Filed Under:Claims, Investigative & Forensics

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.

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. 

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.

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. 

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