An insured's commercial general liability policy has some exclusions that make their agent question how the policy would respond if damage occurs to a storage unit for which the insured has a long-term lease.
An insured has an unendorsed ISO GA 101 12 04 commercial general liability policy with the typical exclusion j. damage to property, and $100,000 of “damage to premises rented to you” in the declarations. The insured plans to sign a long-term lease for a storage unit.
Q: "If the insured is found negligent for damage to the unit itself by fire or other damage, how would the policy respond? Is the insured limited only to the “damage to premises rented to you” coverage limit? Would they have coverage if a fire causes the loss?
In general, what is the best way to insure a loss to a building in which an insured rents space—especially if it’s a higher-valued property? For example, what if a manufacturer rents an entire warehouse and the lease states they are responsible for damage to the property?”
A: “First, the form number GA 101 12 04 is not actually an ISO CGL form number. One ISO CGL form number is CG 00 01 12 04, and later edition dates exist. What you have is likely a modified ISO policy or a proprietary company form. You can usually tell it's not a pure ISO form if the copyright notice begins with, ‘Includes...’.
If the insured is renting premises for more than a week, the fire damage legal liability (FDLL) only covers that peril for damage to the rented area. If they rent one bay in a mini storage warehouse, that bay is covered for the peril of fire up to the FDLL sublimit. The rest of the building is covered as an ordinary CGL claim if the insured is legally liable.
The problem is that when it comes to damage to the premises, most leases today—whether for a building or rental car—don't limit responsibility to legal liability. For example, if vandals break a window or thieves take copper tubing from an A/C unit and you're responsible under the lease, FDLL won't do you any good—nor will using ISO's CP 00 40 legal liability coverage form if your only liability is contractual.
The only way to cover that exposure to the extent possible is with direct property insurance through something like ISO's CP 00 10 building and personal property coverage form , or a business owners policy. The ‘building’ limit will be the value of the property the lease requires you to insure, which could be the entire building or just HVAC equipment, plate glass, etc. Make sure you carefully and fully describe this property.
If you search the Big ‘I’ Virtual University for ‘triple net lease,’ you'll find several articles about this and related issues, like coinsurance.”
Bill Wilson is director of the Big “I” Virtual University.
This question was originally submitted by an agent through the VU’s Ask an Expert Service. Answers to other coverage questions are available on the VU website. If you need help accessing the website, email logon@iiaba.net to request login information.
