What Does Damage to Premises Rented to You Cover?

“Damage to Premises Rented to You” coverage is a specific type of protection often included within a Commercial General Liability (CGL) insurance policy. This coverage addresses potential financial liabilities for businesses that lease or rent commercial spaces. It is a provision designed to protect businesses from the costs associated with accidental damage to the property they occupy.

The Core Coverage Explained

“Damage to Premises Rented to You” coverage fundamentally addresses an insured’s legal liability for damage to premises they rent, lease, or temporarily occupy with the owner’s permission. This protection is typically found within the liability section of a CGL policy. This coverage is not designed to function as property insurance for the building owner; instead, it responds when the insured’s negligence causes damage to the rented space.

Historically, this coverage was known as “Fire Legal Liability” because it primarily covered fire damage to rented premises. While fire damage remains a core component, modern policies have expanded their scope.

What is Covered

This coverage primarily addresses property damage to the premises for which the insured is legally liable. Fire damage is a significant aspect, reflecting the historical roots of this coverage. If a fire originates due to the tenant’s negligence and damages the rented space, this coverage can help cover the repair costs.

Modern policies may extend to other specified perils beyond fire, such as explosion, sprinkler leakage, or water damage, especially if the premises are rented for a short period, typically seven days or less. For rentals exceeding seven days, the coverage usually reverts to only covering fire damage.

The term “premises rented to you” can encompass formally leased spaces like offices or retail locations, as well as temporary occupancies such as a rented banquet hall for an event. The coverage applies only to the specific part of the premises that is the subject of the rental agreement.

What is Not Covered

It does not cover damage to property that is owned by the insured; this liability coverage is specifically for property belonging to others. Furthermore, damage to property in the insured’s care, custody, or control that is not specifically the “premises rented to you,” such as a customer’s vehicle or equipment being repaired, is typically excluded.

Damage resulting from perils not explicitly specified in the policy, such as earthquakes or floods, is generally not covered unless specifically added via an endorsement. Intentional acts causing damage by the insured or their employees are also excluded from coverage. Insurance policies are designed to cover unforeseen events, not deliberate harm.

This coverage does not extend to damage due to normal wear and tear, deterioration, or maintenance issues, as insurance policies typically exclude gradual damage that occurs over time. Such exclusions prevent insurers from covering inevitable losses that could often be prevented with regular upkeep. Additionally, damage to the insured’s own business personal property located within the rented premises, like inventory or furniture, is not covered by this liability policy and would require a separate commercial property insurance policy.

Understanding Coverage Limits

“Damage to Premises Rented to You” coverage typically includes a specific sub-limit within the broader Commercial General Liability policy’s overall limits. This sub-limit represents the maximum amount the insurance company will pay for covered damages to the rented premises per occurrence. Common limits for this coverage often range from $50,000 to $300,000, with some policies offering up to $1,000,000 for an additional premium.

It is important for businesses to evaluate this limit based on the value of the rented property and their operational risks. This coverage is not intended to replace the property owner’s primary building insurance or a tenant’s own property insurance for permanent improvements or personal contents. Instead, it serves as a specific liability coverage for a defined amount of damage to the rented property itself, for which the tenant is legally responsible due to their negligence. Payments made under this sub-limit also reduce the general aggregate limits of the overall CGL policy.