Leased Premises Rented to You

April 1, 2014

The insured leases about 1/3 of a large metal building that is separated from the rest of the building by a partition wall. A large file resulted from a spark igniting white gas fumes during the insured's fuel transferring operation. The fire was accidental but we have negligence on our insured. The fire destroyed the leased portion of the building and a portion of the rest of the building. Pollutants, motor oil from fire damaged containers spread over the entire building floor and out into the gravel parking lot.

 

What does leased premises rented to you include? Is it simply the leased area? Does it include the outer walls, partition walls and the roof and the parking lot? Does the premises extend any further than the described area on the lease and any common areas-in this case the parking lot?

 

Note that under CG7578 B. Fire, Lightning or Explosion Damage exclusions c-n do not apply to damage by fire to premises rented to you. Exclusion f Pollution would therefore not apply to damage to the leased premises. Do we therefore have pollution coverage for the rented area only-not the rest of the building-and the common area which is the parking lot?

Iowa Subscriber

First, please note that our answer is contingent solely on the policy provisions you have given us. No, it is our interpretation that leased premises do not include any area(s) beyond that area which is described in the lease contract. Here, that area seems to be confined to the partitioned space only.

 

In the case of fire, leased premises rented to you includes any one premises rented to the insured or temporarily occupied by the named insured with the permission of the owner. Premises is not defined in the policy. However, the terms “leased” premises “rented to you” or “occupied” by you would lose their meaning if we were to adopt an interpretation of the word premises that expanded beyond the 1/3 partition to include the whole building. The 1/3 area was rented to the insured and this was the only portion of the building that insured occupied. Furthermore, I can't find any authority that would extend rented premises beyond this confined reading of the term. Therefore, I do not think leased premises rented to you include the outer walls, roof, or parking lot. However, I do think that it includes the walls which partitioned insured's rented space from the remaining 2/3 of the building.

 

Finally, exclusion (f) pollution is said not to apply to BI or PD for damage by fire. Therefore, there is coverage for pollution caused by fire. However, such coverage is constrained to the premises of the rented partition.