Fire Legal Liability under the CGL Form

Our insured employs medical personnel on a temporary traveling basis; that is, if a nurse or other medical professional were needed by a hospital in a certain state or locality, our insured would send the employee to that location on a temporary basis. The insured rents an apartment or house for the employee for the time the employee is at the temporary location and pays all the expenses. One of the insured's employees was staying at one of the rented apartments in another state; her boyfriend was visiting her. The boyfriend was smoking one night and put the cigarette out in a plastic cup near some window curtains—or so he thought. The couple woke up to find the house on fire and the resultant fire damage cost over $200,000.

The insurer for the apartment owner paid for the fire damage and is now seeking subrogation against our insured. Where would the coverage come from on the part of our insured's CGL form to pay for the claim? If our insured is sued, would the liability policy provide defense costs? It seems to us that the fire legal liability coverage is the way to go, but we would appreciate your opinion.