Could Tenant (Commercial and/or Personal) Insurance Cover Building Damage?

[justinbbert]

I'm in one of those moods where I'm thinking about all these scenerios and the deeper I think about it, the more everything just doesn't make sense.

Say you're the building owner (in this case commercial lines) and you have a tenant in one of your commercial units. This tenant is carrying large equipment in and accidentally puts a large hole in your wall (which would be considered dwelling). The tenant only has BPP coverage. In this case, could the landlord technically ask the tenant to cover the building damage from their each occurence limit of 1MM for the property damage? BUT at the same time I do know there is a exclusion for premises and property owned, loaned, or rented but I thought this was only an exclusion under damages to rented premises/fire legal while my scenerio is more so if the tenant accidentally damages the dwelling.
I know there's also the easy "just put in a claim and see where it goes" but I'm genuinely interested in these what if scenerios.

On the flip side, say you rent out a house (single dwelling) to a tenant. The tenant is smoking and a piece of ash catches on the carpet and the whole house burns down. I was under the impression that the tenant can technically use their liability insurance to cover the repairs/reconstruction of the dwelling up to the liability amount (whether that is 100K, 300K, 500K, 1MM, etc.) as they were liabile for the damages caused. Again I know intentional damage is excluded on a DP policy so in this example, the housing catching on fire is strictly accidental.

I have been reading SO many websites about renters insurance and they all seem to be saying different answers when it comes to damage to the structure has a renter.

 

[adjusterjack]

I'm in one of those moods where I'm thinking about all these scenarios and the deeper I think about it, the more everything just doesn't make sense.

That's because you've thrown many concepts into the pot. You'll understand better if you take them one at a time.

The tenant only has BPP coverage. In this case, could the landlord technically ask the tenant to cover the building damage from their each occurrence limit of 1MM for the property damage?

If, by BPP, you mean Business Personal Property then there would be no liability coverage. That's unlikely. Business owners generally have a package policy with liability and contents coverage.

Landlord's don't have to "ask" tenants for anything. They can insist upon it and include it in the lease, making the tenant responsible for any damage (intentional, accidental, or negligent) to the landlord's property and getting a substantial enough security deposit.

Notice the use of two words: accidental and negligent. There is a difference between the two. Everyone is legally liable for damage caused by their negligence. That's where liability insurance comes in, except for the building they rent. They are not necessarily liable for accidental damage. Accidents can happen in a variety of ways and the tenant would not be responsible. They would also be liable for intentional damage but that's excluded from liability insurance.

That's where the building owner's property insurance comes in. The building owner buys his own insurance on the building and his own equipment for his own protection. He would be foolish not to.

There is an exception to that rule when it's a free standing building rented to a single tenant. A triple net lease (google it) can hold the tenant responsible for insuring the building and listing the owner as an additional insured on the policy.

As for the tenant's liability for negligent damage to property the standard industry coverage part is the Commercial General Liability Coverage Form CG 0001. Most of the insurance industry uses it but some companies have proprietary forms that might vary a bit from one to the other.

I have attached a copy for you.

The exclusion you referred to is on Page 4:

j. Damage To Property "Property damage" to: (1) Property you own, rent, or occupy, including any costs or expenses incurred by you, or any other person, organization or entity, for repair, replacement, enhancement, restoration or maintenance of such property for any reason, including prevention of injury to a person or damage to another's property;

The "fire legal liability" you refer to isn't actually called that in the CGL form. It's addressed at the end of the list of exclusion on Page 5.

Exclusions c. through n. do not apply to damage by fire to premises while rented to you or temporarily occupied by you with permission of the owner. A separate limit of insurance applies to this coverage as described in Section III – Limits Of Insurance.
All the more reason for the building owner to have his own insurance.

On the flip side, say you rent out a house (single dwelling) to a tenant. The tenant is smoking and a piece of ash catches on the carpet and the whole house burns down. I was under the impression that the tenant can technically use their liability insurance to cover the repairs/reconstruction of the dwelling up to the liability amount (whether that is 100K, 300K, 500K, 1MM, etc.) as they were liable for the damages caused.

That's correct. The standard dwelling renter's policy is the HO-4 Contents Broad Form (also attached).

Page 15 has the so called "care, custody, control" exclusion:

3. "Property damage" to property rented to, occupied or used by or in the care of an "insured". This exclusion does not apply to "property damage" caused by fire, smoke or explosion.

Again I know intentional damage is excluded on a DP policy so in this example, the housing catching on fire is strictly accidental.

You're mixing concepts again. A DP (Dwelling Property) is just property insurance, not liability insurance.

And, again, accident and negligence are two different things. A tenant would have no liability for accidents beyond his control, even with an HO-4. A fire caused by smoking would, of course, be negligence as would likely be a cooking fire. A fire caused by lightning or faulty house wiring would be accidents for which a tenant would not be liable.

Whether it's a commercial or residential rental, the owner would be wise to have his own property and liability insurance and NEVER rely on the tenant.

I have been reading SO many websites about renters insurance and they all seem to be saying different answers when it comes to damage to the structure has a renter.

Which is why you have to avoid websites about insurance coverage and just read the policies instead.

 

[justinbbert]

snip.

Appreciate the long response. It's a lot to unpack.

If, by BPP, you mean Business Personal Property then there would be no liability coverage. That's unlikely. Business owners generally have a package policy with liability and contents coverage.

Oh, I meant that the tenant only has coverage for BPP on his BOP policy and no building coverage as he's not the building owner. In my scenerio, no triple net lease is in play.

3. "Property damage" to property rented to, occupied or used by or in the care of an "insured". This exclusion does not apply to "property damage" caused by fire, smoke or explosion.

