PROPERTY LEASES AND INSURANCE PROBLEMS

Property leases are one of the most common of all commercial transactions.  It is important to know that the Commercial General Liability (CGL) and Commercial Automobile (CA) policies exclude damage to property in the care, custody, and control of the insured.  The CGL policy specifically excludes property damage to "..property you own, rent, or occupy."
 
The general public is unaware of this exposure.  Tragically, so is the insurance industry.  In seminars to national audiences of insurance personnel I find five to ten percent are conversant on the subject.  An even small number are conversant on the remedies.
 
Many lease agreements impose significant responsibilities upon the tenant that are not mentioned in the Insurance section of a lease.  Requirements for repair of damaged space may limit the landlord’s liability to the building exterior.  The tenant may be responsible for all interior finishing of the space they occupy.  The cost of the interior finishing may be hundreds of thousands of dollars.  This may come as a real surprise when the tenant did not install the interior finishing.
 
The cost to address liability for damage to leased space and property coverage for obligations for interior finishing is minimal.  Unfortunately, the insurance industry is largely unfamiliar with these exposures and remedies.
 
Key Problems Related to Leased Property:
 
1. Failure to review risk imposed in property leases.
   
2. Failure to amend insurance policies to address identified risk.  
   
3. A tenant may cause major damage to leased space and the owners insurance company seeks recovery for all claims expenses from the tenant.
   
4. A tenant may find they are responsible under the terms of their lease for repairs or reconstruction for a loss they did not cause.  The tenant may have a contractual obligation to make major repairs to space they do not own, and to improvements they did not install.  
   
5. With very limited exceptions the insurance industry’s property and liability policies expressly exclude damage to property you rent or occupy, or property in your care, custody or control.  A tenant cannot rely on standard property and commercial liability insurance policies to provide protection for this risk.  
   
6. The insurance industry is widely ignorant of these issues.  I have reviewed thousands of property leases since 1974 and found very few insurance programs that have been amended to address these issues.

 

CONTACT INFORMATION:
James R. Mahurin, CPCU, ARM Phone: (615)790-0083
207 Third Avenue North Email: jimmahurin@aol.com
Franklin, TN 37064 Website: www.risk-guide.com