Many business owners assume their general liability policy fully protects them if something goes wrong in a leased space. Unfortunately, that assumption can lead to unpleasant surprises when a claim occurs. One of the most misunderstood areas of commercial insurance involves damage to premises rented to you.
Understanding Care, Custody, and Control
Property that you lease—or that is otherwise in your possession—falls under what insurers call care, custody, or control. Standard general liability policies typically exclude damage to property in your care, custody, or control because that risk is intended to be addressed separately.
To partially address this exposure, many liability policies include a sublimit for damage to premises rented to you. However, that limit is often far lower than the actual value of the leased space.
A Common—and Costly—Scenario
Consider a business operating out of a leased commercial unit. A fire starts after hours and causes significant damage to the tenant’s space and several neighboring units. While the business owner may expect their general liability policy to respond fully, the policy may only provide $50,000 or $100,000 for damage to the leased premises.
When repair costs exceed that amount, the landlord’s insurance carrier may pursue the tenant for the remaining damages through subrogation. This can result in a large, unexpected out-of-pocket expense—at the worst possible time.
Why This Gap Is Often Overlooked
This coverage gap is frequently missed because:
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Lease agreements often shift responsibility to the tenant
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The coverage exists, but the limit is inadequate
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Business owners assume the landlord’s policy will handle the loss
In reality, landlords typically insure their building but expect tenants to be responsible for damage caused by their operations.
The Solution
The good news is that this exposure is usually easy to address. Increasing the damage to premises rented to you limit through an endorsement is often affordable and can be aligned with the actual value of the leased space.
Making this adjustment before a loss occurs can prevent significant financial strain and legal disputes later.
We’re happy to check your current limits and help ensure your coverage reflects the real risks of operating in a leased property.
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