What’s covered and what’s not
Sports and recreation associations and their members often rent or lease premises. Property damage to such premises can occur and can be expensive. It’s important to understand coverage differences between those automatically provided under a standard General Liability policy (under Damage to Premises Rented to You or Fire Damage Legal Liability) and those which must be added by a separate policy endorsement.
The Damage to Premises Rented to You limit (usually $100,000 or $300,000, depending on the carrier) applies to situations where negligence of the organization results in “property damage” to buildings or other structures it leases from a landlord. Such rentals could take the form of a long-term lease for the purposes of office space or storage, short-term rental of a motel room to conduct a seminar or meeting, short-term rental of a gym for practice, or short-term rental of an arena for an athletic competition.
Whether or not coverage applies for property damage liability to the rented premises depends on a number of factors. Examples of these factors are:
- whether the loss is caused by fire or something else, such as water damage from sprinkler discharge, broken skylight, damaged floor;
- whether the loss is to rented contents, such as furniture or equipment, in addition to the building; or
- whether the rental is for a period of seven or fewer consecutive days.
Limits on Rentals of Eight or More Consecutive Days:
- Applies only to property damage liability to the part of the premises that are rented.
- Does not apply to property damage liability to contents that are rented along with the premises
- Only applies to property damage liability caused by fire
- Does not apply to property damage liability caused by other than fire.*
Limits on Rentals Of 7 Seven or Fewer Consecutive Days:
- Applies to property damage liability caused by fire to the part of the premises that are rented but not to contents that are rented
- Applies to property damage liability caused by other than fire for both the premise portion and contents that are rented
In cases where the replacement cost value of the rented premises exceeds the limit of coverage, a higher limit should be requested from the carrier. Alternatively, the lease should be amended with a joint waiver of subrogation provision so that both the landlord and tenant would release each other from liability for damage to the other’s property and depend solely on their own Property insurance.
It’s important to note that the Damage to Premises Rented to You Limit and corresponding coverage only applies to that part of the premises that is the subject matter of the rental. It does not apply to other premises inside the same building that are not being rented or to neighboring buildings. Any damages to such other premises or contents due to the negligence of the tenant would be addressed under the Each Occurrence limit.
*If coverage for this exposure is needed, there are two possible solutions:
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Add coverage under Commercial Property Policy with Legal Liability Coverage Form Endorsement (CP 00 40 04 02); or
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amend the lease so that the tenant is not responsible for damage to premises.
