Now serving as a volunteer faculty member for the Big “I” Virtual University “Ask an Expert” service, I recently received this question from a Pennsylvania agent:
“We typically, if not always, see Damage To Premises Rented to You or Fire Damage Legal Liability (FDLL) in our contractual requirements between a GC and Sub. I understand why this would be a requirement for landlord/lessee relationship, but why is this coverage typically required in a GC /Sub relationship? Is the answer as simple as because it is typically part of the general liability policy so why not include it in the requirements?
My response:
FDLL coverage is an option in the ISO CGL policy. It is used most often when a triple net lease has an insurance requirement that makes the tenant responsible for insuring damage to rented premises. For more information on the general worthlessness of this coverage even to tenants, check out this blog post.
As valueless as FDLL often is, it is utterly worthless and without merit when made a part of an insurance requirement for contractors at a work site they do not normally occupy. I’ve seen FDLL requirements higher than the value of the entire building a contractor is working on. In one case, a guy with a snow shovel being paid $75 to remove snow from a small strip shopping center was required, in addition to other ridiculous things, to provide $50K in FDLL coverage.
So, why is FDLL coverage so often required in the insurance section of a work contract for a plumber, electrician, parking lot paver, etc.? The answer is simple: Because the people writing the requirements don’t know what they’re asking for.
Often, this requirement originates from a landlord, say, of a strip shopping center where there are tenants with FDLL requirements. So, when the landlord hires a contractor to work on the building or repaint white lines on the parking spaces, whomever drafted the lease insurance requirements simply follows the lease language for the contractor’s insurance requirements. A plumber, electrician, etc. contractor has no need to provide evidence of FDLL coverage to a landlord hiring him to do work on the premises (unless he also rents space there).
If you are a Big “I” agent with access to their Virtual University, search the VU for “FDLL” for more info. While you’re at it, search the VU for “triple net” to see why I refer to triple net leases as the spawn of Satan.
Bill Wilson
Latest posts by Bill Wilson (see all)
- The Invisible But Potentially Catastrophic Homeowners Exclusion That’s Not An Exclusion - September 19, 2023
- Revisiting the Illusory Coverage Assertion Following a Claim Denial - September 19, 2023
- FREE Webcast: How to Survive and Thrive in a Hard Market - August 1, 2023
One way to get out of this conundrum is to have waivers of subrogation and mutual hold harmless agreements among all the parties and build it into the contracts but that would take out the attorneys and we all know that would never be recommended Bad for fess and income
Bill is spot on regarding the usefulness of FDLL. It is to property what GKLL was to automobiles.
Bill, I have a case right now of a restaurant client of mine that opened up a shop in a mall. He notified me of this after he had already moved in because he took our coverage through the mall. The mall offered discounted rent if he purchased the policy through their program. I asked him to forward me a copy of the policy, which he did. The policy is strictly GL…no Property coverage. Medical Expense was excluded. And that thing that surprised me was that the policy EXCLUDED Damage to Premises Rented to You (FDLL). So, the mall is selling a policy to its tenants, and offering a discount on rent, for a policy that would not cover any damage the tenant causes, fire included (the Legal Liability endorsement is not on the policy).
Sean, my son moved from home and got an apartment a couple of years ago and they required renters insurance, which is a good thing. But they said, if you don’t have any and don’t want to fool with it, go to this website of our partner and they’ll issue you a policy. To their credit, a copy of their renters policy was posted and it was pure, unadulterated junk. It was very basic named perils and low liability limits with lots of non-ISO exclusions and little in the way of additional coverages. For an extra $70, I got him a good HO-4 with Travelers and made him get an umbrella policy as well. Packaging auto, home and umbrella discounted enough that it subsidized the HO-4 and/or umbrella.
Sean Go back and read the policy limits. You are correct there is no coverage for the part of the mall the tenant occupies but there is coverage for the rest of the mall. That is probably of greater concern to the mall owner. I also agree they should provide a better policy but giving a break on rents to get a third party pick up repeated liability for damage to the mall or BI and PD events that happen in the mall is not a bad ploy and play from a risk mgt standpoint. Providing limited coverage also drove down the premium to make it good for the mall to sell.
Again insurance is used here as a commodity to help structure and fund risk for the mall owner. Pretty slick I think. If I were the risk mgr I would add waiver of subrogation and mutual hold harmless to the lease agreement but I knwo that is probably not happening
The awful coverage provided by the mall’s partner prove once again that insurance is not a commodity.
Agree Charles. Only their area would be excluded in this scenario. Of course, the insured had no idea of this. But the story actually has gotten better…
My client pulled his lease agreement with the mall which stipulates their insurance requirements. Their requirements specifically state that the tenant must have $100,000 in FDLL. And they then sell a policy that excludes it! Seems their risk manager does not understand insurance at all… this is going to lead to an interesting conversation with the broker who provides the mall’s program.
I bet the lease indemnification and/or D&D clause makes the tenant responsible for more than fire damage to the premises rented, yet the mall is only requiring FDLL. Far too often nobody reads/understands the indemnification requirements and just assumes that if they comply with the insurance requirements, all is well.
the only thing scarier than an agent practicing insurance is a lawyer doing so. Accountants give the later a close finish but I still think lawyers when the race
A tenant’s responsibility for damage to the property of the landlord can be limited by law. Specifically, subrogation by the landlord’s property insurer against the tenant may be prohibited by the “Sutton” rule. Here is an excerpt from a publication by the law firm of MATTHIESEN, WICKERT & LEHRER, S.C. (www.mwl-law.com) entitled “LANDLORD/TENANT SUBROGATION IN ALL 50 STATES:”
“The “Sutton Rule” is derived from an Oklahoma Court of Appeals decision styled Sutton v. Jondahl, 532 P.2d 478 (Okla. App. 1975) and is the benchmark against which the landlord/tenant subrogation laws of most states is measured. It is the modern rule and the rule more and more states are moving toward.
Known as the “Sutton Rule”, some states hold that, absent a clearly expressed agreement to the contrary, the tenant is presumed to be a co-insured on the landlord’s insurance policy, and therefore the landlord’s insurance carrier has no right of subrogation against the negligent tenant. The rule of subrogation known as the “Sutton Rule” states that a tenant and landlord are automatically considered “co-insureds” under a fire insurance policy as a matter of law and, therefore, the insurer of the landlord who pays for the fire damage caused by the negligence of a tenant may not sue the tenant in subrogation because it would be tantamount to suing its own insured.”
I would suggest considering not only the law (as above) but lease wording, in which it is not uncommon for the landlord and tenant to release all right against the other provided that the damage is covered by the property insurance of another.