Insurance companies have long recognized that they are assuming a greater risk by covering vacant property. The longer a building sits empty, whether it be a home or commercial building, the greater the chance it will be vandalized, have an undetected water leak or even suffer a fire. The Las Vegas area certainly has no shortage of vacant homes and commercial buildings and, unfortunately, many property owners do not realize their insurance policy contains a “vacancy clause” that limits or eliminates coverage under certain conditions.
In examining this topic, it is important to understand when an insurance company considers a home or commercial building to be vacant. The answer depends on the type property to be covered and the particular policy issued. Ironically, most insurance policies do not have a specific policy condition or exclusion for a vacancy. Instead, there are usually several references to specific types of losses that could be restricted or denied because of a vacant property condition. This combination of exclusions is referred to as the “vacancy clause”.
Vacancy and Home Insurance
Homeowners insurance, of the type typically issued in Nevada, is often referred to as an HO-3 policy. One of the standard policy exclusions is vandalism or malicious mischief if the dwelling is vacant. The exclusion reads as follows:
“Vandalism and malicious mischief and any ensuing loss caused by any intentional and wrongful act committed in the course of the vandalism or malicous mischief, if the dwelling has been vacant for mor than 30 consecutive days immediately before the loss. A dwelling being constructed is not considered vacant.
In this case, 30 consecutive days of vacancy triggers the exclusion of vandalism, except for a home that is under construction. Vacancy is not specifically defined in the policy, but case law has provided the following definition (Speth v. State Farm):
“In the context of a dwelling and an insurance policy exclusion for vandalism, the plain and ordinary meaning of ‘vacant’ is that the structure is not lived in and lacks the basic amenities for human habitation.”
Water Leaks and Vacancy
The other common exclusion that is relevant to vacant property deals with water leakage or intrusion claims. The exclusion reads:
“Constant or repeated seepage or leakage of water or steam over a period of weeks, months or years from within: a) a plumbing, heating, air conditioning or automatic fire protective sprinkler system or a household appliance on the ‘residence premises’; or b) a storm drain or water, steam or sewer pipes off the residence premises.”
Vacancy is not mentioned as a specific trigger for this exclusion but a home or commercial building that is not occupied is more likely to have a water leak go undetected for a week or longer.
Commercial Buildings and Vacancy
Commercial property insurance policies have very similar wording regarding vacancy. The number of days the property is vacant might be more generous, perhaps 60 days instead of 30. In the case of lessors risk policy (e.g. shopping center or office building) the trigger might instead be a required percentage of occupancy of the total units available to rent. Regardless, the intent is the same – coverage is significantly limited if a vacant condition occurs.
The Vacancy Clause Solution
To deal with this issue we offer policies that are specifically written for vacant buildings. These policies are usually written for shorter coverage terms such as 3, 6 or 9 months. We often use these policies for homes and commercial buildings that are unoccupied and listed for sale. Vacant property policies obviously do not contain the exclusions discussed above. They do tend to be significantly more expensive than a standard policy. In certain cases insurers are willing to remove the vacancy exclusion in a standard policy by endorsement, such as an extended vacation or probate, where we can document the property is being inspected and maintained.
As always, we recommend you call with any questions about your insurance coverage so that there are no surprises when it is time to file a claim.