Tenant Improvements, Bailee Property, and the BPP Limit
Northline Marketing leases 8,000 square feet in an office building. The lease makes the landlord responsible for the building shell and requires Northline to restore any non-removable improvements it installs. Northline spends $180,000 on a reception area, built-in workstations, lighting, and a server-room cooling system that cannot be removed without damage. It owns $220,000 of furniture and computers. Its BPP policy has a $400,000 limit, replacement cost, a $5,000 deductible, and no separate tenant-improvements limit. The policy also has a bailee endorsement covering property of others in Northline's care, custody, or control, with a $75,000 sublimit that is part of, not in addition to, the $400,000 limit. Northline stores $60,000 of a client's office furniture in its reception area under a staging contract that makes Northline responsible for loss or damage. A water pipe bursts above the ceiling, destroying the built-in improvements, Northline's own property, and the client's furniture. The total replacement cost loss is $460,000.
1. Identify which components of the loss are covered as business personal property and explain the coverage basis for each, including the client's furniture.
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Northline's own furniture and computers are owned business personal property, clearly covered. The built-in reception area, workstations, lighting, and cooling system are tenant's improvements and betterments. The BPP form covers them when they are acquired at the insured's expense and are not legally removable. The lease requires Northline to restore them, which supports both the insured's interest and the non-removable character. They share the BPP limit; there is no separate tenant-improvements limit. The client's furniture is property of others in Northline's care, custody, or control. The staging contract makes Northline legally responsible, so it has an insurable interest to that extent. The bailee endorsement supplies a $75,000 sublimit, which is enough for the $60,000 item, but that sublimit is part of the $400,000 BPP limit. If Northline had not been contractually liable, coverage for the client's furniture would be much weaker; bailment liability is the key fact. The adjuster should also check whether the client's own policy provides primary coverage, because that affects subrogation but not Northline's limit.
2. Calculate the maximum the policy will pay for the $460,000 loss, showing how the limit, sublimit, and deductible interact. State what happens if the client's furniture had been worth $90,000.
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Covered items total $460,000: $180,000 improvements + $220,000 owned property + $60,000 client furniture. The bailee sublimit of $75,000 is sufficient for the $60,000 client furniture and does not increase the total. The BPP limit is $400,000, which is less than the loss. The policy therefore pays the limit less the deductible: $400,000 − $5,000 = $395,000, assuming replacement cost conditions are met and the property is repaired. The insured bears $65,000 of the loss ($60,000 over the limit plus the $5,000 deductible). If the client's furniture had been worth $90,000, the bailee sublimit would cap that item at $75,000, so the covered loss would be $180,000 + $220,000 + $75,000 = $475,000. The BPP limit would still cap the total at $400,000 less the $5,000 deductible, so the payment would remain $395,000. The sublimit matters more when the total loss is below the BPP limit; here the BPP limit is the controlling cap.