Q: An insured general contractor based in New York is being required by a state authority to show a certificate of insurance (COI) for a $1 million limit for coverage for damages to rented premises. The commercial general liability (CGL) carrier can only issue a maximum of $300,000.

The requirement from the state authority is pretty off base when considering the insured's exposure and benefit of coverage. That said, the agency does not think it can change the authority's requirements and needs to figure out how to obtain additional limits for the insured. The agent thinks the umbrella policy could drop down, but that's not the intention of the umbrella carrier and, therefore, is not a clean enough solution.

Q: How can the insured meet the state's requirement for a $1 million limit on damages to rented premises?

Response 1: Your thoughts are on point. The state authority probably misunderstands the coverage and its applicability to your client. CGL coverage for damage to rented premises is typically for limited perils. 

Umbrellas often include an exclusion for damage to property the insured owns, rents or occupies, so the umbrella is unlikely to provide coverage. I am surprised that you think it would drop down, but you have the form to review and could confer with the underwriters to check.

A few options to consider: You could get a different CGL insurer who will provide a $1 million limit. Or, if the general contractor is in fact renting the property, you could include the coverage in the property insurance program. Also, you could go to the excess & surplus market for an excess liability policy or for a property policy to fulfill the requisites.

Alternatively, you could explain to the client's lawyer why the state's request is not applicable and why it cannot be fulfilled and ask the lawyer to negotiate a revision of the state's requisites. Over the years, we have had some success in negotiating language when we could clearly communicate why it does not apply to our clients.

Response 2: Is this for a contracting job or an actual renting of premises? Over the years I've seen attorneys who know little or nothing about CGL coverage and require ridiculous amounts of coverage for an exposure that doesn't exist. 

In one case, a contractor was being hired to repaint the parking space lines in a parking lot at a shopping center. The owner of the property had the contract written by the attorney who wrote the lease agreements for the tenants. He simply repeated a requirement for damages to rented premises coverage from the leases, not understanding why that requirement was in the leases.

Covering damage to rented premises under a CGL policy is usually a bad idea even for a tenant, but it makes no sense at all for situations that don't involve renting premises.

Response 3: I suspect that the state authority doesn't completely understand the coverage it is requiring. That said, if it doesn't want to hear that, a solution is needed. Do not count on the umbrella carrier to provide additional limits. Most exclude damage to real and personal property in the insured's care, custody or control. And most do not drop down over sublimits unless those sublimits are in the schedule of underlying insurance. Most insurers, in my experience, are not willing to add $300,000 damage to rented premises coverage to the underlying schedule. 

Some insurance companies increase the damage to rented premises limit to $1 million in enhancement endorsements. A change in insurer, as unappealing as it is, may be the only option. Given the limited markets for general contractors working in New York, it may be difficult to find an insurer with this type of enhancement. You could ask the state authority what insurers have been willing to provide this coverage to other contractors it works with. 

If your insured is working in a particular building, you can try the Legal Liability Coverage Form CP 00 40 as an option for increasing the damage to rented premises limit. This may or may not satisfy the state authority and may not work well if your insured is working in numerous buildings. Good luck—unfortunately, this is a tough one.

This question was originally submitted by an agent through the Big “I" Virtual University's (VU) Ask an Expert service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.

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