Owner vs. Tenant: Loss Responsibilities
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There’s a fine line between what’s an owner’s or tenant’s responsibility when it comes to insurance-related situations. The first step in this equation is to ensure both parties are insured. We’ll get in to this shortly, but keep in mind this is the first, necessary step in the process.
When a loss occurs in a commercial tenant’s space, it’s likely that the tenant’s insurance and the owner’s insurance will both be put on notice. This is typical because you’re dealing with a space that’s leased, as well as common areas that may be affected from related damages.
Property and liability losses can be complex and it’s important to partner with a broker that has a strong claims management department. You’ll want them to be highly involved in the process to make sure reserves aren’t set too high, they manage the claim progress from start to finish and they convey to the carriers their position on whose responsibility the loss is.
Working with your broker to verify your tenant’s insurance limits, coverage effective dates and wording is important and can make a significant difference when a claim arises. We strongly recommend you ask yourself these five questions:
- Does your broker manage your claims?
- Does your insurance carrier recoup your deductible if the loss is subrogated?
- Do you have clear requirements for tenants insurance?
- Does your broker have a robust risk management program?
- Does your broker implement risk transference and certificate tracking/verification?
Your lease should clearly lay out where your liability ends and where theirs begins. When you’re vetting potential new tenants you’ll want to ensure they have insurance that meets the guidelines you have all tenants. This should include limits for general liability, property insurance and umbrella coverage. Adequate carriers should have minimum limits for general liability of $1,000,000 per occurrence with an aggregate of $2,000,000 or greater. They should also have the proper property limits to cover them in the event they have a loss in their space. This typically ties back to the build out. In addition, the umbrella can be subject to your minimum requirements.
Finally, builder’s risk is also something tenants should carry if they’re doing a build out on a new space. This coverage may be provided by the contractor, but again, it’s important to have the proper wording and additional insured status on that policy as well.
Review these items with your broker and ensure they’re incorporated in to your risk management program. If you need further guidance, reach out to one of our real estate ‘A’ Team advisors.
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