Legal Liability Coverage Form—An Often-Overlooked Form
Catherine L Trischan
|April 25, 2025
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How often, when discussing coverage with a client who is a commercial tenant, have you brought up the subject of damage to the rented premises, only to be told not to worry about that since the landlord is insuring the building? Without exculpatory language in the lease that exonerates the tenant for any damage to the rented space, though, this is something to worry about, in spite of your client's protestations.
The Claim Against the Tenant
Consider the example of MightyCo, a commercial tenant that accidentally starts a fire and damages its rented premises. If the landlord has purchased building coverage, as required by the lease, it will likely submit a claim for the damage under that property policy. MightyCo is not concerned because the landlord now has the funds to repair the damage. Is it possible, though, that the property insurer will then subrogate against MightyCo? Whether that happens depends on two things: the lease and the jurisdiction.
If the lease includes language stating that MightyCo is not responsible for damage to the building, the landlord has no recourse against MightyCo. In that case, there are no rights of recovery to transfer to the property insurer, and there should be no subrogation. To strengthen this position, the lease may also include waiver of subrogation language. Such pre-loss waivers of rights of recovery are permitted in most commercial property policies.
If the lease does not include exculpatory language, whether the landlord's insurer will subrogate against MightyCo depends on whether the jurisdiction follows the Sutton Rule. The Sutton Rule is named for a 1975 Oklahoma case where a tenant's 10-year-old son, while using his chemistry set, damaged a rented home owned by the Suttons. The Suttons' insurer paid for the damage and then attempted to subrogate against the tenant. The court ruled that subrogation was not permitted because the tenant, absent an express agreement to the contrary, is an implied coinsured under the landlord's policy. Part of the rationale is that the tenant pays the premium indirectly through the payment of rent.
Courts, when faced with the question of whether a landlord's insurer can subrogate against a tenant, take one of three approaches.
Some states follow the Sutton Rule. Absent an express agreement to the contrary, the tenant is considered an implied coinsured on the landlord's policy. As such, subrogation against the tenant is not permitted due to antisubrogation rules that prevent insurers from subrogating against their own insureds. Antisubrogation rules may be statutory or may arise from common law.
Some states do not follow the Sutton Rule. In these states, tenants are held responsible when their own negligence damages the building. Absent clear language in the lease stating that the landlord is maintaining coverage for the benefit of the tenant or language that exculpates the tenant from liability, the tenant is not an implied coinsured on the landlord's policy. Subrogation, in that case, is permitted.
Some states take a case-by-case approach. The court considers the lease, the reasonable expectations of the parties, and other relevant facts to determine whether there can be subrogation against the tenant.
Imagine now that there is no insurer involved to pay for the building damage. The loss might be one not covered by insurance, or the damage might be less than the landlord's deductible. If the lease makes MightyCo responsible for damage to the building, then the landlord will look directly to MightyCo to pay for the damage.
Liability Coverage—The CGL Policy
At this point, MightyCo, upon receiving notice of a subrogation claim or a direct claim from the landlord, remembers the "damage to premises rented to you" coverage in the commercial general liability (CGL) policy. This is not coverage as much as it is an exception to certain CGL policy Coverage A exclusions.
The damage to property exclusion in Coverage A of the Insurance Services Office, Inc. (ISO), Commercial General Liability Coverage Form (CG 00 01 04 13) states in part:
This insurance does not apply to:
j. Damage To Property
"Property damage" to:
(1) Property you own, rent, or occupy.…
At this point, the CGL policy removes coverage for any damage to the rented premises.
At the end of the Coverage A exclusions, though, is language that restores some coverage for fire damage to the rented space. Coverage is subject to a limit shown in the declarations.
Exclusions c. through n. do not apply to damage by fire to premises while rented to you or temporarily occupied by you with permission of the owner. A separate limit of insurance applies to this coverage as described in Section III—Limits Of Insurance.
