Ordered to Get Terrorism Coverage When Lease Is Silent

February 8, 2013
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Q: My lease requires me to get insurance policies covering my space and personal property, but it does not specifically address the issue of terrorism coverage. However, the building’s manager is demanding proof that my insurance includes terrorism coverage. Must I get the terrorism coverage?

A: If your lease does not specifically require you to get that coverage, the manager—and the owner—may have no right to force you to get terrorism coverage. If the manager persists in demanding that you get terrorism coverage, tell him about a court case from New York in which the owner was prevented from forcing its tenant to get terrorism coverage, because the lease didn’t discuss that coverage.

Specifically, in that case, the tenant signed a lease that required the tenant to “maintain insurance on the building against loss or damage by fire and against loss or damage by other risks included under the standard Extended Coverage Endorsement… .”

The tenant’s original all-risk policy included terrorism coverage. However, because the policy came up for renewal after the terrorist attacks of Sept. 11, 2001, the tenant’s insurer specifically excluded terrorism coverage from the renewal policy. The owner sent the tenant a default notice because the tenant had gotten insurance that did not include terrorism coverage. The tenant asked a court to determine whether the tenant must get terrorism coverage.

A New York appeals court ruled that the tenant was not responsible for getting terrorism coverage. The court noted that when the lease took effect in 1989, the Extended Coverage Endorsement enumerated those perils that were included and excluded from coverage—but terrorism was not among them. The court said that an insurance policy should not be extended beyond its plain meaning to include perils not specifically covered by its provisions. Also, terrorism coverage was not mentioned anywhere in the lease. The court noted that it would be unfair to require the tenant “to assume an obligation that was not reasonably within [its] contemplation” when it signed the lease. As a precaution, check with an attorney in your area to see whether your local laws differ on this issue [TAG 380, LLC v. ComMet 380, Inc., February 2007].

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