Fall is here and winter is approaching. Soon Thanksgiving will arrive, and you know what that means: Schoolchildren will be having turkey-coloring contests, local organizations will be fundraising with turkey shoots and houses will burn to the ground after certain fools try to deep-fry turkeys without the proper equipment.

Of course, in our industry we don't have to wait for November to enjoy turkeys. No, we get to work with them year-round! For a fine example of one of our feathered friends, look no further than a missive from this month's mailbag, winged my way from a friendly reader I will call Joe, who told me how much he loved the column–always a good beginning!–then made the following plea:
“Perhaps in one of your future articles you could address how fire legal liability applies to claims. I've approached our carriers' claims departments and can't get definitive answers on what this coverage will or won't respond to.”
Joe indicated he was particularly having trouble getting a straight answer about the applicability of the CGL's exclusion for damage to property that you own, rent or occupy (exclusion j. under Coverage A) to the policy's fire legal coverage.
“We had a case recently where a tenant of our insured caused a fire. The tenant was renting a portion of our insured's building and had a $50,000 fire legal liability limit. The total damage to the building was over $200,000. The tenant's carrier maintained that the most his policy would pay was $50,000–the fire legal limit. The fire spread beyond areas occupied by the tenant. Is it reasonable to expect that his GL limit should cover damage outside the space he was using?
“Policies are issued with a basic fire legal limit of $50,000 or $100,000, which suggests that coverage beyond the interior walls isn't contemplated and that damage beyond those walls should be covered by the GL limit. Can you shed some light on this?”
Joe did the right thing. He went to those who have the authority to answer questions about claims–and hit a brick wall. This isn't unusual. I get these types of comments from agents all the time. With slight variations, they all say the same thing: “I've tried to get the claims folks to help me out, but they won't give a definite answer.”
I've asked adjusters why they become evasive and have received some explanations. One is straightforward: “We don't speak to theoretical situations.” Another is legalistic: “Our legal folks prefer we not commit to positions that could create a waiver or estoppel problem in future claim scenarios.”
While I understand claims people may be reluctant to commit in advance on a possible coverage situation, I really don't see why they're afraid to commit even on the facts of a specific claim. Sure, there may be unknown details that affect the final decision, but when isn't there?
One can empathize with a claims person who doesn't want to wade into the swamps of long-tail pollution or construction defects claims–but fire legal? Come on! Fire legal is taught in basic licensing texts and is hardly a claims minefield. Good heavens, can't an agent count on having even an easy question answered these days?
Well, you can here. Claims people are free to call me reckless and foolhardy, but here, Joe, is your answer.
First, the ISO standard CGL policy language says fire legal–it's now called “Damage to Premises Rented to You,” but I'll use the more familiar term–applies to damage to premises “while rented to you or temporarily occupied by you.” The coverage grant can be found in the final paragraph concerning exclusions to Coverage A (for bodily injury and property damage):
“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.” (That second sentence, in essence, refers policyholders to the limit for “Damage to Premises Rented to You” shown on the declarations page.)
The primary exclusion being addressed, of course, is “j.,” which otherwise excludes liability coverage for all damage to “property you own, rent or occupy.”
So here's where that leaves us in regard to fire legal: with coverage only for premises rented or occupied by the named insured, only for fire and only up to the limit provided under “Damage to Premises Rented to You.”
My interpretation is that the policy language means just what it says. Let's apply it to Joe's claim.
I don't think the tenant could be said to be “occupying” the outside surface of the walls, adjoining walls, etc. It's also doubtful a tenant could be occupying an attic, unless he's using it in some way, such as for storage. The same reasoning applies to basements. So if we only look at the term “occupying,” I'd suggest the fire legal limit wouldn't apply to such property and therefore that the standard CGL limit would.
But now let's look at the term “rented.” The property the tenant is renting can be more specifically determined–namely, by reading the lease. Beyond the basic premises (space, plus walls or other structures within that space), does the lease state the tenant is also renting the attic, basement or the entire building and grounds? If so, “occupying” no longer matters, since the exclusionary wording (and fire legal coverage wording) applies to premises rented or occupied. However, if the lease specifies that the insured is renting only the interior of a certain defined space (which is common in a multiple-occupancy building), then only that interior space is subject to the fire legal limit, and damage to the rest of the building will fall under the standard policy limits.
As for the relatively low limits of fire legal, don't read anything into that. Those are simply the amounts automatically included in the standard premium. Insureds often need far greater fire legal limits, and the manual allows them to be increased. Many agents also turn to the CP 00 40 or an umbrella to provide sufficient coverage for the fire legal exposure.
Bottom line: For whatever building property a tenant specifically rents, CGL exclusion “j.” applies. The fire legal coverage kicks in, however, and applies for property the tenant occupies or rents. The standard CGL limit then applies for all other building property.
Now, that wasn't too painful, was it? Yet at least one agent and his insured found this a very uncomfortable issue indeed. Based on the facts as presented in the reader's letter, the tenant's carrier simply got it wrong. Then no one would step up to the plate to explain why the occurrence limit in the tenant's CGL policy should not apply to damage to property the tenant did not occupy or rent.
Well, Joe, here's an article for you. I'm just sorry that at this time of year you and your client ran into a flock of turkeys. Here you were expecting a grand feast, but I'm afraid all you got was the bird.
Chris Amrhein is an insurance educator and speaker with more than 30 years in the industry. He is also chief fun officer of www.insuranceisfun.com, where his newest book of insurance musings,”Yes, Virginia, There Is Insurance,” is now available. Readers may contact Chris at [email protected].