Because the damage caused by MightyCo was by fire, the CGL will pay for the building damage up to the "damage to premises rented to you" limit. In the ISO CGL program, $100,000 is the basic limit, although many insurers offer limits up to the CGL each occurrence limit.
MightyCo is thrilled that there is now coverage for the fire damage it did to the building. But is this the end of the story? Unfortunately, no.
MightyCo has a CGL policy with a $1 million each occurrence limit and a "damage to premises rented to you" limit of $300,000.
Damages resulting from the fire caused by MightyCo include the following.
$500,000 damage to the rented premises (the CGL policy pays only $300,000)
$700,000 damage to a neighboring building that occurred when the fire jumped to that building
The CGL insurer pays $1 million and closes its file as the each occurrence limit has been paid. In many states, often referred to as first-come, first-served states, the insurer is permitted to settle claims as they are presented. Once the policy limit has been paid, the CGL insurer's obligation to the insured ends. MightyCo's biggest concern at this point is finding $200,000 to pay for the rest of the fire damage to the rented premises. The problem soon worsens, though.
About 6 months later, MightyCo is served with two complaints from occupants of the neighboring premises who were injured in the fire. Who will defend MightyCo against these claims? Not the CGL insurer! Recall that the duty to defend under a CGL policy ends once the limit has been paid in satisfaction of judgments or settlements. Not only are there no limits left in the CGL to pay the bodily injury claims, but there is no defense coverage available for MightyCo.
Liability Coverage—The Commercial Umbrella
What if MightyCo has a commercial umbrella policy? Surely that will solve the problem, won't it? Sadly, no.
There are two reasons why the umbrella policy is unlikely to pay for damage to the rented premises. First, most umbrella policies state that they will not provide coverage in excess of a sublimit in an underlying policy unless that sublimit is shown in the schedule of underlying insurance. Most insurers will not include the "damage to premises rented to you" sublimit in the schedule. Second, most umbrella policies exclude damage to rented real or personal property.
Doesn't the umbrella policy solve the problem, at least, of the bodily injury claims, providing defense and indemnity to MightyCo? Here, the answer is a bit more promising—maybe. Many umbrella policies include language like the following.
Retained Limit is the sum stated in the Declarations as such. If the policies of underlying insurance do not apply to the occurrence or offense covered by this insurance, the insured shall retain the amount stated as a Self-Insured Retention.… These retained limits shall only be reduced or exhausted by payment of claims that would be insured by this policy. The Named Insured shall bear all legal costs and expenses incurred until such time as the retained amounts are exhausted by payment of claims that would be insured by this policy. [Emphasis added.]
The umbrella policy's retained limit is the self-insured retention (SIR) or, in this case, the $1 million each occurrence limit of the underlying CGL policy. Before the umbrella policy responds, the retained limit must be exhausted by payment of claims that are covered by the umbrella policy. If the umbrella policy, like most, excludes damage to rented real property, $300,000 of the underlying CGL limit was used to pay for the loss not covered by the umbrella policy. This creates a $300,000 gap between what the CGL paid and what must be paid before the umbrella policy responds.
Liability Coverage—Damage by a Peril Other Than Fire
Up to this point, the CGL policy has been somewhat helpful because it covered part of the fire damage that MightyCo caused to the rented premises. What if the damage is caused by another peril, though? What if a MightyCo employee drives a forklift into a warehouse wall, causing serious damage, or an employee causes water damage by leaving a faucet on or overflowing a dishwasher? Some insurers offer enhanced coverage so that "damage to premises rented to you" coverage applies to perils other than fire. Even though this can help if the only loss is damage to the rented premises, issues like those previously described arise when there is other property damage or bodily injury resulting from the same occurrence.
Liability Coverage—Business Auto Liability
Lastly, what if the damage done to the rented premises is done by an auto owned by MightyCo? The business auto policy provides no coverage for MightyCo as the building is in its care, custody, or control. If it is determined that the building is in the care, custody, or control of the driver of the vehicle, there would be no coverage for that permissive user of the vehicle either. See the language below from ISO's Business Auto Coverage Form (CA 00 01 11 20).
