Does a Tenant Have Insurable Interest in a Leased Building?

• By: The Big "I" Virtual University
• May 29, 2026

A client is a restaurant owner who rents a building and carries a tenant’s policy for his contents and liability. One of the furnaces in the building caught fire and needs to be replaced. The insured submitted the claim to his carrier, which was denied as furnace, plumbing and air conditioning are not considered contents as defined by a property policy.

The insured requested that the building owner submit the claim to its carrier that insures the building. The owner responded by citing the lease, which requires the tenant to be responsible for the furnace, plumbing and air conditioning: “Tenant shall at its expense and risk, maintain, repair and replace the interior plumbing, heating system, air conditioning equipment, fire protection sprinkler system, and, otherwise, the entire interior of the Leased Premises.”

The agent thinks that, because the insured does not own the building, he is unable to obtain building coverage.

Q: Does the tenant have an insurable interest in the leased space? Can a building owner contractually transfer the building coverage exposure to a tenant who has no insurable interest in the building? And does the contractual requirement of the tenant’s responsibility trigger any coverage on a policy that only includes business personal property?

Response 1: It’s a common practice for landlords to contractually require tenants to insure the entire building or its components. The tenant has an insurable interest in the building if the lease makes them responsible for covering costs resulting from damage to or loss of the building. In such a situation, the tenant should be able to obtain building coverage with either of these two ISO endorsements attached to the policy:

• CP 12 18 10 12: Loss Payable Provisions, with the “building owner loss payable” option selected. This says that the insurer will adjust a loss to the building with the building owner shown in the endorsement schedule and loss to improvements and betterments with the insured, unless the lease stipulates otherwise.
• CP 12 19 06 07: Additional Insured—Building Owner. It makes the building owner a named insured for direct damage to the building only.

The comparable endorsements for a Businessowners Policy are BP 12 03 01 10, Loss Payable Clauses, and BP 12 31 08 24, Named Insured—Building Owner.

Response 2: Unfortunately, you are mistaken in your understanding of insurable interest in the building, but there might be an argument for coverage under your client’s policy.

A tenant can have an insurable interest in the building. One way is commonly known as a “use interest.” A second way is the assumption by the tenant of liability for damage to premises that legally creates an insurable interest for the tenant. The client’s lawyer should opine as to what constitutes insurable interest. It is likely you will learn that the client does have an insurable interest in the building that could have been included in the insurance policy.

Many tenants include some building coverage in their policies to protect their insurable interest in the unit that they occupy, or as otherwise required by the lease. It is a common lease provision that the tenant must insure the interior of their unit and must repair and maintain the equipment that services their unit. That often broadly applies to existing building structures and equipment, as well as alterations and improvements made by or paid for by the tenant.

You did not state the cause of the fire. Was it caused by the equipment itself or by an external cause? Does your client have a monoline boiler and machinery policy to cover the equipment servicing the tenant’s restaurant operations that would include the fire loss if it arose out of the furnace?

The adjuster’s denial might be debatable, though. The adjuster cited this coverage and exception to coverage, stating coverage did not apply because the client did not purchase or install the equipment:

“your” use interest as tenant in improvements to the described building or structure. Improvements are fixtures, alterations, installations, or additions:a. to a building or structure “you” occupy, but do not own; andb. that are made or acquired at “your” expense and that “you” cannot legally remove:

That item does not state that the client has to purchase the equipment. It refers to equipment acquired at the named insured’s expense. Your client might not have purchased or installed that furnace, but it might have been acquired at the tenant’s expense, since the pre-existing equipment had value included in the base rent. If there was no furnace in the unit when the tenant entered the lease, then the lease cost should have been lower. But the existence of the furnace and other operational equipment added value paid for through the lease sum. 

 Also, the fact that the tenant was required to maintain the unit, and theoretically has maintained and serviced it for years since lease inception, qualifies as an expense of the tenant.

I suggest you have the client’s lawyer review the particulars of the lease negotiations to determine if there was an expense attributable to the equipment.

Response 3: Most commercial leases today make the tenant responsible for damage to certain real property, often regardless of fault or negligence on the part of the tenant. Carriers insure this exposure all the time on a direct first-party liability basis—not just third party—under business owners policies or other commercial property forms.

