How Much Insurance Coverage Does The Tenant Have For Damage To Its Leased Premises?

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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.” [Read more…]

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Why We Can’t Write Damage/Destruction Clauses That Work

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No lease can be written that will answer every post-damage question that will arise. The “law” (whatever that is) provides some gap fillers, but not many. That’s because much of the case law concerns itself with answering epistemological questions – that is, “analyzing the nature of knowledge and how it relates to truth, belief, and justification.” Courts try to divine: “what would the parties have agreed-upon had they known this post-damage question would arise.”

The biggest single factor in determining how things will turn out after a fire, flood, explosion or some other damage-causing event is: do the landlord and tenant still love each other? Do they want to cooperate and get back in business together, or do they want to divorce. If they want to get the property restored as quickly as can happen so that the tenant’s cash register starts ringing and rent checks begin to flow again, they will make that happen and things will work out. If they each want to end the tenancy, they’ll make that happen pretty easily – the issue might be money, and if that is the case, believe it or not, money issues are the easiest to work out. Basically, if a landlord and its tenant share the same post-damage goal, they’ll work it out. [Read more…]

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If You Don’t Understand It, Don’t Pretend You Do: Builder’s Risk Insurance (Part 2)

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The take-away from last week’s Ruminations posting was supposed to be that if you really don’t understand “insurance,” align yourself with someone who does. Not doing so is like cutting and pasting text from a foreign language document hoping that is says what you’d like it to mean. If that point didn’t come across last week, perhaps this second part on the topic of “Builder’s Risk” insurance will push readers into finding an insurance mentor.

Last week, we wrote about policy forms for builder’s risk insurance and how there is really no standard form. We also wrote about who could and should be covered. Those who read last week’s posting would have seen some thoughts about what property is covered, what is not, and what can be added to the coverage. If you missed that, click HERE to see what was said. You’ll also see some thoughts about some additional coverages that can be included along with the basic coverages under the builder’s risk typical policy. So, that will be our launching point. [Read more…]

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Business Interruption Coverage Too Complicated To Understand? Almost, But Not Quite.

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Last week, we promised to tell our readers more about what we reluctantly refer to as “Business Interruption Insurance.” We say, “reluctantly,” because it’s not a term you’ll find in an insurance policy – it may have been in years gone by, but now it is a business concept. So, that will be our jumping off point.

We’ll begin with a caveat or disclaimer. Today’s posting will be useless to anyone who is seeking to buy coverage. This form of coverage is conceptually simple but, in application, it is exceptionally complicated. That’s why insurance professionals were invented. Our goal is to get leasing and lending professionals to understand the “what’s” and “why’s” of “business interruption insurance,” not the “how’s.” Our objective to help non-insurance professionals “know what is going on,” not to turn readers into experts. Too many of us who are “doing deals” insist on asking for insurance coverages that don’t exist. Too many of us ask for insurance coverages that make no sense. And, too many of us don’t ask for insurance coverages that are really needed in the context of our deals. [Read more…]

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Had A Fire? Enough About The Money: What About Reopening?

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Had a fire? Sometimes, the damage done is just too much to bear. It could be that it is so extensive that governmental requirements won’t let a previously permitted use to resume at the property. That can happen if zoning ordinances permitted retail use of the property when the building was erected, but the law was later changed such that retail use was no longer permitted. “Grandfathering” goes only so far; most ordinances “revoke” the “grandfathered” status when half or more of a building is destroyed. Ordinances vary as to how “half” is calculated, some basing it on floor area destroyed; some on the cost to restore; and still others using specialized formulas. [Read more…]

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Getting Too Cute By Half After A Fire Cost A Landlord More Than $580,000 – How Not To Write A Lease

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Ruminations thinks that damage and destruction issues related to leased premises are the current “hot” topics among leasing attorneys. We say that because of the plethora of related programs scheduled at the October 16-20, 2013 International Conference of Shopping Centers (ICSC) Law Conference in San Diego. More about that later.

A just published court decision by a Texas District Court of Appeals illustrates a “drafting” issue and a post-fire “factual” dispute that, itself, may highlight a “drafting” failure. That case is captioned: Parkdale Shopping Center v. Dolgen of Texas, Inc. You can see it HERE.

In 2007, a shopping center extended its lease’s term for five years, until September of 2012. Two weeks later, its landlord proposed a complete remodeling of the shopping center, including adding a very large multi-goods retailer. This particular tenant, fearing competition from that kind of tenant, declined its Landlord’s offer to relocate it at the same property). Negotiations followed and the parties agreed that if the Landlord gave six months’ notice and paid $350,000, the tenant would “scat.” [Read more…]

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After The Fire – Will The Landlord And Its Tenant Still Love Each Other? The Issue With Damage/Destruction Lease Clauses

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The biggest single factor in determining how things will turn out after a fire, flood, explosion or some other damage-causing event is whether the landlord and tenant still love each other. Do they want to cooperate and get back in business together, or do they want to divorce? If they want to get the property restored as quickly as can happen so that the tenant’s cash register starts ringing and rent checks begin to flow again, they will make that happen and things will work out. If they each want to end the tenancy, they’ll make that happen pretty easily – the issue might be money, and if that is the case, believe it or not, money issues are the easiest to work out. Basically, if a landlord and its tenant share the same post-damage goal, they’ll work it out. [Read more…]

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Don’t You Just Get Burned Up When Someone Wants To Misuse A Lease Provision As A Pretext To Get Out Of Their Lease?

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A couple of odd phone calls came to me over the past few weeks, both dealing with “damage and destruction” of leased space. One dealt with water damage following Hurricane Sandy. The other about a common provision dealing with “killing” a lease if there is damage in the last two years of the term. So, we thought we’d ramble about those two situations and also about the relationship between a landlord receiving adequate insurance proceeds and the obligation to restore the premises. Today, however, in the holiday spirit, we’ll stick to the Hurricane Sandy question.  [Read more…]

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