Is Vandalism Damage Caused by the Insured’s Tenant Covered?
Question: “We have an insured with a tenant property. The tenant was evicted and caused damage to the home before leaving. Some of the damage came from their animals left to defecate on the carpet, so the owners removed it. Other areas were reported vandalized, and the tenant was criminally charged with vandalism by the local police department. The insurance carrier first attempted to deny coverage for wear and tear. I challenged the denial, explained the tenant was criminally charged for vandalism, and they agreed to reconsider. I then received a call from the appraiser who advised that the Dishonest or Criminal Acts exclusion would apply. I disagree that this was the intent of this exclusion, as everything else refers to employees, partners, directors, trustees, etc. Is there any case law on this? I have carriers that do pay for tenant vandalism.”
Answer: It’s not looking good for your client. I don’t think this will be covered.
The exclusion in question states:
“We do not pay for loss or damage caused directly or indirectly by any of the following; such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. …
4. Dishonest or Criminal Acts- means loss caused by or resulting from any dishonest or criminal act by you, any of your partners, employees, directors, trustees, authorized representatives, or anyone to whom you entrust property for any purpose:
a. Acting alone or in collusion with others; or
b. Whether or not occurring during the hours of employment. This is exclusion does not apply to acts of destruction by your employees; but theft by an employee is not covered.”
I found two New York court decisions from earlier this year. The first was an appeal decided by the Appellate Division’s Third Department in Albany last April. The circumstances were virtually identical to what you described, and both the trial and appellate courts ruled in the insurance carrier’s favor:
“Based on the foregoing, the Supreme Court properly found that the defendant met its initial burden by producing the insurance policy, which expressly excluded criminal and dishonest acts, such as property damage, done by individuals to whom the insureds entrusted the property. Daire’s testimony established that the property damage was intentionally committed by either Sweet or her daughter, both ‘whose status [was] . . . accepted by the assured as the result of a consensual relationship between the parties,’ such that the entrustment exclusion applies to both individuals … Accordingly, inasmuch as defendant established, prima facie, that the entrustment exclusion applied and defendant did not breach the contract, the burden shifted to plaintiffs to identify a remaining triable issue of fact …
Plaintiffs did not offer any additional proof, but, in their memorandum of law, they argued that the evidence proffered by the defendant did not resolve the issue of whether vandalism constituted a ‘dishonest and criminal act’ subject to the policy’s exclusion. Plaintiffs also asserted that the exclusion language — ‘anyone to whom you entrust property for any purpose’ — is ambiguous and there is a remaining dispute ‘as to whether the tenant to whom [the] plaintiff insureds actually ‘entrusted’ the property can be expanded to include… any and all ‘occupants’. “These arguments must fail.”
The second, a case from last January, was a trial court decision that went against the insurance company, but not because there was a problem with the wording in the exclusion. New York has a standard fire policy law, and every fire insurance policy insuring properties in this state has to provide coverage at least as broad as the standard policy. The standard fire policy does not contain a “dishonest or criminal acts” exclusion, so the court would not allow the insurer to apply it to an arson loss committed by a tenant:
“The court agrees that the policy exclusion is clear on its face, and does not require an interpretation beyond the plain and ordinary meaning of its terms … The court declines to enforce the policy exclusion not because it is unclear, but rather, because it is in violation of Insurance Law § 3404(e), as such section applies to losses caused by fires. While policy exclusions grounded in negligent entrustment have been held to apply to losses arising out of theft and vandalism …, such exclusions do not apply to losses caused by fire (Insurance Law § 3404[e]).”
Both courts upheld the exclusion as it applies to tenants. The second landlord was “lucky” because the tenant torched the place instead of ripping plumbing out of the walls. However, based on these two cases, it appears to me that your client’s carrier has interpreted the policy correctly. Sorry I don’t have better news.
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