The ISO CGL policy optionally includes coverage and a sublimit for fire damage legal liability (FDLL). It covers the insured’s legal liability for fire damage to rented premises. FDLL is a commonly required coverage under various types of contracts. It is often improperly required for a couple of reasons.

First, I’ve seen contracts that require $500,000 in FDLL coverage for a contractor hired to do some work in the parking lot of a small strip shopping center? Why would such a requirement exist in the contract? Because whoever drafted it doesn’t know what it means. It’s probably a requirement in the leases of tenants in the shopping strip, but there’s no logical reason to require a contract working in the parking lot to have this coverage. Presumably the drafter of that requirement saw it in the lease and figured it’s something everyone needs.

Second, and speaking of lease FDLL requirements, there was a time when leases made tenants responsible for negligence that resulted in FIRE damage to rented premises. That was a time when fire was the most common cause of loss. That is no longer true and most leases today make a tenant responsible for ANY damage to rented premises (and sometimes property outside a rented area such as HVAC equipment) whether they are liable in tort or not. For example, the lease may make the tenant responsible for damage to plate glass windows or doors caused by vandals or burglars.

Damage to rented premises by a cause other than fire is common. For example, in one claim, a forklift hit a structural support, causing over $50K in damage. ISO CGL exclusion j.(1) excludes damage to property you own, rent or occupy and the FDLL coverage applies only to fire damage. So what do you do?

ISO has a commercial property form, the CP 00 40 Legal Liability Coverage Form which can cover damage by any covered peril attached to the form IF the insured is legally liable and that’s the catch. This form would work for the forklift claim with the Special Causes of Loss form covering damage caused by vehicles. However, it would not work for a vandalism claim because , even though V&MM is covered even by the Basic Causes of Loss form, the insured is NOT legally liable for the damage other than the liability imposed by the lease and, guess what, there is a contractual liability exclusion in the causes of loss forms specific to the CP 00 40!

Currently, the only solution is the use of a CP 00 10 Building and Personal Property Coverage Form or a BOP policy that clearly and unambiguously specifies what real property the insured is contractually responsible for. Even so, unlike broad liability coverage, the only coverage provided is whatever is covered by the Causes of Loss forms.

Good news…ISO has just made a countrywide filing that may provide a less complicated means for tenants to cover damage to real property. I plan to blog about this in the near future.

Photo by pat00139

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Bill Wilson

Founder at InsuranceCommentary.com
One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America. Reprint Request Information

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