Your Commercial Tenant Clients May Have a Coverage Gap & What To Do About It
Do you have commercial clients who rent their spaces? If so, there’s a question you may want to ask next time you speak with them:
Does your lease make you responsible for the cost of repairing any damage to the building?
A Long Island member called recently. Her client rented space in a commercial building. I don’t remember the cause of the loss, but there was damage to the building’s HVAC system. The lease, while not making the tenant responsible for insuring building components, did make them responsible for maintaining and repairing them.
Unfortunately, the Commercial Property Coverage Part of the client’s policy, which was based on the Insurance Services Office (ISO) forms, did not provide any coverage for building components other than the standard Tenant’s Improvements and Betterments coverage. Many organizations have this exposure. They rent their space and the lease makes the responsible for damage to building components. Their property insurance applies to their business personal property but not the building. This leaves them with a potentially expensive coverage gap.
There are two ISO commercial property endorsements that address this exposure:
- Scheduled Building Property Tenant’s Policy (CP 14 01)
- Unscheduled Building Property Tenant’s Policy (CP 14 02)
Both cover building property under the tenant’s policy provided that:
- The named insured is a tenant of the building, and
- The named insured has a contractual responsibility to insure such property, or a contractual responsibility to pay for loss or damage to such property.
The endorsements’ schedules require this information:
- Building Location
- Causes Of Loss Form and any related endorsements
- Whether the insurer will settle losses on an actual cash value or replacement cost basis
- A coinsurance percentage, if applicable
- A deductible for building glass, if any
- A deductible for all other types of building property
- Limits and descriptions for building glass and/or other building property. Endorsement CP 14 01 lets the insurer schedule different limits for separate types of building property. This allows for some customization if the lease makes the tenant responsible for some components but not others. Endorsement CP 14 02 has single blanket limits for glass and other building property.
According to ISO rules, the endorsements are priced using the building rate.
There do not appear to be similar endorsements available for the ISO Businessowners Policy (BOP). However, for those clients who have Package policies that include the Commercial Property Coverage Part and who rent their spaces, these endorsements may be quite valuable. Offering them can be another way to show the value of an independent insurance agent.
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