Damage to Premises You Rent: Part Two

Businessman walking in corridor at hotel
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Most general liability policies include a coverage called Damage to Premises Rented to You. This coverage consists of two parts. One covers claims that result from fire damage to premises you rent. This article focuses on the second part. It covers claims arising from damage to premises you rent for a week or less, if the damage results from a peril other than fire.

Short-term Rentals

Damage to Premises Rented to You covers damage by a peril other than fire to a building (or its contents) that you have rented for a period of seven or fewer days.

This coverage is provided via an exception to three exclusions found under Bodily Injury and Property Damage Liability. These are listed below.

  1. Property damage to property you own rent or occupy
  2. Property damage to property loaned to you
  3. Property damage to personal to property in your care, custody or control

What's Covered

Because of an exception to the exclusions cited above, a liability policy covers claims or suits arising out of property damage to premises you rent for a week or less. Damage to property contained in the building is also covered. Coverage applies only if you are legally liable for the damage. The policy won't cover payments you make to the property owner voluntarily. The exception to the three exclusions applies to damage from a cause other than fire. 

Here are two examples of claims that would probably be covered via the short-term coverage described above.

Example 1

You arrange an off-site training session for your employees at an office complex located near your business.

The training takes place in a conference room you have rented for three consecutive days. During the training session, an employee tosses a stapler to another employee. Unfortunately, his aim is bad, and the stapler hits a large mirror. The mirror shatters. No one is hurt but the office complex later demands that you replace the broken mirror.

The damage occurred to the contents of property that you rented for seven days or less. The damage resulted from a peril other than fire. Your firm is legally liable for the damage because it resulted from your employee's negligence. As the claim falls within the exceptions to the exclusions listed above, it will likely be covered by your firm's liability policy.

Example 2

Your company manufactures ink cartridges for desktop printers. You are on a three-day business trip to visit potential clients and have brought samples of your ink. It is the last day of your trip and you are in your hotel room. You are packing your samples into your briefcase when a faulty cartridge explodes. Red ink sprays all over the ceiling, walls, carpet and bedspread.

You apologize to the hotel for the ink fiasco. Nevertheless, you receive a letter from the hotel manager after you return home from your trip. The hotel is demanding payment for the cost to remove the ink from your hotel room and its contents. The damage occurred to property you rented for seven or fewer days, and it resulted from a cause other than fire. You are legally liable for the damage since it resulted from your faulty product. The claim should be covered by your liability policy.

Limit

Both parts of the coverage called Damage to Premises Rented to You are subject to a sublimit (a limit smaller than the Each Occurrence limit). The applicable sublimit should be listed in the declarations portion of your policy. This limit may be $100,000 or more.

It is important to consider the amount for which you could be held liable if premises you rent is damaged by a fire (or another peril if you rent premises for seven days or less). Will the limit on your liability policy be enough to cover a claim? If you don't know the answer, ask your insurance agent or broker for assistance.

Coverage Gap

Suppose that you rent a hotel conference room for a few days for a business meeting. During the meeting, you use a lighter to do a demonstration and accidentally start a fire. The fire damages furniture in the conference room, and the hotel sues you for $25,000.

Will the claim be covered by your liability policy?

The answer is no. The seven-day coverage described above applies to contents of rented premises only if the damage is not caused by fire. The policy covers fire damage to rented premises, but fire damage to other types of property is not covered.