If someone is injured on the landlord’s property, you and/or the landlord may be sued. Or, if you or the landlord accidentally damage or destroy someone else’s property while it’s on the rented premises, the owner may sue you over its loss. With liability insurance, the insurance company will provide the lawyers to represent you and the money to pay a settlement or verdict. This type of insurance, called Commercial General Liability (CGL), is known as “third-party” insurance, because it protects you and the landlord from claims by others. Knowing that lawsuits by third parties can ruin even the best of businesses, it’s in everyone’s interest to have an adequate CGL policy protecting you and the landlord.
Many leases prepared by landlords require you to obtain liability insurance and to add the landlord as an additional insured, which means that the insurance company will represent the landlord as well as you if you’re both named as defendants in a lawsuit. If money needs to be paid out in a settlement or a judgment, the insurance company will pay that, too. In this situation, you will not be able to share the premium costs with other tenants. Unfortunately for all tenants, they may be buying their own policies too, as well as adding the landlord to them. The landlord ends up being covered by several policies, each taken out by separate tenants. The only winners here are the insurance companies.
Damages and Losses Not Covered by CGL Policies
It’s important to understand that Commercial General Liability policies won’t cover damage to or loss of property that you or the landlord own or for which you might be responsible (such as rented equipment). You’ll need property and casualty insurance for that, explained in Triple Net Leases: Property and Casualty Insurance.
You and the landlord will also not be covered if the third party’s loss is the -result of deliberate action or inaction, rather than a mistake or accident. Most of the time, there will be no question that the loss or injury—damage to a piece of rented equipment, injury to a customer—was unintended. But things get trickier when it comes to claims involving personal, nonphysical injuries such as slander and emotional distress. If an insurance company thinks that you or the landlord -intended to cause the damage you did, it may balk at covering you.
If the landlord already has the general liability coverage, you’ll be added as an additional insured and charged for a portion of the landlord’s premium. Fairly apportioning those costs is explained in Triple Net Leases – Sharing Liability Insurance Costs Fairly Among Tenants.
This article was excerpted from Negotiate the Best Lease for Your Business by Janet Portman