Commercial businesses often occupy a leased property. When this occurs the premises liability section of an insurance policy can get interesting. This is particularly so when the policyholder is required to maintain the property under a contract.
Often when a liability claim occurs against a business that leases a property, the property owner will also be placed on notice. Property owners are usually seen as primarily responsible for maintaining the property.
Typically, the landlord or property owner’s insurance company will submit a tender request. They will often ask that the tenant’s insurance company pick up the defense and indemnity (D&I) of the building owner. One must look at three aspects of the claim to determine whether to accept a tender request from another carrier.
Before accepting any tender request, we must consider the language of the lease. We also need to determine whether there is any additional insured status for the property owner. Finally, we must look at the facts of the incident to find out who was negligent.
Not all leases are created equal. Some will not have any language about insurance requirements for defense and indemnity. Most times however they have at least one of these aspects and more than likely both. If the lease requires additional insured status, then you must look to the policy. Look for provisions that provide additional insured status to the building owner. The D&I section of a lease will often require that the tenant provides full defense for claims that arise out of the use of the property. The landlord will also look for indemnity in case the property owner is ever found liable for damages. In most cases it is not possible for a lease agreement to state that the landlord’s negligence is completely wiped clean by function of the lease. This type of contract agreement is considered against public policy. A property owner cannot contract away their own negligence.
Additional insured status
You must determine whether the policy affords coverage directly to the building owner before accepting a tender request. In some policies this can occur even if they are not specifically the named insured. An additional insured endorsement will typically list each additional insured but in some cases, a policy will have a blanket additional insured endorsement. This will provide additional insured status to anyone that the policyholder maintains a contract agreement with that requires additional insured status.
The third aspect of the claim that the adjuster needs to consider are the facts of the incident. To accept a tender for D&I the policyholder must have been solely negligent. If the tenant is free from any liability and all the liability rests with the building owner, then no tender should be provided. As an extreme example, consider if someone is injured on a property that the landlord owns but which is not leased by your policyholder. Also consider that the policyholder did nothing wrong to create the situation that caused the incident. In such a case, the policyholder is free from any liability. There would be no need to accept any tender request.
An adjuster must get important documentation such as leases and insurance policies. It is also the insurance adjuster’s duty to make sure that they complete a full investigation. We must find out exactly what happened, where it happened, and who is really at fault.