If you’re renting space to a business, it’s smart to make sure that the business has appropriate insurance coverage, including general liability insurance. It’s also smart to understand how the “damage to premises rented to you” coverage terms could impact a claim.
What Is Damage to Premises Rented to You?
“Damage to premises rented to you” is not a separate insurance policy. Rather, it is a type of coverage typically found in general liability insurance policies.
Commercial general liability insurance is an essential type of coverage for many businesses. According to the Insurance Information Institute, general liability insurance protects businesses from financial losses that result from being held liable for property damage, bodily injury or personal and advertising injury.
The “damage to premises rented to you” is a common coverage found in commercial general liability insurance policies. It is important for any policyholder who is renting property, such as an office space or restaurant. It is also important for the landlord.
What Does “Premises” Include?
IRMI provides two definitions for premises. The first is the location where coverage applies. This definition may be used in a property insurance policy and the location is usually described within the policy using the legal address. The second definition is the building or land occupied or owned by an insured. Note that the premises can include the land, not just the building. The insured premises may also include just part of a building, such as one rented office in a larger building.
Limits
A common limit for “damage to premises rented to you” coverage is $100,000. However, some policies may have higher or lower limits.
Note that $100,000 is not that much. A fire can easily cause more damage. However, “damage to premises rented to you” coverage does provide some coverage that would otherwise not exist under the general liability insurance policy.
When selecting the limits of your landlord property insurance, it’s smart to make sure that your limits provide replacement cost coverage.
What is and what is not included in the coverage?
The first type of coverage only applies to fire losses that the tenant is responsible for. The second type of coverage applies to any loss type, but only for premises the tenant has occupied for a maximum of seven days.
It may seem restrictive to have coverage that only applies to fire damage. However, this coverage is important. According to the National Fire Protection Association (NFPA), there are approximately 3,340 fires in office properties each year, resulting in an average of $112 million in direct property damage. Restaurants have a much higher risk of fire. The NFPA says there are around 7,410 structure fires in eating and drinking establishments each year, resulting in $165 million in direct property damage.
While storms can also cause significant damage, the tenant is not typically liable for these losses. On the other hand, tenants are frequently responsible for causing fires – especially in the kitchen. This is why coverage is important.
Case Study
Let’s say you’re a landlord and you rent out a restaurant space. During the course of operations, a kitchen fire breaks out and damages the building. The tenant is responsible for the fire, which was caused by their business activity.
It doesn’t have to be a restaurant. You might rent an office space to small business. During the winter, one of the employees at the company brings in a space heater. The space heater is placed too close to flammable materials, resulting in a fire.
Although you should have your own property insurance coverage in place, the tenant is clearly responsible for the fire and the resulting damage in both of these cases. You or your insurer can sue for the damages, and under the “damage to premises rented to you” terms, coverage should be available, up to the limit.
However, let’s say you have a tenant who damages the toilet, resulting in water damage. The tenant has rented the property for several months when the loss occurs. The “damage to premises rented to you” coverage does not apply.
Key Takeaways
As a landlord, you have a vested interest in making sure your tenants have appropriate insurance coverage.
- Include insurance requirements, including coverage types and limits, in your rental agreements. You can also be asked to be named as an additional insured on the policy.
- The “damage to premises rented to you” coverage under a general liability insurance policy provides limited coverage for damage to the rented property that the insured is responsible for. It applies to fire losses, up to the limit.
- Because of the limits, you may wish to require your tenants to obtain additional insurance. This may be especially prudent for high-risk tenants. Although you can sue a tenant who lacks adequate insurance coverage, collecting money can be difficult to impossible if the funds simply don’t exist.
- Although it’s important for the tenant to maintain appropriate insurance coverage, this does not absolve you from insurance needs as the landlord. The tenant’s insurance will be limited in terms of what’s covered and the limits. You need to maintain a commercial property and liability insurance policy of your own.
