On a regular basis, our agency receives calls from our clients who are opening a business and are in the middle of lease negotiations with a landlord. Whether your business is an office, a store, or a showroom, a lease agreement typically obligates a tenant to carry specific limits of insurance. Often the landlord wants to be named on your policy and requests proof of this prior to the tenant taking possession of the space. This proof is called a Certificate of Insurance and it typically requires updating on an annual basis.
Sometimes, we find that the landlord’s insurance requirements are so outrageous it is as if they want to transfer the entire insurance obligation to the tenant and cancel their own policies! What most would-be tenants do not realize is that the terms of a lease and the limits of insurance required by management are usually negotiable and a knowledgeable insurance professional can be of great assistance during this time. In addition, the landlord’s interests are never fully protected by a tenant’s policy and a savvy landlord will always maintain their own policy to protect their own interests.
Most leases minimally request that the tenant carry General Liability limits of $1 million per occurrence and $2 million in the aggregate. Often there may be an additional request for a $1 million (Excess) Umbrella policy. They might also require Workers’ Compensation, Automobile Liability and, depending upon the nature of the business, Professional Liability. These requirements, we feel, are not unreasonable demands. Some leases might require coverage for Improvements and Betterments made to the space by the tenant as well as the continuation of Rent Payments even if the space becomes uninhabitable in the event of a claim. We strongly suggest that you have someone who is really well-versed in contract language, such as your attorney, review the lease clauses prior to signing such a document.
Once your policies are bound, your agent or broker issues you, the insured, a certificate naming your landlord as the Certificate Holder. It is very important to understand that the certificate of insurance is only a snapshot of the coverage you just put in place.
A Certificate cannot add to the coverage, change the coverage or modify it in any way. The issuer (your agent) cannot provide any wording other than that which is contained in the policy document. In addition your agent cannot provide any assurance of payment for a loss because liability is based upon negligence (fault) which is something to be investigated by the insurance carrier.
In fact, the subject of “Certificates of Insurance” is such a hot topic that many agents and brokers take innumerable courses to become more knowledgeable as to the proper procedure to follow when issuing a certificate, so they can answer a variety of questions such as those we hear on a daily basis:
• Why all this emphasis on who, what, where, how and when to get a certificate?
• Who should you provide with a certificate? What should it say?
• How do you know what really should be included?
• When can you push back on a landlord asking for unreasonable inclusions?
• Why do landlords request the name of every officer, director, member, agent, representative, successor, and assign appear on a certificate of insurance these days?
The main answer to all these questions is that we live in a very litigious society in very challenging economic times and everyone is looking to have their interests protected. Moreover, everyone is looking to have their interests protected by someone else so that they don’t have to pay any additional monies on their own insurance policies. Most important, when a loss occurs depending upon who is named on a certificate and to what degree they are included, they are often entitled to a defense should a suit be brought against them. Therefore, it is up to an insured to become educated and be sure that their limits of liability aren’t in any way being diluted by the inclusion of numerous others. After all, your insurance is there primarily to protect you and should be available to make payment in case a judgment is ultimately rendered against you.
So, before you agree to give away your “store,” we suggest that you make a call to your agent. Ask them to look over your lease, the requested limits of insurance, as well as any request for additional insured status to see if everything being requested is both reasonable and in order. After all, insurance agents pride themselves on being able to offer their clients a “decent night’s sleep”.
- Karen Skoler, CPCU