In the June 2006 issue of Malecki on Insurance, Don Malecki covers the history of the loss payable clause and discusses how important it is to ask specifically for the loss payable endorsement rather than just asking to be a loss payee. In general, loss payee status doesn’t provide the safeguards that the Lenders Loss Payable does. According to Malecki:
“A loss payee provision is only for a lender involving personal property. When real property is involved in a lender situation, the lender’s loss payable provision should be issued. The major distinction between the two is that the lender’s loss payable operates in the same way as the mortgagee clause. This means that if the borrower does something to nullify its insurance coverage, the lender’s interest remains unaffected. This is not the case with the loss payee clause.
“By the way, with regard to the often addressed triple net lease issue, I have a building that I am trying to lease and I am going to continue to maintain insurance and require the tenant to pay for the insurance. I will give the tenant a waiver of subrogation for the real property. The tenant can maintain its own coverage for contents and liability and give us a waiver of subrogation.”
For a more detailed discussion of this issue, click here.
Auto Policies and Permissive Users
Most auto policies—personal and commercial—exclude the use of autos without permission. Commonly referred to as “car thief” exclusions, they may exclude far more (or less) than that. Just what constitutes “permission,” from whose perspective (owner or user), and must it be explicit or not?
The PAP and BAP differ somewhat in their approach in that the PAP provides very broad coverage for individuals within the “insured” definition and deals with the permissive use issue via exclusion. The BAP, on the other hand, addresses the issue within the “who is an insured” section without a special exclusion. The other major area these forms differ over is what constitutes “permission.” The PAP considers permission from the perspective of the operator, while the BAP requires that the named insured/owner grants either explicit or implicit permission.
In addition, whether use is permissive or not may depend on the edition date of the policy form. For example, in the case of the PAP, a “family member” exception was added to the exclusion in 1998.
To explore the policy language and case law involving both the ISO PAP and BAP regarding permissive use, along with the validity of driver exclusion laser endorsements that target specific individuals, click here.
When are Improvements & Betterments Acquired?
An I&B claim was denied because the owner of the leased area had not made any betterments or improvements at his own expense since the lease began; all of the improvements were made just prior to assuming the lease. His policy covers I&Bs “acquired” by the tenant. What does “acquired” mean?
Since it is known as “tenant’s” improvements and betterments, one might presume that the implication and intent would be that coverage would apply to I&Bs installed while the insured is a tenant, not before the tenancy begins. But does it?
The Damage & Destruction or Repair & Restoration sections of property lease agreements often spell out the responsibility for repair following damage to leased space. A Virtual University faculty member who reviewed thousands of property leases for insurance purposes found about 80% liable for six-figure sums that are rarely insured. It is not at all uncommon to find a tenant obligated for seven figures in uninsured exposure. This oversight represents a ton of lost property premium to the industry and major league E&O and extra contractual exposures.
It is critical to know if build-outs constitute I&Bs to provide proper coverage. For a complete analysis, click here.
Bill Wilson (bill.wilson@iiaba.net) is Big "I" director of the Virtual University, an online learning center for agents and brokers.