Ah, so if the tenants actions somehow causes a furnace to explode and it takes out a chunk of the house, the renters policy is available for dwelling repairs?

You're mixing concepts again. A DP (Dwelling Property) is just property insurance, not liability insurance.

I thought DP policies, at least for some carriers now include standalone liability on the policy. I do know at one point (at least for some carriers), it required the liability to extend from the main home but I thought these days there were carriers now offering standalone DP with liability included. But this statement was more for me to state that I'm aware that a tenant causing intentional damage to a rental unit would not be covered by insurance (of the dwelling owner) and that repairs would probably be done through the renters security deposit.

 

[adjusterjack]

Oh, I meant that the tenant only has coverage for BPP on his BOP policy and no building coverage as he's not the building owner. In my scenerio, no triple net lease is in play.

BOPs are often proprietary and may differ from company to company. But ISO (the Insurance Services Office that provides standard forms) has a BOP (attached) which provides coverage for "Damage To Premises Rented To You" with a specific limit shown on the Declarations Page. See Page 46, paragraph D.3.

Ah, so if the tenants actions somehow causes a furnace to explode and it takes out a chunk of the house, the renters policy is available for dwelling repairs?

Again, let's be more precise in our terminology and replace "tenant's actions" with "tenant's negligence."

There is a distinction.

But, yes, the tenant would be covered for negligently causing an explosion of the furnace.

I thought DP policies, at least for some carriers now include standalone liability on the policy.

There are three levels of Dwelling Property policies: Basic DP-1, Broad DP-2, and Special DP-3. To each can be added (at the insured's option) the Personal Liability coverage part DL2401. I can upload samples if you like.

I do know at one point (at least for some carriers), it required the liability to extend from the main home

Optional, not required. When I had my rentals, I extended my Homeowner's liability coverage by buying Additional Residence Premises Rented to Others and listing the addresses. Back then it cost me $10 per address and I bought separate fire policies for each rental.

It's still available in various forms. Whether any particular carrier would allow it is up to that carrier.

But this statement was more for me to state that I'm aware that a tenant causing intentional damage to a rental unit would not be covered by insurance (of the dwelling owner) and that repairs would probably be done through the renters security deposit.

On the contrary, intentional damage by a tenant would be covered by the owner's policy. It's called Vandalism. I've paid many a tenant vandalism claim.

Where it gets complicated is when there are multiple instances of tenant vandalism (in addition to his negligence) which involve multiple deductibles unless you can show that the tenant did all of the damage during a single rampage.

 

[justinbbert]

I wonder how long it will take me to get as well versed as you on insurance policies.
What books do you recommend I should read to get a deeper understanding on personal lines insurance? Mainly renters/home insurance.
I know you can always read the full policy but sometimes it would be nice if it was written in a more beginner friendly (IE. with claim situations) fashion.

 

[adjusterjack]

I wonder how long it will take me to get as well versed as you on insurance policies.

My insurance career spanned 35 years and I was continuously becoming "better" versed in insurance policies. There were always changes in coverage to learn and court decisions to be aware of. It was an ongoing process.

What books do you recommend I should read to get a deeper understanding on personal lines insurance? Mainly renters/home insurance.

Here's one that's free. It has chapters on Homeowner, Auto, and Business insurance.

Insurance_Handbook_20103.pdf (iii.org)

For $9.99 you can buy Property and Casualty Insurance Concepts Simplified.

Insurance Books for Property Casualty Agents, Underwriters and Employees (ijacademy.com)

I'd go with that one after reading the III Handbook.

 

[Markthebroker]

Say you're the building owner (in this case commercial lines) and you have a tenant in one of your commercial units. This tenant is carrying large equipment in and accidentally puts a large hole in your wall (which would be considered dwelling). The tenant only has BPP coverage. In this case, could the landlord technically ask the tenant to cover the building damage from their each occurence limit of 1MM for the property damage? BUT at the same time I do know there is a exclusion for premises and property owned, loaned, or rented but I thought this was only an exclusion under damages to rented premises/fire legal while my scenerio is more so if the tenant accidentally damages the dwelling.
I know there's also the easy "just put in a claim and see where it goes" but I'm genuinely interested in these what if scenerios.

Most BOP and Liability policies that a business carries includes separate and specified Rented Premises Coverage, also referred to as Fire Legal on older policy forms. This covers damage to the rented premises that the insured is liable for. This would not come out of the $1MM property damage coverage. I don't know where you got the idea of using the term dwelling, it's a rented premises. Rarely does a business rent and operate out of a "dwelling".

You seem to be a bit mixed up on the terms and coverages. I think a lot of this will make more sense when you are better educated and experienced on the coverages and how they work. This will come with time and experience.

 

[justinbbert]

Most BOP and Liability policies that a business carries includes separate and specified Rented Premises Coverage, also referred to as Fire Legal on older policy forms. This covers damage to the rented premises that the insured is liable for. This would not come out of the $1MM property damage coverage. I don't know where you got the idea of using the term dwelling, it's a rented premises. Rarely does a business rent and operate out of a "dwelling".

You seem to be a bit mixed up on the terms and coverages. I think a lot of this will make more sense when you are better educated and experienced on the coverages and how they work. This will come with time and experience.

I thought the the damages to rented premises coverage was only for fire damage though? My question was more pertaining for damage to the building from negligent acts other than fire from the tenant.
In other words, I was just curious on what situations there would be (if there is any) where a tenant would be offered coverage from their BOP to cover repairs to a building they rent space out of (other than fire loss that they might be responsible for)

 

[Markthebroker]

I thought the the damages to rented premises coverage was only for fire damage though?

Nope