“Damage to Premises Rented to You” is not a separate insurance policy, but rather a limit of insurance often found in standard Commercial General Liability insurance policies. This coverage applies to damage the insured is liable for to a premises that the insured is renting. It is important to note that this coverage has limitations.
What is and what is not included in the coverage, and when does it apply?
If the property has been rented for 7 days or less, this coverage applies to property damage liability caused by fire to the premises rented to you. If the property has been rented for 7 days or less and the insured is liable for property damage from a cause other than fire, then both damage to that portion of the premises rented to the insured, as well as any contents rented to the insured, would be covered.
If the property has been rented for 8 or more consecutive days, the Damage to Premises Rented to You coverage applies only to property damage the insured is liable for to that part of the premises rented to the insured, does not apply to contents rented in connection with the premises, only applies to fire liability and does not apply to other property damage the insured is liable for for causes of loss other than fire.
It may seem restrictive to have coverage that only applies to fire damage in some situations. 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 for “Damage to Premises Rented to You” coverage is $100,000. However, some policies may offer 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 Commercial General Liability Insurance Policy. When selecting the limits of your landlord property insurance, it’s important to make sure that your limits provide replacement cost coverage and that you are adequately insured.
Let's say you own a mixed-use apartment building with 4 residential units above a rented commercial unit; the commercial unit is a small restaurant in this case. When the restaurant signs the lease, they provide you a copy of their Commercial General Liability insurance policy showing that they carry $100,000 in Damage to Premises Rented to You coverage through an admitted insurance carrier. You are happy to see this coverage in place, and, even more so, you are happy to see that it is with an admitted insurance carrier, as you know that this means that the company complies with all state regulations on insurance. Also, you know that if the insurer becomes insolvent, the state, via the state guarantee fund, would pay claims on behalf of the insurer if and when the insurer reaches insolvency.
When you purchased the apartment building, there was a commercial cooking operation present some time prior, so the commercial space was able to accommodate the restaurant with no structural modifications to the property required. The restaurant brought all of its own equipment, and you didn't have to provide any content for the operation. Eight days after signing the lease a fire breaks out in the kitchen of the commercial unit.
The fire caused $85,000 in damages to the commercial space. Because the tenant carried a commercial general liability policy that provided $100,000 in Damage To Premises Rented To You coverage, the damages were covered through the commercial tenant’s insurance policy. What a relief!
It's important to note that "Damage to Premises Rented to You" coverage within a Commercial General Liability insurance policy typically only covers damage caused by your commercial tenants' negligence or accidental actions. If your tenant intentionally damages your property, this type of coverage would 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.
As a landlord, you have a vested interest in making sure your tenants, both residential and commercial, 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 your tenants’ policies.
- The “Damage to Premises Rented to You” coverage under a Commercial General Liability insurance policy provides limited coverage for damage to the property rented to the insured that the insured is responsible for.
- Because of the limits, you may wish to require your commercial 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 is covered. You need to maintain a commercial property and liability insurance policy of your own to ensure that you have comprehensive protection against the unknown!