“Damage to premises rented to you” is not a separate insurance policy but rather a type of coverage typically found in general liability insurance policies. It provides coverage against claims made by the tenant for the damages they caused to the premises rented to them by the landlord.
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.
A standard limit “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.
Let's say you rent out an apartment and the tenant accidentally causes a fire in the kitchen while cooking. The fire damages not only the kitchen but also the surrounding rooms and causes smoke damage throughout the apartment. If you have "damages to premises rented to you" coverage as part of your landlord insurance policy, your insurance company will cover the cost of repairing the damage to the apartment, up to the limits of your policy minus the deductible.
For instance, if the repairs cost $50,000, and you have a $1,000 deductible, you would pay the $1,000 deductible, and the insurance company would pay the remaining $49,000.
It's important to note that "damages to premises rented to you" coverage typically only covers damage caused by your tenants' negligence or accidental actions. If your tenant intentionally damages your property, this type of coverage may not apply. Additionally, this type of coverage may have certain exclusions, so it's important to review your policy carefully to understand what is covered and what is not.
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.
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.