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    Playing with Fire: What Will the Tenant's Liability Insurance Cover? 

    Insurance companies, agents and buyers tend to focus on the major coverages within the Commercial General Liability policy: Liability for injuries caused by a business's premises, operations, products or finished projects, and liability for property damage. However, for businesses that do not own the buildings where they operate, there is an often-overlooked coverage that could be very important. The policy declarations refer to it as Damage To Premises Rented To You, although it has traditionally been known as Fire Damage Legal Liability Coverage. It provides limited coverage for tenants who cause fire damage to rented premises.

    Fire Damage Legal Liability is a "give-back" coverage. Coverage A - Bodily Injury and Property Damage Liability contains 14 exclusions -- clauses that describe types of losses to which the coverage does not apply. The final paragraph states that the last 12 exclusions do not apply to fire damage to premises while rented to or temporarily occupied by the insured with permission of the owner, so it gives the coverage back from the exclusions. This means that, if the insured is legally liable for fire damage to premises rented or temporarily occupied, the policy will provide coverage for fire damage to premises in the insured's care, custody or control, and fire damage resulting from release of pollutants, among others.

    This coverage has several limitations:

    * It usually has a limit of only $50,000 or $100,000.

    * It applies only to the premises, not to contents such as furniture or wall coverings.

    * It covers fire damage only, not water damage or other types of losses.

    * It provides coverage only if the insured is legally liable for the damage. It does not cover liability the insured assumed under a contract.


    These limitations can leave a business at least partially unprotected in a variety of situations. Some examples:

    * The business's liability for damage to a rented space is $200,000.

    * The business is an auto body shop. While a car is being spray painted, a spark ignites the fumes and causes an explosion.

    * The business rents meeting space in a hotel. A projector overheats, starting a fire that damages tables, chairs, easels, and a cart holding refreshments.

    * The business's lease makes it responsible for damage to the premises, regardless of cause. A nearsighted driver crashes his car into the display window.


    In all of these situations, the insured will either have no coverage or insufficient coverage.

    If these limitations could cause a problem, the business may want to consider some options. It may want to look at buying a property Legal Liability Coverage Form. This policy covers the insured's legal liability for damage to property described in the policy and in the insured's care, custody or control. An advantage of this is that it provides coverage for a variety of perils, not just fire. However, it does not cover liability assumed under a contract, so it still would not cover damage caused by the nearsighted driver. A regular property insurance policy will provide broader coverage, but it probably duplicates the landlord's coverage and is more expensive than other options. The tenant may want to ask the landlord to remove assumed liability from the lease.

    To determine which coverage options are best for a particular situation, the business should work with an experienced insurance agent. The agent can explain alternatives, give an idea as to their costs, and provide information about various insurance companies' claim handling practices. Get the facts early - the time to find out about your coverage is before a loss occurs.

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