This insurance does not apply to any of the following:
6. Care, Custody Or Control
"Property damage" to or "covered pollution cost or expense" involving property owned or transported by the "insured" or in the "insured's" care, custody or control.…
.
Legal Liability Coverage Form (A Better Choice)
Relying on liability coverages such as the CGL, business auto, and umbrella policies is not a good solution for the tenant who may be held liable for causing damage to its rented premises. A better choice is the Legal Liability Coverage Form (CP 00 40 10 12). This form is a hybrid of property and liability coverage and can be used to cover an insured's liability for damage that it may cause to tangible real or personal property in its care, custody, or control. The specific property to be covered is described in the declarations or in the Legal Liability Coverage Schedule.
In the insuring agreement, one sees liability language (e.g., sums that you become legally obligated to pay and right and duty to defend) as well as language commonly found in property policies (e.g., covered property and covered cause of loss).
The insuring agreement of the legal liability coverage form begins:
We will pay those sums that you become legally obligated to pay as damages because of direct physical loss or damage, including loss of use, to Covered Property caused by accident and arising out of any Covered Cause of Loss. We will have the right and duty to defend any "suit" seeking those damages.…
Note the following two promises made by the insurer.
There is the promise to pay the sums the insured becomes legally obligated to pay. There must be direct damage, caused by an accident, to covered property by a covered cause of loss. Coverage applies not only to the direct damage but also to the loss of use.
The insurer has the right and duty to defend. If there is a suit seeking damages covered by the form, the insurer will defend the insured. And in language not discussed here, there is a supplementary payments additional coverage that pays the cost of defense in addition to the policy limit.
Legal Liability Coverage Form—Who Is an Insured
A commercial property policy includes as insureds only those named in the declarations or on an endorsement. The CGL policy, on the other hand, includes numerous additional unnamed entities as insureds. The legal liability coverage form falls somewhere in between. In addition to the insured named in the declarations, the form automatically covers partners in a partnership, members and managers of a limited liability company, executive officers, trustees, directors, and stockholders.
In addition, there is automatic coverage for certain newly acquired or formed organizations as described below.
Newly Acquired Organizations
Throughout this Coverage Form, the words "you" and "your" also include any organization (other than a partnership, joint venture or limited liability company) you newly acquire or form and over which you maintain ownership or majority interest if there is no other similar insurance available to that organization.
This Coverage Extension ends:
(1) 90 days after you acquire or form the organization; or
(2) At the end of the policy period shown in the Declarations;
whichever is earlier.
This Extension does not apply to direct physical loss or damage that occurred before you acquired or formed the organization.
ISO rules (CLM 66.D.1.)1 state that certain others can be added as additional insureds for a premium charge, including the following.
General lessees, managers, or operators of premises in policies covering tenants or lessees of such premises
Employees other than executive officers or partners in policies covering their employers
ISO rules (CLM 66.D.1.) also state that the following cannot be included as insureds.
Contractors or subcontractors in policies covering tenants or lessees of premises
Tenants, lessees, concessionaires, or exhibitors in policies covering general lessees, managers, or operators of premises
Legal Liability Coverage Form—Causes of Loss
A causes of loss form is attached to the policy to apply the special, broad, or basic causes of loss. When considering which causes of loss form to include, it is important to envision why the insured could be held liable. For example, only the special form will cover the auto loss previously described since basic and broad forms exclude "loss or damage caused by or resulting from vehicles you own or which are operated in the course of your business."
Several of the exclusions in those causes of loss forms, though, do not apply to legal liability coverage form losses. The language below is from the Causes of Loss—Special Form (CP 10 30 09 17). The same changes to causes of loss are made in the Causes of Loss—Basic Form (CP 10 10 10 12) and the Causes of Loss—Broad Form (CP 10 20 10 12).
