An insured rents a commercial building with a contract that requires the building owner be listed as the loss payee on the loss of rents provision. What form would cover this?
Q: An insured renting a commercial building has business personal property and business interruption with extra expense coverage. However, the insured's rental contract requires the building owner be listed as the loss payee on the loss of rents provision. Is there an ISO form specifically for this? Or would it be covered under the loss payee form CP 12 18?
Response 1: Why is the non-owner or tenant insuring the building? If it is due to a lease requirement, that should be verified. Also, is it insured as replacement cost value or actual cash value—and whichever it is, is that in compliance with the lease provision? If the lease does not require the insured to cover the building, then the insured has no insurable interest and is spending premium on coverage they will never collect but will be paid to the owner.
After all those questions are answered, a loss payee endorsement or adding the owner as an additional insured would work. Some carriers will want to name the owner as an insured "as their interest may appear," which is another way to accomplish the goal. But in general, it is far better for the owner to carry the building coverage.
Response 2: There are two excellent endorsements to cover the landlord. The first is the Additional Insured Building Owner Endorsement, which makes the landlord a named insured for direct damage to the building. The second addresses your issue on business income for loss of rents, which is CP 15 03 06 07: Business Income Landlord as Additional Insured (Loss of Rents). The International Risk Management Institute (IRMI) has a good article on this that can be accessed with an IRMI subscription: “Business Income—Landlord as Additional Insured (Rental Value) CP 15 03."
Response 3: This is not uncommon. Many loan and lease agreements require the lender or owner to be named under the business interruption portion of the policy. Not only that, the term of coverage required is often two or three years.
Take a look at the lease and don't limit your review to the insurance requirements section. Look at the provisions for damage and repairs, and see who is responsible for what and for how many years.
Some carriers may endorse the policy to provide a specific limit for the benefit of the lessor, so clearly communicate to your underwriter what is required. That step can simplify things when the insured has a major loss.
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