Tenants' Improvements Not Covered When Not Acquired or Made at Tenant's Expense

Most commercial property forms include leasehold improvements under the definition of “your business personal property.” Recently we had a carrier deny a water damage loss to leasehold improvements for an insured who was a tenant in a building on the basis that the insured did not actually pay for the leasehold improvements. The insured did not pay for the improvements when moving in to the leased space but was clearly obligated to insure the existing leasehold improvements via the lease agreement.

The carrier stated that for leasehold improvement coverage to apply, an insured must actually pay for the improvements or construct them themselves or pay the exiting tenant for them; the carrier said that this is what “you acquired” means under the definition of “leasehold improvements.”