Special Exclusions
The following provisions apply only to the specified Coverage Forms:
c. Legal Liability Coverage Form
(1) The following exclusions do not apply to insurance under this Coverage Form:
(a) Paragraph B.1.a. Ordinance Or Law;
(b) Paragraph B.1.c. Governmental Action;
(c) Paragraph B.1.d. Nuclear Hazard;
(d) Paragraph B.1.e. Utility Services; and
(e) Paragraph B.1.f. War And Military Action.
The nuclear hazard exclusion in the causes of loss form is replaced with a separate nuclear exclusion. It reflects the fact that this is liability coverage and includes language related to the defense of a claim.
The removal of the ordinance or law and governmental action exclusions is especially significant since actions of the insured could result in losses involving these exposures.
There is one important exclusion added to the causes of loss forms: contractual liability. The language below is from the Causes of Loss—Special Form (CP 10 30 09 17).
Special Exclusions
The following provisions apply only to the specified Coverage Forms:
c. Legal Liability Coverage Form
(2) The following additional exclusions apply to insurance under this Coverage Form:
(a) Contractual Liability
We will not defend any claim or "suit", or pay damages that you are legally liable to pay, solely by reason of your assumption of liability in a contract or agreement. But this exclusion does not apply to a written lease agreement in which you have assumed liability for building damage resulting from an actual or attempted burglary or robbery, provided that:
(i) Your assumption of liability was executed prior to the accident; and
(ii) The building is Covered Property under this Coverage Form.
Coverage under the legal liability coverage form applies only if the insured is legally liable for the damage in a way other than simply being contractually liable (e.g., negligence). If a lease, for example, makes the insured responsible for any damage to the property, regardless of fault, this form is not the appropriate choice. In that case, building or personal property coverage is needed.
The following are examples.
If a hurricane damages the rented premises, coverage under the legal liability coverage form would not apply. Although the tenant named insured might be contractually liable for the damage, it did not cause the damage.
If the named insured's faulty equipment starts a fire that damages the rented premises, coverage applies. Not only is the tenant contractually liable for the damage, but it also caused the damage.
The only exception to the contractual liability exclusion is when building damage is caused by actual or attempted burglary or robbery. If the form's coverage applies to the building and the named insured assumed liability prior to the accident, coverage is triggered even though the insured is legally liable solely because of the contract.
For example, MightyCo's lease makes it responsible for damage to the building by burglars. Thieves drive through the front of MightyCo's rented building one night to gain access and steal MightyCo's product. Even though MightyCo did not cause the building damage, the legal liability coverage form would respond.
Legal Liability Coverage Form—Personal Property
We saw the problems that result from MightyCo relying on its CGL policy for coverage when it causes damage to its rented premises. There are also problems when an insured is responsible for personal property in its care, custody, or control.
Imagine that MightyCo is renting a costly piece of equipment for 3 months. While MightyCo is not responsible under the contract for insuring the equipment, it is responsible for any damage it might cause. One week before the rental contract ends, the equipment is damaged in the same fire that damaged the rented premises.
The CGL policy will not pay for the damage because of the "damage to property" exclusion. The CGL policy does not cover "property damage to personal property in the care, custody, or control of the insured." There is no exception for fire damage as was seen for the rented premises. And while it is possible that an insurer might provide a small amount of coverage in an endorsement, that is the exception.
The legal liability coverage form can cover the direct damage exposure for MightyCo, but it does not stop there. It takes 12 weeks to repair the machine because the parts needed for the repair are unavailable. At the time of the fire, there was only 1 week left on MightyCo's rental contract, and the owner of the equipment had another renter waiting to take delivery of the machine at that time. The owner is losing 11 weeks of rental income and is holding MightyCo responsible for that. The legal liability coverage form covers the loss of use claim as well as the damage to property claim.
There are a few additional things to note about the legal liability coverage form.
Coinsurance does not apply, so the insured can choose whatever limit that it feels is appropriate.
There is no deductible that applies to this coverage.
