The Limitations of Liability Coverage Under 'Designated Premises' Policies

Policies that provide such “designated premises” liability insurance can include “package” policies that combine one or more coverages for a specific building or premises. Such policies frequently combine first-party coverage for loss of or damage to the designated building or premises from such perils as fire or storm with coverage for liabilities arising out of the ownership, use or maintenance of the designated premises. Policies of this type can include Special Multi-Peril policies (“SMP policies”), Commercial Package policies (“CPP policies”), or Owner's, Landlord's and Tenant's Policies (“OLT policies”). In other instances, endorsements added to CGL policies modify the policies' insuring agreement to limit coverage to liabilities arising out of the ownership, maintenance or use of a particular “designated premise.”

The distinction between CGL coverage and “designated premises” coverage is readily apparent from the policies' respective insuring agreements: A “designated premises” liability policy only applies to liability arising out of the use of an “insured premise” or “designated premise,” whereas a CGL policy contains no such limitation. See, e.g., Couch on Insurance, 3d Ed., ' 132:59 (the “purpose” of OLT insurance is “simply to protect against liability arising from the condition or use of the building as a building. Accordingly, landlord-tenant insurance must be distinguished from insurance against liability arising from the nature of the enterprise or activity conducted within the insured premises” (emphasis added)). Some policyholders have nonetheless argued for a result that would essentially eliminate the distinction between coverage for general liability and coverage for liability arising from the use or maintenance of particular premises.