Scenario: Your cell phone is stolen. The person that stole your phone racks up $4,000 in charges on your cell phone bill. Is this covered by insurance?

Answer: Personal property (the cell phone) would be covered under your homeowners or renters policy. Unfortunately, the usage of the phone after is it stolen, is not covered.

An insurance company insures the direct loss to the property (the cell phone) under Coverage C of your homeowners policy. The theft of the phone is a direct physical loss of property, but its subsequent use is not.

You may ask, “But on an all-risk policy, if there is no exclusion for it, then I am covered, right?”

The loss has nothing to do with perils. Making unauthorized phone calls does not involve “direct physical loss” to the covered property.

Direct loss vs indirect loss:

Direct physical loss is damage to the property itself. Indirect losses result from the direct loss.

Examples:

Direct loss: A fire destroyed a store and its contents.

Indirect loss: The owner of the store lost earnings because of the fire.

Direct loss: The car was damaged when it collided with another car.

Indirect loss: The owner of the stolen car had to rent a loaner car while the insured car was being recovered.

Information from Independent Insurance Agents & Brokers of America, Inc.