Reflecting the fact that, in most cases, coverage only applies if the insured has caused the damage, the rate is much less than insuring the building or personal property for any direct damage by a covered cause of loss.
Using ISO rates, the rate for buildings is 25 percent of the 80 percent coinsurance building rate.
Using ISO rates, the rate for personal property is 50 percent of the 80 percent coinsurance personal property rate.
Conclusion
Care must be taken to recognize the exposures of insureds who have the property of others for which they could be held legally liable, whether the property is real property or personal property. Liability policies such as CGL provide limited coverage in certain circumstances but do not offer the comprehensive solution needed. The legal liability coverage form should be considered for all insureds with this exposure.
How often, when discussing coverage with a client who is a commercial tenant, have you brought up the subject of damage to the rented premises, only to be told not to worry about that since the landlord is insuring the building? Without exculpatory language in the lease that exonerates the tenant for any damage to the rented space, though, this is something to worry about, in spite of your client's protestations.
The Claim Against the Tenant
Consider the example of MightyCo, a commercial tenant that accidentally starts a fire and damages its rented premises. If the landlord has purchased building coverage, as required by the lease, it will likely submit a claim for the damage under that property policy. MightyCo is not concerned because the landlord now has the funds to repair the damage. Is it possible, though, that the property insurer will then subrogate against MightyCo? Whether that happens depends on two things: the lease and the jurisdiction.
If the lease includes language stating that MightyCo is not responsible for damage to the building, the landlord has no recourse against MightyCo. In that case, there are no rights of recovery to transfer to the property insurer, and there should be no subrogation. To strengthen this position, the lease may also include waiver of subrogation language. Such pre-loss waivers of rights of recovery are permitted in most commercial property policies.
If the lease does not include exculpatory language, whether the landlord's insurer will subrogate against MightyCo depends on whether the jurisdiction follows the Sutton Rule. The Sutton Rule is named for a 1975 Oklahoma case where a tenant's 10-year-old son, while using his chemistry set, damaged a rented home owned by the Suttons. The Suttons' insurer paid for the damage and then attempted to subrogate against the tenant. The court ruled that subrogation was not permitted because the tenant, absent an express agreement to the contrary, is an implied coinsured under the landlord's policy. Part of the rationale is that the tenant pays the premium indirectly through the payment of rent.
Courts, when faced with the question of whether a landlord's insurer can subrogate against a tenant, take one of three approaches.
Imagine now that there is no insurer involved to pay for the building damage. The loss might be one not covered by insurance, or the damage might be less than the landlord's deductible. If the lease makes MightyCo responsible for damage to the building, then the landlord will look directly to MightyCo to pay for the damage.
Liability Coverage—The CGL Policy
At this point, MightyCo, upon receiving notice of a subrogation claim or a direct claim from the landlord, remembers the "damage to premises rented to you" coverage in the commercial general liability (CGL) policy. This is not coverage as much as it is an exception to certain CGL policy Coverage A exclusions.
The damage to property exclusion in Coverage A of the Insurance Services Office, Inc. (ISO), Commercial General Liability Coverage Form (CG 00 01 04 13) states in part:
At this point, the CGL policy removes coverage for any damage to the rented premises.
At the end of the Coverage A exclusions, though, is language that restores some coverage for fire damage to the rented space. Coverage is subject to a limit shown in the declarations.
Because the damage caused by MightyCo was by fire, the CGL will pay for the building damage up to the "damage to premises rented to you" limit. In the ISO CGL program, $100,000 is the basic limit, although many insurers offer limits up to the CGL each occurrence limit.
MightyCo is thrilled that there is now coverage for the fire damage it did to the building. But is this the end of the story? Unfortunately, no.
MightyCo has a CGL policy with a $1 million each occurrence limit and a "damage to premises rented to you" limit of $300,000.
Damages resulting from the fire caused by MightyCo include the following.
