There are general categories of “insurance.” One is “life and health.” The one we care about is property and casualty,” the industry shorthand for which is: “P&C.” For those of us in this business, the “P” means commercial property insurance. That makes the relevant insurance “commercial general property” insurance. Let’s use that name.
For our purposes, the “C” mainly means “liability” insurance, and that makes the relevant insurance “commercial general liability” coverage. That’s what “CGL” stands for. The “C” in this case stands for “Commercial,” not for any of those other words some of our colleagues insist on using despite your efforts to correct their error.
Most insureds, especially large insureds, will carry both a CGL policy and a commercial property insurance policy. In almost all, but not all, cases, each policy form will consist of the ones promulgated by the Insurance Services Office, Inc. (ISO) modified by multiple endorsement forms (also by the ISO), most of which limit (reduce) the promised coverage.
A meaningful number of small businesses, especially in industries with unique needs, will have “package” policies that combine the “P” and “C” in the same policy. For example, auto repair businesses are exposed to business-related risks associated with taking custody of property owned by others (i.e., property under their care, custody, and control). In addition, garage owners drive customer’s (expensive) cars and are expected to look to their own insurance, and not their customers’ insurance, in the case of an accident. “Package” or “Program” policies are not written on ISO forms. Each insurance company writes its own form, sometimes paralleling ISO language, but there is no guaranty of that. If you are at a small law firm, take a look to see if you have a combined policy. It might be labeled a “Businessowners Policy” or a “BOP.”
Today, Ruminations is going to focus on one narrow, but extremely important, concept with the CGL policy. The basic ISO policy form (CG 00 01) is 16 pages long. Our goal is to publish something much shorter than that.
A tenant may be negligent, and its negligence may damage someone else’s property or injure someone. If it is negligent, the tenant’s CGL policy will be called upon to pay the resulting “damages.” That’s its job.
Now, a sight digression. Although the ISO forms are written using simple words (yes, theyare), the way those words are strung together make them pretty hard to understand. There are two reasons for this. First, and more simply, some, but not all, of the “key” words have their own “narrow” definitions. The CGL policy lists 22 of them. For example, although we all know that the word “occurrence” means “an event or incident,” the CGL policy says it means an “accident.” That’s only an example. If you are interested in some of the other “special” meanings used in the CGL policy, just take a look at its last 3-1/2 pages.
The second reason that makes the CGL policy a “little” hard to understand is the way it describes the coverage. Using the “special” meaning of words we think we understand, the policy begins with the promise of broad coverage – “We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.”
Then, the policy continues with, “only if:” This concepts tells us that even if the insured is “legally obligated to pay,” the insurance will only be triggered if the “property damage” or “bodily injury” (each having a restricted definition to begin with) happens for certain reasons, during a certain time period, and under certain circumstances. Fortunately, the sum total of the “only if” restrictions conforms to our general expectations and the insured gets coverage for the most commonly expected situations. Observant readers will have focused on our chosen weasel words, “general” and “commonly.” Let’s move on.
The CGL policy, once having promised broad protection and then explaining “for what,” continues with “This insurance does not apply to:” To know what these six words apply to, just read the next four pages of the policy form. The exclusions are lettered (a) through (q), almost all of those exclusions having multiple subparts, such as the “pollution exclusion” which has a subpart (f)(1)(a)(iii).
We aren’t finished.
Some of the exclusions have “exceptions,” things that are not carved out of the “exclusions.” We’ll wade through an important one of those a little further down today’s blog posting.
Here’s one more “modifier” you’ll find in the CGL policy form if you have the patience and fortitude to read this “plain English” document. Some of those “exceptions” aren’t fully covered.
To recap, a situation falling within an “exception” to an “exclusion from coverage” means the insured has coverage, but the damage may not be fully covered (to the policy’s limit).. Yes, many of the “exceptions” are subject to a “sublimit.” Being subject to a “sublimit” means those cases don’t enjoy the face amount of coverage the policy says it will pay.
Now for what today’s blog posting title promises.
A tenant’s CGL policy promises to pay for property damage accidentally caused by the tenant to someone else’s property. It does not pay for damage it does to its own property. [That’s what commercial property insurance covers.] But, the policy excludes, “does not apply to”:
Property you own, rent, or occupy, including any costs or expenses incurred by you, or any other person, organization or entity, for repair, replacement, enhancement, restoration or maintenance of such property for any reason, including prevention of injury to a person or damage to another’s property.
That means, unless there is an “exception” to this “exclusion,” damage that a “tenant” does to its leased space will not be covered by insurance.
Fortunately (?), there are two “exceptions” to the policy’s exclusion of damage done by the tenants to its leased space. The first doesn’t concern us. It deals with space rented for seven days or less. The one that does concern us is expressed as: “A separate limit of insurance applies to Damage To Premises Rented To You as described in Section III – Limits Of Insurance.” Despite the policy form’s use of upper case letters (capital letters) for “Damage To Premises Rented To You,” neither the phrase nor the individual words are defined in the policy.
Section III – Limits Of Insurance is the only other place where you will find the phrase: “Damage To Premises Rented To You.” That Section tells us that the most the policy will pay on account of (covered):
damages because of “property damage” to any one premises, while rented to you, or in the case of damage by fire, while rented to you or temporarily occupied by you with permission of the owner.
will be: “the Damage To Premises Rented To You Limit.”
Where is that “Limit”? It is on the “cover sheet” to the CGL policy, the one that tells the insured how “big” a policy it bought. That page has a place for the (normally) lower “Damage To Premises Rented To You Limit.” Here’s a tip. When you look at the “Certificate of Liability Insurance,” look at the second number in the list, the one beneath the “coverage per occurrence” figure. It is the “sublimit” for rented premises. Expect to see a figure such as “$100,000.”
How carefully did you read the text we copied from Section III of the CGL policy? Did you note that the insurance coverage for rented space only covers fire damage? That means that when the tenant runs its fork lift truck through a wall, the basic CGL policy does NOT provide coverage. The CGL policy excludes coverage for damage a tenant does to the landlord’s building unless the damage was caused by a fire and then only to a limit that is almost always less than the full policy coverage.
There are three lessons to be drawn from today’s Ruminating. One is that without experience in reading insurance policies, it is easy to be misled by their seemingly simple language. One cure for that shortcoming is to undertake serious study of “insurance.” The more practical “cure” for almost all of us is to identify and consult someone who lives and breathes “insurance,” a consummate professional.
The second lesson is that we need to understand that the standard insurance coverage carried by a tenant for damage it does to the landlord’s building is limited to fire damage and is almost always for far less than the cost of the replacing (or even repairing) the building.
The third is that the reason the CGL coverage is so limited is because damage to property is intended to be covered by a policy of commercial property insurance, not by a CGL policy. And, the tenant is almost certainly already paying for such insurance. Either it has obtained a commercial property insurance policy for the property it rents or, as is more commonly the case (especially for multi-tenant properties), the tenant is already paying for its share (even 100%) of the premiums for the landlord’s policy.
As to the last point, that’s only one reason why, whether by law or by contract (the lease), a tenant should not be liable for damage it causes to its landlord’s property when the landlord could have carried insurance to cover that damage (regardless of who caused the damage). That observation implicates the “waiver of subrogation” provisions of a lease. We’re not “going there” today. For what we’ve written about those waivers in the past, we suggest you start by clicking: HERE, then: HERE.