Insurable Interest question

[Rob]

Scenario:

Insured is a corporation that has a business inside a building that is owned by one of the officers of the corporation as an individual. The corporation has a package policy that contains liability, building, and business personal property coverage. Is there an insurable interest problem in the event of a claim since the building, insured on the corporation's policy, is owned by another entity?

Is my suggestion to insure the corporation with a liability and property policy which covers the contents and have the individual purchase a lessor's risk policy on the building correct or is it sufficient to cover the buildings on the corp's policy?

Thanks

Rob

[Big Dog]

Much depends upon the lease. If it's a triple net lease, which would require the tenant to insure the building, then there isn't a problem.

If not, then this raises several legal issues for the corporation that, if the IRS gets involved, will get ugly. The IRS will question why the corporation is leasing a building owned by an officer and paying for the insurance on th building owned by the officer, when the lease doesn't call for it.

[Rob]

Good point, I forgot about this possibility. If the lease creates the insurable interest, then we're good to go.

[Temblor]

Even more important, if the lease doesn't require the corporation to insure the building, they have no insurable interest, and the insurance on the building in the corporate name won't pay anyone for damage to the building.

Best is to amend the lease requiring the corporation to insure the building, and name building owner additional insured, for building interest only.

Otherwise, the officer who owns the building must get his own building and lessor's risk liability insurance.

One other possibility, if the officer owns over 50% of the corporation, list him personally as a named insured on the corporation policy, then the building can be covered under that policy, and the corporation's liability insurance protects him as well.

[Pacman]

Is the corporation the sole occupant of the building? If not there could be issues involving the payment under business interruption. also in addiiton to naming the owner as an additional insured, he should also be listed as a loss payee under the property section, we could also have a major discussion on the difference between an additional insured and an additional named insured. All the CG and CA endorsements for additional insured applies only to the liaiblity section of the policy, I cannot think of a CP endorsement for an additional insured, that is why we show them as a loss payee everytime.

If the corporation is not the sole occupant, a seperate policy would be the most appropriate course of action

[g0lfmm]

I see this situation having several issues. 1. Business Income: If you add the owner as a named insured he's covered. 2. Building same answer as 1. 3. Liability same answer as 1. However for all you need to check the lease agreement for both the lessor and lessee interest. The clean way is to write a separate BOP for the owner, name the tenant as additional insured and again check the lease and make sure how the income and extra expense will work for both interests. One additional thing you give the owner doing it this way is providing the owner with his own liability limits. If you leave the building on the tenants policy and do not have the owner covered on that policy then he may not have any coverage for building, Liability or loss of income. Again check the lease!The lease is a key because it spells out the intentions of both parties.