The CGL insurer pays $1 million and closes its file as the each occurrence limit has been paid. In many states, often referred to as first-come, first-served states, the insurer is permitted to settle claims as they are presented. Once the policy limit has been paid, the CGL insurer's obligation to the insured ends. MightyCo's biggest concern at this point is finding $200,000 to pay for the rest of the fire damage to the rented premises. The problem soon worsens, though.
About 6 months later, MightyCo is served with two complaints from occupants of the neighboring premises who were injured in the fire. Who will defend MightyCo against these claims? Not the CGL insurer! Recall that the duty to defend under a CGL policy ends once the limit has been paid in satisfaction of judgments or settlements. Not only are there no limits left in the CGL to pay the bodily injury claims, but there is no defense coverage available for MightyCo.
Liability Coverage—The Commercial Umbrella
What if MightyCo has a commercial umbrella policy? Surely that will solve the problem, won't it? Sadly, no.
There are two reasons why the umbrella policy is unlikely to pay for damage to the rented premises. First, most umbrella policies state that they will not provide coverage in excess of a sublimit in an underlying policy unless that sublimit is shown in the schedule of underlying insurance. Most insurers will not include the "damage to premises rented to you" sublimit in the schedule. Second, most umbrella policies exclude damage to rented real or personal property.
Doesn't the umbrella policy solve the problem, at least, of the bodily injury claims, providing defense and indemnity to MightyCo? Here, the answer is a bit more promising—maybe. Many umbrella policies include language like the following.
The umbrella policy's retained limit is the self-insured retention (SIR) or, in this case, the $1 million each occurrence limit of the underlying CGL policy. Before the umbrella policy responds, the retained limit must be exhausted by payment of claims that are covered by the umbrella policy. If the umbrella policy, like most, excludes damage to rented real property, $300,000 of the underlying CGL limit was used to pay for the loss not covered by the umbrella policy. This creates a $300,000 gap between what the CGL paid and what must be paid before the umbrella policy responds.
Liability Coverage—Damage by a Peril Other Than Fire
Up to this point, the CGL policy has been somewhat helpful because it covered part of the fire damage that MightyCo caused to the rented premises. What if the damage is caused by another peril, though? What if a MightyCo employee drives a forklift into a warehouse wall, causing serious damage, or an employee causes water damage by leaving a faucet on or overflowing a dishwasher? Some insurers offer enhanced coverage so that "damage to premises rented to you" coverage applies to perils other than fire. Even though this can help if the only loss is damage to the rented premises, issues like those previously described arise when there is other property damage or bodily injury resulting from the same occurrence.
Liability Coverage—Business Auto Liability
Lastly, what if the damage done to the rented premises is done by an auto owned by MightyCo? The business auto policy provides no coverage for MightyCo as the building is in its care, custody, or control. If it is determined that the building is in the care, custody, or control of the driver of the vehicle, there would be no coverage for that permissive user of the vehicle either. See the language below from ISO's Business Auto Coverage Form (CA 00 01 11 20).
Legal Liability Coverage Form (A Better Choice)
Relying on liability coverages such as the CGL, business auto, and umbrella policies is not a good solution for the tenant who may be held liable for causing damage to its rented premises. A better choice is the Legal Liability Coverage Form (CP 00 40 10 12). This form is a hybrid of property and liability coverage and can be used to cover an insured's liability for damage that it may cause to tangible real or personal property in its care, custody, or control. The specific property to be covered is described in the declarations or in the Legal Liability Coverage Schedule.
In the insuring agreement, one sees liability language (e.g., sums that you become legally obligated to pay and right and duty to defend) as well as language commonly found in property policies (e.g., covered property and covered cause of loss).
The insuring agreement of the legal liability coverage form begins:
Note the following two promises made by the insurer.
Legal Liability Coverage Form—Who Is an Insured
A commercial property policy includes as insureds only those named in the declarations or on an endorsement. The CGL policy, on the other hand, includes numerous additional unnamed entities as insureds. The legal liability coverage form falls somewhere in between. In addition to the insured named in the declarations, the form automatically covers partners in a partnership, members and managers of a limited liability company, executive officers, trustees, directors, and stockholders.
