From the November 2012 issue of Claims Magazine •Subscribe!

Rampant Copper Theft Raises Coverage Questions

A Look At Vacancy and Cause of Loss Provisions

With the price of copper at all time highs—between $3.50 and $25 per pound, depending on type—its ability to tempt enterprising thieves has also escalated.

Four former employees of Duke Energy, the largest electric power holding company in the United States, were among nine indicted recently for stealing copper wire from Duke and selling it to recyclers. Nearly every day we hear reports of the copper tubing from HVAC units being stolen. Contractors often employ 24/7 security guards to discourage thieves from stealing copper piping and fittings.

All of this translates into an escalating number of questions about how insurance coverage can be tapped to reimburse property owners for such high-value losses. We at FC&S Online receive weekly questions about insurance coverage and the theft of copper. They generally fall into two categories: theft of copper piping or fittings from vacant buildings and situations where occupied buildings are damaged while the copper is being removed. In the latter case, question frequently turns on whether this ancillary damage qualifies as vandalism for the purpose of coverage.

Vandalism and Theft
When dealing with these types of questions there are two main policy areas that must be considered: vacancy provisions and causes of loss provisions. For example, the Insurance Services Office (ISO) business owners and commercial property policy forms include vacancy provisions that exclude coverage for vandalism, theft, and attempted theft when a building has been vacant for more than 60 consecutive days. When policies include this type of wording, it is fairly clear that neither the copper theft nor the ancillary damage is covered.

There are situations, however, involving vacant buildings where this language is not involved. An example of this is the Texas case, Essex Insurance Co .v. Eldridge Land, L.L.C.. Eldridge owned a vacant building, which had been used as a grocery store. Intruders forced their way into the building and damaged sheetrock, ceiling tiles, electrical conduit boxes, and wall coverings in order to remove and steal copper wiring and pipe. Essex denied the claim based on a policy exclusion for loss or damage caused by or resulting from theft. In addition, the damage done by breaking into the building was below the $5,000 deductible, so Essex paid nothing.

The policy in question did provide coverage for vandalism, but it excluded damage caused by or resulting from theft. As is frequently seen in commercial property forms, there was an exception to the theft exclusion for building damage caused by the “breaking in or exiting of burglars.” After Essex denied the claim, Eldridge sued. The trial court held that the damage to Eldridge’s property was covered by the Essex policy, awarding actual damages of $300,000, prejudgment interest, and attorney’s fees. 

The court analyzed the policy provisions, especially the question of whether the ancillary damage could be considered vandalism or whether it was a part of the copper theft. The policy defined vandalism as “willful and malicious damage to, or destruction of the described property.” Eldridge argued that the property damage was vandalism and only the property that was removed should be considered theft. Alternatively, Eldridge stated that the damage was caused by the intruders breaking into parts of the building in order to get the copper, thus making it “building damage caused by the breaking in or exiting of burglars.”

Essex countered, saying that the copper theft did not qualify as vandalism, it was expressly excluded as theft, and it did not fit the narrow definition of damage caused by breaking in or exiting of burglars.

On appeal, the court concentrated on the wording of the exception to the theft exclusion. As it stated, theft is excluded within a paragraph that provides coverage for vandalism. As such, the appeals court reasoned, the theft exclusion was “clearly intended as an exclusion or exception to the vandalism coverage,” meaning that the theft exclusion would prevail unless the breaking-in exception applied. 

“Breaking In” vs. “Breaking Into”
According to the appeals court, the “breaking in” exception did not mean “breaking into” fixtures, walls, ceilings, or floors in order to remove pipes or wiring. The common meaning of the term “breaking into,” the court reasoned, was gaining entry into the building, not knocking holes in walls once inside. To support this reasoning, the court further explained that the exception notes both breaking in and exiting, making it even more apparent that entry and exit from actual buildings was intended. The trial court thus was overturned.

Another frequent situation involves a coverage sublimit for theft. The 2012 case of SA-OMAX 2007, L.P., v. Certain Underwriters at Lloyd’s, London, involved a policy providing over $1.2 million in coverage for the building with a theft sublimit of $25,000. Thieves went onto the roof of the building and stole copper pipes and wiring from five HVAC units. In doing so the thieves cut holes in the roof and further damaged it by dragging the copper coils across it. The interior of the building subsequently was damaged when rain entered through the holes in the roof. In all there was $80,000 of building damage and theft loss.

SA-OMAX argued that the $25,000 sublimit applied only to the value of the items stolen. The company reasoned that the building damage would not fall within the sublimit because the thieves did not “steal” the roof, only the copper. It argued that the form writers could have stated that the sublimit applied to theft and any damage caused by or resulting from theft, and they had not. 

Conversely, the insurer reasoned that the policy covered loss or damage to covered property caused by or resulting from a covered cause of loss. In its words, the covered property was the building, and the cause of loss, theft. The policy then stated, through the sublimit, that the cause of loss for theft was limited to $25,000. The court agreed with the insurer’s argument and ruled in favor of Lloyds of London.

In general, the FC&S® Online editors agree with the reasoning of these two courts. Not everyone does, however. An example of the alternative view is seen in Nautilus Insurance Company v. Steinberg, also a Texas appeals court case. The details of this claim are very similar to those in SA-OMAX. A thief climbed onto the roof of a building, opened the air conditioning units, and removed copper pipes and wiring. While the perpetrator was still on the roof the policy arrested him. He was convicted of felony criminal mischief. Nautilus denied the claim for damage based on the theft exclusion. 

In deciding on this appeal, the court took an interesting twist. In order for a theft to occur and the theft exclusion to apply, the court said, the insurance company had to show that the perpetrator intended to deprive the building owner of the property. The trial court had not addressed this question, and the perpetrator had not actually stolen the materials since he was arrested prior to taking the property. The decision turned on this issue, and the appeals court said that theft could not be inferred and, therefore, Nautilus owed for the damage.

Once again, a point that most would not even contemplate became the crux of a coverage issue.

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