These articles by Bill Wilson at Insurance Commentary cover this topic:

• “Is CGL FDLL Coverage Worthless?”
• “Coverage for Damage to Leased Premises… CGL FDLL vs. CP 00 40 vs. CP 00 10?”
• “Property Damage To Rented Premises”

Response 4: I agree with the tenant’s carrier position. Since it is not an improvement made by the tenant and is owned by the landlord, it must be insured by correctly adding building coverage. Having said that, I think there is a legal question as to whether the tenant is responsible for fire damage to those items.

Does the maintenance and repair provision in the lease extend to causes of loss such as fire? Typically, it does not, but that is a question for an attorney. The lease states the landlord shall maintain fire insurance on the building, exclusive of extraordinary leasehold improvements, which I don’t believe the heating system would fall under.

6.02 Damage by Fire or Other Casualty

In the event of a fire or other casualty in the Leased Premises, Tenant shall immediately give notice thereof to Landlord. Even if the Leased Premises shall be partially destroyed by fire or other casualty so as to render the Leased Premises untenantable in whole or in part, the rental provided for herein shall continue unabated, it being Tenant’s responsibility to insure itself against said continuing rental obligation. Landlord agrees to commence and prosecute necessary repair work promptly and with all due diligence; provided, however, in the event of total or substantial damage or destruction of the building which houses the Leased Premises from any cause, Landlord, in its 9 sole discretion may elect not to rebuild and to terminate the Lease agreement. …

6.08 Casualty Insurance to be Provided by Landlord.

Landlord shall maintain standard fire and extended coverage insurance on the Leased Premises (exclusive of any extraordinary leasehold improvements) and the building, which houses them. Said insurance shall be maintained with insurance company authorized to do business in Ohio, in amounts desired by Landlord at the expense of Landlord (although the cost thereof shall be included in Operating Expenses), and payments for losses thereunder shall be made solely to Landlord.

I suggest you contact an attorney and look to the landlord and its insurance carrier to repair or replace the damaged furnace.

Response 5: This is a perfect example of why all agents should tell their clients to share any contract, including leases, with their attorney. Anyone can include anything in a contract, unless it is specifically illegal. This insured signed a lease without really knowing what he was agreeing. He asked you for a renters policy, which you gave him. Unless he specifically told you that he was responsible for building repairs, you did the right thing.

However, now you are working with him on a legal matter: his contractual responsibilities. That is something you should not be doing. Send him to his attorney. That attorney will probably tell him he has to fix the furnace if the contract reads accordingly.

If you knew he had agreed to this very broad lease, then the proper way to write the coverage would be to offer him a full building policy. It would have been far more expensive than his renters policy, but legitimate because the lease gave him an insurable interest in the property as a whole. 

Response 6: A lease or contract can create an insurable interest in building items. This is very common in condominium covenants and triple net leases.  

The property portion of the policy does not cover building items. It does cover leased personal property that “you” have a contractual responsibility to insure.

The liability portion of the policy provides fire legal liability coverage for damage to buildings rented from others. However, it excludes “liability arising out of a contract.” There is coverage for damage to rented premises caused by fire if the insured is legally liable, unless the liability is created by a contract or agreement.

COVERAGE O — FIRE LEGAL LIABILITY

We pay for property damage to buildings, or parts thereof, which you rent from another, or which are loaned to you, if the property damage is caused by fire for which you are legally liable. Buildings include fixtures permanently attached thereto. All of the exclusions otherwise applicable to property damage do not apply to this coverage.

However, we do not cover:

1. 1. liability arising under any contract or agreement to indemnify any person or organization for damage by fire to the premises;

Unfortunately, I have to agree with the carrier’s declination of coverage.

This question was originally submitted by an agent through the Big “I” Virtual University’s (VU) Ask an Expert service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.

This article is intended for general informational purposes only, and any opinions expressed are solely those of the author(s). The article is provided “as is” with no warranties or representations of any kind, and any liability is disclaimed that is in any way connected to reliance on or use of the information contained therein. The article is not intended to constitute and should not be considered legal or other professional advice, nor shall it serve as a substitute for obtaining such advice. If specific expert advice is required or desired, the services of an appropriate, competent professional, such as an attorney or accountant, should be sought.