I love esoteric endorsements, especially ones that are badly named, and this one’s a doozy.  Not only do most people not know there’s a coverage gap that this endorsement is designed to fix, if they do know about it, they fall for the name.

Everyone knows that theft is one of the covered Named Perils for contents in the HO3.  The description of the covered peril of theft, however, includes some interesting limitations.  What’s covered is theft, including attempted theft and loss of property from a known place when it is likely that the property has been stolen.   This crazy wording is designed to eliminate coverage for misplaced items.  It’s not stolen unless you knew where you left it and it’s likely (others had access to it) that a theft occurred.  Let’s say you take off jewelry to wash your hands in a public restroom and walk out leaving the jewelry on the sink.  Oops, I remember an hour later and circle back to the restroom but now the jewelry is gone.  Is it a theft claim?  Yes, because I know where I left it and that’s very likely that someone took the jewelry.

The covered peril of Theft goes on to say we do not cover theft:

  1. Committed by an “insured” (one insured could steal from another, but we’re not covering it).
  2. In or to a dwelling under construction, or of materials and supplies used in the construction until the dwelling is finished and occupied.  This is one excellent reason not to write an HO3 on a new home being built.  Builder’s Risk is your friend.
  3. From that part of a “residence premises” rented by an “insured” to someone not an “insured.”

Now we get to the matter that is supposedly addressed by the Residence Rental Theft endorsement.  If you rent out part of your home, the HO3 does not cover items stolen from the area rented out.  There are no controls and the exposure is too big.  After all, other people have access to whatever part of the home you rented out.

Residence Rental Theft is a great title for an endorsement, and you would think that, for an additional premium, you could buy back coverage for this exposure.  First it modifies the c. exclusion above, so it only applies to regular rental.  So, you get theft coverage for occasional rental of the entire house or part of the house, but I doubt that’s the situation most people are worried about.

Then it adds “We do not cover loss by theft from the part of the residence premises rented to others caused by a tenant, roomer or boarder, members of the tenant’s household, or their employees.”   As far as I can tell, all you gained from the endorsement is coverage for theft of something in an area occasionally rented out that was stolen by a guest of the tenant or random thief.  It also excludes theft of certain items such as money, jewelry, securities, tickets, etc.  Not exactly what you would think when reading the title.  Let’s face it, it’s basically worthless, and it’s a disservice to your Insured if you portray this endorsement as giving them theft coverage for a rental exposure.

Back to the named peril Theft coverage in the HO3 for a minute, because there are a few more interesting items not covered.

  1. The HO3 excludes theft of property at another premises owned by, rented to, or occupied by an Insured, except while the Insured is living there.  Suppose the Insured has a shack at the lake.  He doesn’t have an HO3 policy for the lake shack because it’s just a shack and there’s not much there.  His choice, but he can’t extend his primary home’s HO3 theft of contents coverage to the lake shack unless he was staying there when the theft occurred.
  2. A student’s contents at the dorm room or apartment are covered for theft under his parent’s HO3 as long as he has visited his contents in the past 45 days.
  3. The HO3 provides no theft coverage for watercraft, trailers, and campers when they are off the “residence premises.”  This is probably not a huge deal, because you have only $1,000 coverage for these items anyway.

If ISO ever forms a committee to re-name their Endorsements, my suggestion is that “Residence Rental Theft” should be called “In Some Circumstances We’ll Cover Some of Your Stuff Stolen by a Friend of Your Tenant.”

Kathleen Davis, CPCU, CIC, ARM, API

About Kathleen Davis, CPCU, CIC, ARM, API

VP, Customer Relations
Tower Hill Insurance Group

Kat is a 1st Degree Insurance Nerd who started her career at Rollins Burdick Hunter (now AON) in Chicago, 1980. Kat spent 19 years in the brokerage/agency business in Chicago, Los Angeles, and Ft. Myers, FL. She was an Account Manager for most of this time handling retail and service businesses, and specializing in construction sub-contractors. Along the way she picked up her ARM, CPCU, API, and CIC designations (they were just lying around). Kat was hired by Tower Hill Insurance Group in 1999 to start their Training Department where she wrote and presented employee training and agency CE classes. In 2006 Kat moved to Underwriting to finally use her CPCU and picked up all kinds of great stories. She says: “Insurance is a laugh a minute, and I can’t understand why some people don’t see it.” In 2013, Kat was reassigned to Administration to assist Tower Hill’s Customer Service Department.