Can anyone help me clarify for the all risk property coverage in commercial?

[Elisa Lee]

Hi All,

I sold a general liability policy to a customer who is a tenant of a building. The general liability policy has a coverage- Damage to Premise Rented to You. Right now the landlord requires my customer to buy an all risk property coverage which they want to cover the building. Here is the wording list in the leasing contract- all risk or special form property insurance covering the full replacement cost of all property and improvements installed or placed in the Premises by Tenant.

My question is will the building itself be covered by the tenant's business property policy? Per my understanding that business property will only cover my client's goods (inventory) and if they do any improvement of the building not the building itself. But the landlord insist that all other tenants bought it.

Per my understanding, it should be the landlord they buy the business property policy which they have direct interest and when they buy the business property policy, it will cover the building itself. If my client doesn't have direct interest, if they buy the business property it won't cover the building itself. Can anyone help me clarify?

Or am I missing some information about their requirement? Thank you so much for the input.

 

[INSUREGEEK]

all risk or special form property insurance covering the full replacement cost of all property and improvements installed or placed in the Premises by Tenant.

The BUILDING owner insures the BUILDING. You are right on that.

Your insured is being asked to obtain coverage for what is called TIB:

“Tenant Improvements and Betterments” typically are defined as fixtures, alterations, additions or installations made a permanent part of a building by and at the expense of the tenant, which may not legally be removed.

The Damage to Premises Rented to You coverage on the CGL is pretty limited, and does not satisfy the requirements of the lease.

Put this on a BOP, or package it with a Property line.

Good luck!

 

[djs]

Yeah, pretty much what InsureGeek said.

Also, lets look at an example. Say your tenant does something that starts a fire, which in turn sets off the sprinklers which in turn damages his unit and some stuff in the neighboring unit.

You need to look at how each part of the claim is paid and some of this tends to get a little funny.

His furniture, inventory, stuff, etc is business property.
Joes laptop in the corner that he brought to work for work is business personal property.

The tenant next doors damage is a liability claim.

The landlord probably has never really looked at the other tenants insurance policies and what the limits really are.

Dan

 

[Markthebroker]

Hi Elisa Lee,


I have dealt with this several times, and unfortunately all the prior posts are incorrect, as I suspect they have never actually dealt with this. While they are trying to be helpful, it is clear they have no actual experience resolving this scenario properly.


Some landlords and many franchisors require the tenant to insure the building. This arrangement was more common back in the 80's and 90's, but you still see it today once in a while. Often they require the tenant to pay EVERYTHING, taxes, maintenence, etc. in what in that case is called a NNN, or triple net lease. For example, all Speedee Oil Change and Midas franchisees are required to cover the building rebuild costs. This can be covered, and most insurance carriers can do it. It is not covered on the liability, through rented premises, or fire legal as it is referred to on older policy forms. That only covers a certain amount of damage to the building, ONLY if the tenant is liable. This needs to be covered on the property form, NOT under TIB, but under building coverage. So, you need to get either a property policy, or rewrite it with a BOP.


Contact underwriting first to make sure that they can cover the building in this fashion. Don't worry, most will. This is something fairly common for them.


By the way, I don't know if you can get this written on "all risk". It's not available here in California, or at least not that I have seen. The broadest I have seen here is special form, but of course I am in a different state.

 

[INSUREGEEK]

^True, it could be a Triple Net Lease -especially if your insured is the only tenant of the building. Insurers are familiar with this, and there's generally a specific limit of Building coverage the landlord requires in those cases.

But, based on the lease language quoted in your OP, I stand by my original assessment.

Either way, you need to get some property coverage.

 

[Markthebroker]

^True, it could be a Triple Net Lease -especially if your insured is the only tenant of the building. Insurers are familiar with this, and there's generally a specific limit of Building coverage the landlord requires in those cases.

But, based on the lease language quoted in your OP, I stand by my original assessment.

Either way, you need to get some property coverage.

Ah, you know what, InsureGeek was correct. I made the mistake of reading that post before my second cup of coffee. I'm just going to sit here, have another cup of coffee, and slice of humble pie.

 

[adjusterjack]

am I missing some information about their requirement?

What you appear to be missing is that your customer is not in compliance with his lease if he only has a General Liability Policy.

He needs a property form that covers Tenants Improvements and Betterments (which does covera any alterations and additions he makes to the building) along with coverage for his own business contents.

I also don't think that the LL is asking him for a policy on the whole building (unless your customer is renting the whole building under a triple net lease, as already been discussed).

If you haven't talked personally to the LL what I think is happening is that your customer is misinterpreting what the LL is telling him and giving you second hand information.

 

[indienoise]

Hi Elisa Lee,


I have dealt with this several times, and unfortunately all the prior posts are incorrect, as I suspect they have never actually dealt with this. While they are trying to be helpful, it is clear they have no actual experience resolving this scenario properly.


Some landlords and many franchisors require the tenant to insure the building. This arrangement was more common back in the 80's and 90's, but you still see it today once in a while. Often they require the tenant to pay EVERYTHING, taxes, maintenence, etc. in what in that case is called a NNN, or triple net lease. For example, all Speedee Oil Change and Midas franchisees are required to cover the building rebuild costs. This can be covered, and most insurance carriers can do it. It is not covered on the liability, through rented premises, or fire legal as it is referred to on older policy forms. That only covers a certain amount of damage to the building, ONLY if the tenant is liable. This needs to be covered on the property form, NOT under TIB, but under building coverage. So, you need to get either a property policy, or rewrite it with a BOP.


Contact underwriting first to make sure that they can cover the building in this fashion. Don't worry, most will. This is something fairly common for them.


By the way, I don't know if you can get this written on "all risk". It's not available here in California, or at least not that I have seen. The broadest I have seen here is special form, but of course I am in a different state.

What am I missing here? Does CA differ on this subject somehow? All risk = special form?

 

[adjusterjack]

Does CA differ on this subject somehow? All risk = special form?

Not sure what you are asking. All Risk doesn't equal anything and is a phrase that should not be spoken as it is an invitation to an E&O claim. All a customer will remember is "You sold me an All Risk policy and now my claim is not covered."

It's a phrase that rarely, if ever, appears in insurance policies.

The Property Special Form CP 10 30 starts by saying:

Covered Causes Of Loss
When Special is shown in the Declarations, Covered Causes of Loss means Risks Of Direct
Physical Loss unless the loss is:
1. Excluded in Section B., Exclusions; or
2. Limited in Section C., Limitations;

Followed by 9 pages of exclusions and limitations.

I suggest you agents eliminate "All Risk" from your vocabulary. While you are at it, get rid of "Full Coverage," too.

 

[indienoise]

Not sure what you are asking. All Risk doesn't equal anything and is a phrase that should not be spoken as it is an invitation to an E&O claim. All a customer will remember is "You sold me an All Risk policy and now my claim is not covered."

It's a phrase that rarely, if ever, appears in insurance policies.

The Property Special Form CP 10 30 starts by saying:



Followed by 9 pages of exclusions and limitations.

I suggest you agents eliminate "All Risk" from your vocabulary. While you are at it, get rid of "Full Coverage," too.

It's not a term I ever use (I haven't been in this biz long enough to), but I am aware it was once used, and for the reasons you mentioned has been replaced with "special" or open risk. All perils not specifically included. Any time I hear it I equate it with special form. I'm not aware of there ever being a policy form to cover literally EVERYTHING.