New Commercial Property Endorsement Can Mean Problems for Landlords

Posted by Albert Sica on Sep 5, 2013 2:45:26 PM

Each week, landlords and authorities discover 300 methamphetamine labs in the United States, according to National Public Radio. If you own apartments, rent hotels or run boarding homes, you may run into a tenant who decides your rental properties are a great place to cook meth. Better check your commercial property policy now, because recent changes in commercial property insurance coverage forms may significantly restrict coverage for the resultant clean-up from meth “cooking” operations.

According to the Insurance Journal Academy, an April 2013 endorsement, Exclusion of Loss Due to By-Products of Production or Processing Operations (Rental Properties), form CP 10 34, will be attached to rental premises policies, perhaps as they renew. The exclusion was designed to ensure losses for property damage caused by a tenant’s business operations were not paid by the landlord’s insurance policy. It helps to ensure that property damage and business interruption coverage does not apply to any damage that results from smoke, vapor, gas or other substances released during a production or an operation at any rental identified in the insured’s scheduled property. If a fire breaks out from the release, however, there should be coverage. According to one insurance expert, this exclusion is broad enough that it may impact even a grease accumulation from a restaurant tenant. While insurers and courts considered this type of loss vandalism, the new endorsement excludes this type of damage as vandalism.

Cleaning up a meth lab can cost a bundle. One Washington homeowner spent over $30,000 to remediate his property from a meth lab. According to Bill Wilson, the Associate VP of Education & Research at the Independent Insurance Agents & Brokers of America “As for the [cleanup] cost, it certainly could be significant. According to the Koch Crime Institute, "Cleanups of labs are extremely resource-intensive and beyond the financial capabilities of most jurisdictions. The average cost of a cleanup is about $5,000 but some costs as much as $150,000.”

Is there any solution? According to one property coverage expert, you can purchase an increased limit of coverage for pollutant cleanup under the ISO form CP 04 07 – Pollutant Clean Up and Removal Additional Aggregate Limit of Insurance endorsement.

If you have concerns, do not wait until you face a claim and hope you have sufficient insurance coverage. Remember, tenants who use, sell or manufacture illegal drugs on your premises can cause significant property damage and liability exposures. Contact me at 732.395.4251 or at  for more information on managing this type of loss exposure.

Topics: Construction, Political Risk, Property Risk, Real Estate, Risk Management Blog, Strategic Risk Management, TCoR, The ALS Group, Total Cost of Risk, Total Cost of Risk (TCoR)

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