Is “Fire Legal” Liability Coverage Primary or Excess?

The insured negligently caused a fire to his own rented area. It was paid under the landlord’s property policy and now they are subrogating against the insured tenant. The insured’s carrier is saying that, even though “fire legal” is part of the CGL policy (now referred to in the CGL forms as “Damage to Premises Rented to You”), the Other Insurance clause states it is excess over other insurance and they will not defend the insured in the lawsuit nor indemnify the landlord. Is fire legal liability coverage primary or excess?

Question 1

“We have a scenario where the insured negligently caused a fire to his own rented area. It was paid under the landlord’s property policy and now they are subrogating against our insured. The insured’s carrier is saying that, even though fire legal is part of the CGL policy, the Other Insurance clause states it is excess over other insurance and they will not defend the insured in the lawsuit nor indemnify the landlord. I tried to find other court cases similar to this and couldn’t. If this is true, what good is fire legal? Is the coverage primary or excess?”

 

Response 1

Other Insurance clauses typically address whether insurance under the subject policy is primary or excess over coverage available from other sources. Unfortunately, how these clauses work varies from one policy to another. The Other Insurance clauses in the PAP and CGL policy, for example, are significantly different. Just as the proof is in the pudding, the issue of primary vs. excess is in the “fine print” of the contract. We ran this by the VU faculty and got the responses below.

The provision cited means that MY CGL is excess over MY fire insurance covering MY premises for the same loss. I believe premises means “demised premises,” and that is only the part of the building that I rent or occupy. A tenant usually doesn’t have fire coverage on those “premises,” only on the contents and maybe on improvements.

This can get very complicated when you have waivers, etc. in the lease, but the basic scenario is that my CGL covers my liability (for fire) when I have a fire that damages my own leased premises, but subject to a special limit. (Actually in the newer forms it is any property damage for rented premises and fire for premises rented or temporarily occupied.)

The Other Insurance condition starts out saying, “If other valid and collectible insurance is available to the insured for a loss we cover under Coverages A or B of this coverage part, our obligations are limited as follows….” The insured in question, the tenant, your named insured, did not have the insurance available to THEM. The landlord had the insurance available to the landlord. So the limitation stated in the condition does not apply to your named insured.

4. Other Insurance
If other valid and collectible insurance is available
to the insured for a loss we cover under Coverages A
or B of this Coverage Part, our obligations are
limited as follows:

The lead-in language indicates that the other insurance applies when there is more than one insurance policy available for THE INSURED. The landlord’s policy was not available to the insured and most likely had a “no benefit to bailee” provision.

The key words are “TO THE INSURED.” The fire coverage on the building is not available to the insured, rather it is available to the landlord. Therefore, other insurance should not come into play.

I think the company needs a remedial lesson on this Other Insurance provision…either that or I’ve been wrong for over 25 years. The key wording is “to the insured.” The Other Insurance clause applies to coverage available TO the insured…e.g., if the insured (not the building owner) also had first-party property coverage on the office, say, using the CP 00 40 06 07. In your scenario, the coverage is available to the landlord, not the tenant, so this excess provision doesn’t apply…the primary provision does.

My understanding since I was a mere insurance infant was that the CGL Other Insurance clause applies to the INSURED’S insurance. If the insured has first-party coverage, then the CGL FDLL is excess. I’ve never heard it applied as excess with respect to the landlord’s first-party coverage. If that was the case, as you said, what good is it? Here’s what the policy says:

4. Other Insurance

If other valid and collectible insurance is available
to the insured for a loss we cover under Coverages A
or B of this Coverage Part, our obligations are
limited as follows:

b. Excess Insurance

This insurance is excess over:

(1) Any of the other insurance, whether primary,
excess, contingent, or on any other basis:

a) That is Fire, Extended Coverage, Builder’s
Risk, Installation Risk, or similar coverage
for “your work”;

(b) That is Fire insurance for premises rented
to you or temporarily occupied by you with
permission of the owner;

(c) That is insurance purchased by you to cover
your liability as a tenant for “property
damage” to premises rented to you or
temporarily occupied by you with permission
of the owner; or

(d) If the loss arises out of the maintenance or
use of aircraft, “autos” or watercraft to
the extent not subject to Exclusion g. of
Section I – Coverage A – Bodily Injury And
Property Damage Liability.

(2) Any other primary insurance available to you
covering liability for damages arising out of
the premises or operations for which you have been
added as an additional insured by attachment of an
endorsement.

I’ve highlighted the applicable provisions that govern this subrogation claim.