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What do you mean, I have to cover your property?



Academy Journal is pleased to present the following article by our friend, Craig Andrews.

Since issues come to me from a property accident across the country, a situation in particular seems to emerge more frequently. This can be exemplified by this hypothetical scenario.

A restaurant serves as a tenant in a rented building. The flash eliminates the heating and air conditioning (HVAC) unit owned by the landlord who is permanently attached to the roof of the building and completely destroys it. When the landlord rents the restaurant owner (tenant) an invoice for the exchange of the HVAC unit, the tenant (for the first time) discovers that his lease requires him to pay for repair or replacement of the landlord's air conditioning unit at the event the HVAC unit is damaged during the lease term.

The tenant contacts his agent, who also did not know anything about his customer's lease obligation to pay for damage to the plumbing unit before receiving notice of the HVAC unit. Commercial real estate part of the tenant's business package policy only covers the business's personal property and loss of corporate income. When reporting the loss to the insurer, the agent claims that the injured HVAC unit is Tenants Improvements and Improvements (TI & B), attempting to get the loss covered by point A.1

b. (6) the provisions of your company's personal property in ISO CP 00 10 Building and personal property coverage form.

The insurer rejects the correct coverage for the loss, because the damaged plumbing unit did not match the definition of TI & B specified in CP 00 10. Why? CP 00 10 requires TI & B to be covered as part of your company's personal property, it must be "acquired or made" at the insured's expense. Of course, in this scenario, the tenant Named Insured did not acquire, purchase or otherwise pay for the HVAC unit; the landlord did. Therefore, there is no coverage for the loss. The agent and his client get crazy.

I have seen this scenario play out in all sorts of situations where tenants acquire a lease obligation to pay for damages to certain types of their landlords building properties listed in the lease. Most of us are accustomed to dealing with insurance coverage problems inherent in triple net leasing agreements and in lease obligations to pay for damage to flat glass facade leased premises. However, the situations presented to me at a higher frequency recently involve obligations to pay for damage to many more types of building properties owned by landlords, property such as intake freezers and refrigeration units. heavy boilers manufacturing and processing equipment; Automatic fire extinguishing systems; Cooking equipment; ceiling, wall and floor coverings; doors; burglar alarm and fire alarm system; interior and exterior security and surveillance systems; sound system; and so on. When these contract-acquired commitments to insure properties owned by tenants are identified and quantified, the insurance areas that are necessary are often important.

Of course, the first step is to prevent boring stories like the hypothetical above for the tenant to be fully aware of the obligations acquired in the rents of premises and to advise his or her agent accordingly. As we all know, it happens far too rarely! So, what is the agent with commercial tenants doing? In particular, agents should recommend in writing that all leases be reviewed for potential insurable (and even not -insurable!) Loss exposures by authorized legal advisers. The recommendation to seek legal advice on leasing agreements must be written by the customer and documented in an appropriate manner in agencies. Keep in mind that the agent who personally assumes responsibility for reviewing the customers' lease contracts to identify potential loss exposures can easily become vulnerable to accusations of non-licensing law.

The good news is, when a tenant's contractual responsibility for damage to the landlord's building property is identified, there are two new ISO Commercial Property endorsements that agents can use to manage the exposure. The two new approvals, which were introduced in 2017, in particular assure that tenants in real estate properties have acquired a contractual responsibility to insure themselves. CP 14 01 09 17 The Planning Property Tenant's Policy Approval enables the user to specifically plan the building. either building glass or building fixtures and permanently attached machines and equipment and allocating specific limits to the property to be covered. CP 14 02 09 17 Non-planned building property tenant's policy award serves the same purpose (and contains the same definitions of building properties), but neither building glass nor other building strength is specifically described or planned. The limits shown on CP 14 02 apply to all building properties that fit the respective description. Neither CP 14 01 nor CP 14 02 can be written with or without an insurance insurance.

Insurance personnel know that the exercise of tenants responsible for property owned by their landlords is just another manifestation of the decades-old and lasting trend of contractually pushing as much responsibility and cost on tenants as possible. This situation serves as another reminder that as regular commercial insurance agents as well as insurers must remain forever vigilant to prevent insurance coverings from the financial consequences of unidentified contract loss exposures

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