What Is Damage To
Premises Rented To You?

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What is damage to premises rented to you? In a commercial general liability policy this coverage applies only to the premises & not to contents such as furniture or inventory. It helps cover fire damage only - not water damage or other perils and is provided only if the insured is legally liable.

What Is Damage To Premises Rented To You?

What Is Damage To Premises Rented To You?

Almost every general liability policy includes a type of coverage called 'Damage To Premises Rented To You'. As the name indicates, it provides coverage against claims made by a tenant for damages that he or she has made to premises rented from the owner.

What is damage to premises rented to you? If offers two coverages: 1) Coverage for claims or suits that arise from fire damage to rented premises and 2) Coverage for claims or suits that arise from damage by any cause other than fire, to premises or their contents rented for seven or fewer days.

See below for more detailed info in these 2 types of coverage.

Understanding What Premises Means

To understand what is damage to premises rented to you?, you must know the meaning of the term premises. In legal speak, premises refers to any land, buildings or structures that are attached to the land. Most small businesses rent one unit of a building rather than the entire office block. Whether you are renting the whole building or only a part of it, the physical address of your rented property should be registered in your liability policy.

The Two Coverages

There are two coverages you can expect from your policy:

1. Fire Damage to Rented Premises

Claims or suits that derives from fire damage to rented premises are covered. It affords coverage for claims or suits arising out of property damage by fire to premises rented to you or occupied by you without a lease with the owner's permission. Only fire damage to premises is covered. The fire damage coverage that is provided under damage to premises rented to you applies only if you are legally liable for the damage. That is, the fire damage to your rented (or occupied) premises must have been caused by your negligence.

Damage to premises rented to you does not cover damage that is not your fault. For example, suppose that you have rented office space in a building under a five-year lease. Late one night, a violent snowstorm hits - toppling power cables and starting a fire in your office space. Adverse weather is considered an 'Act of God', for which you are not legally liable. Thus, your policy will not cover any demand against you to pay for the fire damage.

No Contractual Liability Coverage - The exception that affords damage to premises rented to you coverage does not apply to the contractual liability exclusion under Bodily Injury and Property Damage Liability. This exclusion still applies. Thus, no coverage is provided for liability you assume under a lease to indemnify the landlord for fire damage to the rented premises. That is, if you are obligated to pay for fire damage to a building solely because of a contract you signed (and not because of your legal liability), your liability policy will not cover any claim that results.

For example, suppose you rent a building. You sign a lease in which you assume liability for any fire damage that occurs to the building during the term of your lease (whether or not the fire results from your negligence). Faulty wiring in the building causes a fire that damages the structure. You may be contractually obligated to repair the damage under the lease. However, the cost of the repairs will not be covered under your liability policy because you are not legally liable for the fire.

Excess Coverage Only - The fire damage coverage described above is not intended to be a substitute for commercial property insurance. It applies on an excess basis over any available fire insurance on the property. This means that if the damaged building is insured under a property policy, your liability insurer will pay a claim after the property insurance has been used up. Your landlord (or you, if required by your lease) should insure the building against physical damage by purchasing a commercial property policy.

2. Short-term Rentals

The second coverage included in Damage To Premises Rented To You is afforded by exceptions to three exclusions found under the heading Damage to Property. These exclusions are listed below:

These exclusions do not apply to property damage by a peril other than fire to a building (or its contents) you have rented for a period of seven or fewer days.

What Is Covered? - Because of the exception to the exclusions cited above, a liability policy covers claims or suits arising out of property damage to premises you rent for a week or less. Damage to property contained in the building is also covered. Coverage applies only if you are legally liable for the damage. The policy won't cover payments you make to the property owner voluntarily. The exception to the three exclusions applies to damage from a cause other than fire.

Liability Policy Limits

Both parts of Damage To Premises Rented To You coverage are subject to a special limit listed in the declarations. This limit may be $100,000 or more. It is smaller than the Each Occurrence limit. When choosing a limit for Damage To Premises Rented To You, you should consider the amount for which you could be held liable if a building you rent is damaged by a fire (or another peril if you rent premises for seven days or less).

The declarations page of a general liability policy will list how much the policy will pay for claims on behalf of its insured, for each specific limit. Below is in example of commercial general liability policy's limits of insurance as listed on the declarations page:

Limits of Insurance

What Is Damage To Premises Rented To You? - The Bottom Line

We hope this article on what is damage to premises rented to you? has been informative. When choosing your limit for damage to premises rented to you, consider how much you could be held liable for if the building you are renting is damaged by a fire, or another peril if you rent premises for seven days or less. Will the limit on your liability policy be enough to cover a claim? If you don't know the answer, ask your insurance broker for assistance.

Further Reading On Commercial General Liability Insurance

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