Author – Peter Crowe, Account Executive – Horst Insurance
“I own multiple commercial real estate properties. Do I really need Certificates of Insurance from ALL of my tenants?” Most definitely. And more than that, you need to be named Additional Insured. This article addresses the “Why” behind it, and “What It Means.”
The over-arching intent here is to protect your assets by ensuring proper risk-mitigation strategies. An insurance claim arising out of the actions of one of your tenants could be detrimental to your business, if not properly addressed ahead of time. More than likely, you have a lease agreement in place with your tenants, which has been appropriately drafted by legal counsel. In it, there would usually be a requirement that the tenant provide proof of General Liability coverage (with minimum required limits) in the way of a Certificate of Insurance (COI). This simply displays a snapshot of your tenant’s coverage in the event of a claim caused by the operations of your tenant. Fairly standard language.
What may not be in the lease is a stipulation that on that COI it names you, the landlord, as Additional Insured. That’s a particularly important distinction. What does that mean? It provides protection for YOU, as the building owner, under the tenant’s insurance policy…on a primary basis. Meaning, if there is a claim that arises out of the tenant’s negligence, not your own, yet you get brought into a lawsuit by the claimant, the tenant’s insurance policy would provide coverage for you before your own policy would need to respond. Why is that important? For starters, it insulates the limits of your own policy so there is not an unnecessary claim that would deplete your coverage limits. That, in turn, provides a significant level of comfort for your insurer that their exposure is limited by way of proper risk transfer, which then makes you a more attractive risk to the insurance marketplace…arguably reducing your insurance costs.
A key aspect of a sound risk management strategy as it relates to COIs, is that you need to obtain one from every tenant, every year. While that may present minor internal administrative challenges, it is worth every bit of it. A chain is only as strong as its weakest link, and a well-designed risk mitigation plan is only as strong as its execution. Each piece plays a critical role, so each tenant must be compliant, thereby ensuring your assets are properly protected.
Not sure if your strategy is effective? Give us a call. We’d be happy to help.
