It Covered? Tenant Damage)
Basic, Broad, and Special – Which coverage(s) is available under each format?
Though Basic and Special Form policies are the most common formats used for real estate investment properties, below is a summary of what coverages are available under all three formats.
Basic Form: Vandalism & Malicious Mischief (VMM)
Broad Form: VMM and Burglary Damage
Special Form: VMM, Burglary Damage, and Theft
Can Theft, Vandalism, or Burglary coverage be limited?
Yes. Unlike perils such as Fire, these coverages may have their own sublimit underneath the main property coverage limit. Even if your investor client has insurance coverage for Theft, VMM, or Burglary, the limits of coverage may still be restricted for just those perils. So, while the property may be insured for $100,000, there may only be $30,000 worth of coverage for Theft, VMM, or Burglary. The deductible may also differ for those losses. Investors should check their policy for specific details. If you and your client have questions, don’t hesitate to contact your Sales Manager.
What about contractors’ 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 for investors to check the details of their specific policy. Some Builder’s Risk policies include coverage for equipment and uninstalled materials but may have limits on the type of equipment.
How could vacancy affect my investor client’s ability to get Theft or Vandalism coverage?
If the property is vacant, the insurer may require certain protective safeguards to reduce the risk of theft and vandalism. They may require the property be boarded and secured, meaning that all windows and glass doors should be protected against glass breakage. They may also require your investor client or the property manager to keep the property well maintained (i.e., cut the lawn, perform routine repairs, stay up to date 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 the investor client forgets to tell the insurer about a change in occupancy?
Some standard insurance carriers don’t insure vacant properties, which could become very problematic if any type of loss occurs. Even if a carrier insures vacant properties, coverage could still be reduced if a change in occupancy is not reported within a specific time frame. Why is this? The insurance contract they have with your investor client is written for a specific stated risk and its related premium. A 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 your investor client hasn’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 the insurer as soon as possible!
Can coverage for Theft, Vandalism, or Burglary be added and does it cost extra?
While Vandalism is typically included in all three coverage formats, your investor clients will need to either purchase Theft or Burglary as an add-on to the Basic Form coverage or purchase a Special Form policy. When the number of additional covered perils is considered, it’s easy to understand the higher cost.
What does the technical lingo for this exclusion look like in the investor client’s policy?
Sample policy language may look like 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.”
Sublimits 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, investors should check their own policy for language specific to covered properties.
What can this type of damage cost the investor client?
Theft insurance losses can range from a few hundred dollars to tens of thousands. It all depends upon what a thief is after and what they can carry out before the threat of discovery scares them off. The items that thieves look for will not surprise you: copper pipes, appliances, A/C condensers, HVAC systems, water heaters, sinks, toilets, cabinetry, and the like. If your investor client’s property is a rehab, contractors’ tools and uninstalled materials can be added to that list. Anything that can be sold is fair game.
Vandalism losses 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.
How can investors protect themselves?
First, investors should know what is in their policy: The investor should refer to the sections of their insurance policy that address Theft, Vandalism, and Burglary. It is important that your investor clients know what they are and are not covered for. If you or your client have questions, don’t hesitate to ask your Sales Manager, who would be happy to help! Recommend to your investor clients that they take the following precautions:
Deterrence is the first step: make the property appear to be lived in.
Layer 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 the tenant understands their personal property isn’t covered by the investor’s insurance: Require tenants to carry renter’s insurance in the lease and enforce it.