In addition, there is automatic coverage for certain newly acquired or formed organizations as described below.
ISO rules (CLM 66.D.1.) 1 state that certain others can be added as additional insureds for a premium charge, including the following.
ISO rules (CLM 66.D.1.) also state that the following cannot be included as insureds.
Legal Liability Coverage Form—Causes of Loss
A causes of loss form is attached to the policy to apply the special, broad, or basic causes of loss. When considering which causes of loss form to include, it is important to envision why the insured could be held liable. For example, only the special form will cover the auto loss previously described since basic and broad forms exclude "loss or damage caused by or resulting from vehicles you own or which are operated in the course of your business."
Several of the exclusions in those causes of loss forms, though, do not apply to legal liability coverage form losses. The language below is from the Causes of Loss—Special Form (CP 10 30 09 17). The same changes to causes of loss are made in the Causes of Loss—Basic Form (CP 10 10 10 12) and the Causes of Loss—Broad Form (CP 10 20 10 12).
The nuclear hazard exclusion in the causes of loss form is replaced with a separate nuclear exclusion. It reflects the fact that this is liability coverage and includes language related to the defense of a claim.
The removal of the ordinance or law and governmental action exclusions is especially significant since actions of the insured could result in losses involving these exposures.
There is one important exclusion added to the causes of loss forms: contractual liability. The language below is from the Causes of Loss—Special Form (CP 10 30 09 17).
Coverage under the legal liability coverage form applies only if the insured is legally liable for the damage in a way other than simply being contractually liable (e.g., negligence). If a lease, for example, makes the insured responsible for any damage to the property, regardless of fault, this form is not the appropriate choice. In that case, building or personal property coverage is needed.
The following are examples.
The only exception to the contractual liability exclusion is when building damage is caused by actual or attempted burglary or robbery. If the form's coverage applies to the building and the named insured assumed liability prior to the accident, coverage is triggered even though the insured is legally liable solely because of the contract.
For example, MightyCo's lease makes it responsible for damage to the building by burglars. Thieves drive through the front of MightyCo's rented building one night to gain access and steal MightyCo's product. Even though MightyCo did not cause the building damage, the legal liability coverage form would respond.
Legal Liability Coverage Form—Personal Property
We saw the problems that result from MightyCo relying on its CGL policy for coverage when it causes damage to its rented premises. There are also problems when an insured is responsible for personal property in its care, custody, or control.
Imagine that MightyCo is renting a costly piece of equipment for 3 months. While MightyCo is not responsible under the contract for insuring the equipment, it is responsible for any damage it might cause. One week before the rental contract ends, the equipment is damaged in the same fire that damaged the rented premises.
The CGL policy will not pay for the damage because of the "damage to property" exclusion. The CGL policy does not cover "property damage to personal property in the care, custody, or control of the insured." There is no exception for fire damage as was seen for the rented premises. And while it is possible that an insurer might provide a small amount of coverage in an endorsement, that is the exception.
The legal liability coverage form can cover the direct damage exposure for MightyCo, but it does not stop there. It takes 12 weeks to repair the machine because the parts needed for the repair are unavailable. At the time of the fire, there was only 1 week left on MightyCo's rental contract, and the owner of the equipment had another renter waiting to take delivery of the machine at that time. The owner is losing 11 weeks of rental income and is holding MightyCo responsible for that. The legal liability coverage form covers the loss of use claim as well as the damage to property claim.
Legal Liability Coverage Form—Additional Considerations
There are a few additional things to note about the legal liability coverage form.
Conclusion
Care must be taken to recognize the exposures of insureds who have the property of others for which they could be held legally liable, whether the property is real property or personal property. Liability policies such as CGL provide limited coverage in certain circumstances but do not offer the comprehensive solution needed. The legal liability coverage form should be considered for all insureds with this exposure.