As I write this, Al Yankovic's brilliant parody of "Blurred Lines" has finished its umpteenth play on my iPad. Not only is "Word Crimes" a classic Weird Al takeoff, I actually enjoy his version better than the original song! All the catchy melody with far more intelligent lyrics— what's not to like?
Years ago history teachers went gaga when their "academic subject most likely to be dissed by high schoolers" achieved momentary pop glory via Billy Joel's "We Didn't Start the Fire." Now English teachers everywhere are giddily emailing/sharing/pinning/or whatevering Al's video to friends and family, saying "At last someone gets it!" "Eats, Shoots and Leaves" may still be considered the grammarian classic by some. But that was print, and this is a Weird Al music video. Verb tense, possessive use and sentence diagrams gone viral pop culture, baby! Whom may has thunk it?
How appropriate that one of my latest email queries combines blurred lines, word crimes, and a scary assumption:
Hi Chris. This question is always confusing to me and I want insurance to be fun. Let's say you have a Property policy, where you have the building owner and tenant listed on the same policy. They are one and the same when it comes to ownership. The only difference here is that we have two different corporations listed on this policy. We cover the building in the name of the one corporation and we cover the BPP in the name of the other corporation. We have an application that lists both corporations, one as the building owner and the other as whatever the business is. We have a written lease where the tenant is paying the building owner rent every month too. When I show the Business Income and Extra Expense limit will it include the loss of rents for the building owner, or do I need to have two different coverages? So should the property application look like Building, and Loss of rents for the building owner and for the same location show the BPP limit for the tenant (who is the same owner) with the business income and extra expense exposure? Which is the correct way and which one will pay a claim in the event of business income and loss of rents?
Sorry I'm confused. Thanks
This is a truly great question. First, it is far from an uncommon situation. Secondly, insureds often create interesting legal and contractual blurred lines, typically for tax or other purposes having little to do with what would make the insurance easier to write. Third, we have an agent trying to sort out this situation and taking the necessary effort to get the coverage right — always an admirable approach. And fourth, he's willing to admit he's confused and ask for help before just plunging in and hoping for the best.
Unfortunately our agent friend added his own word crimes to the client's blurred lines, creating the potential to turn mere confusion into a truly scary E&O.
What "word crimes," you ask? Specifically, these three sentences:
They are one and the same when it comes to ownership. The only difference here is that we have two different corporations listed on this policy. It's not an uncommon question, and can be confusing, particular when underwriters also get themselves tangled in the weeds.
As for the third sentence, while the underwriters should know better, perhaps they can be cut a bit of slack about those weeds when the agent may have led them into the swamp. To reveal how he first entered that swamp, I'm going to reverse the order of those first two sentences and then consider them one at a time:
The only difference here is that we have two different corporations listed on this policy.
Okay. We have two different corporations listed on the policy — one as building owner and one as the tenant. These separate corporations have formalized their arrangement and rental agreement via a lease. Analyzing only this sentence, what is your answer to his coverage question?
Very little confusion, right? You have two separate legal entities entering into a lease, and the correct coverage approach is to provide each with their own necessary protection:
- Corporation ABC – building owner. At time of covered loss, ABC clearly has a need for business income coverage for its potential loss of rents. My good friend Terry Tadlock always points out there may be an exception to this — if the lease requires tenant corporation XYZ to continue paying rent even if the building is uninhabitable. In that case, and assuming the tenant does not default on that contractual obligation, ABC would suffer no loss of rents and so receive no payment for that exposure under their business income coverage.
- Corporation XYZ – tenant. XYZ should insure against its own loss of revenue — including continuing rental or other obligations.
In summary, when you have two separate legal entities, each should insure against loss as if the other didn't exist.
Seems straightforward, and knowing the email writer I doubt he would have any doubts or confusion when considering such a situation.
So whither the blurred lines creating the confusion leading to word crimes? Ah grasshopper, that brings us to the second sentence:
They are one and the same when it comes to ownership.
To this I have two responses: No they aren't; and so what?
As to the first, two separate legal entities are not "one and the same." This situation would be different if the insured were, for example, a sole proprietor who owned and occupied the building under two different fictitious names: for example, owner listed as "Bob's Building" and tenant listed as "Bob's Bodacious BBQ." Even though they may be operated for a number or excellent procedural reasons as if they were two separate entities, insurance is a legal contract, and thus must focus on legal entities. In our "Bob's" example, there may be two distinct businesses, but only one legal entity — sole proprietor Bob. In that situation, our email friend and his underwriters are exactly right to be concerned as to whether any loss of rents claim is in reality simply moving money from one pocket to another.
But that is not the case here. Two separate legal entities deserve separate coverage consideration, period.
And my "so what?" is in response to the common ownership. While that is a key factor in workers compensation experience mods and perhaps a parent corporation/subsidiary (which is not what we have here), it has no bearing in property or liability when the various parties are separate legal entities. Consider a more common scenario where the tenant corporation insured occupies a building owned by the CEO in his personal name. Same person may be running both businesses, but legally they are separate entities and coverage analysis would be the same as for ABC/XYZ.
So while common ownership clearly created blurred lines for our faithful compatriot, leading to his own word crimes of treating separate legal entities as one and the same, it turns out this scenario need not be scary at all.
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