Commercial Leases: An Old Basic and a Bit Beyond Part 2 – A Bit Beyond
Author: Bill McEachern
For Part 1, click here
Well, now a bit beyond the basics, for just a moment. Whether you are landlord or tenant, and regardless of who is paying the premium for the insurance on the property each party should try to be named in the lease (and in the insurance certificate) as an “additional insured”. This is common on liability insurance where the landlord usually wants to be named as an additional insured on the tenant’s liability policy – this protects the landlord in the event of lawsuits. But, if the landlord is named as an additional insured on the tenant’s casualty policy (which usually covers the tenant’s property such as equipment), then the landlord has even greater protection from potential liability. The same applies to perhaps greater force to a tenant. A tenant should try to convince the landlord to include them as an additional insured on the landlord’s casualty policy that covers the landlord’s building. If the tenant is paying some or all of the premium for the landlord’s casualty policy, the landlord may agree to include the tenant as an additional insured.
Here’s one good reason why this additional insured status is important – if there is a claim and it is covered, then the insurance carrier usually pays something. The insurance company then is substituted (the legal term is subrogate). Subrogate means to “step into the shoes of its insured”. The carrier may then go after anyone that might have contributed to the loss. This includes a negligent tenant that may have caused the fire in the landlord’s building (with the carrier making a loss payment for losses covered by the landlord’s casualty policy). If the tenant is an additional insured under the landlord’s casualty insurance policy, then the insurance company cannot pursue the tenant, even if the tenant was negligent and caused the fire. Why? Because an insurance carrier is barred from seeking recovery from its own insured. So, be an insured.
This situation was addressed as recently as February 6, 2019, by the Third District Court of Appeal here in Florida. Unfortunately, that tenant was not explicitly named as an additional insured under the landlord’s casualty policy. So, the tenant had to argue that it was an “implied co-insured.” The tenant had to convince the Court, after analyzing all relevant terms of the lease to discern the intent of the parties, that the tenant was not intended to be liable for such losses. The Court adopted the “case-by-case” approach, with an in-depth focus on all the relevant lease provisions, at great cost to the parties. The tenant lost. It was not deemed to be an implied co-insured of the landlord’s casualty policy. Thus, if the landlord’s casualty insurance carrier can prove the tenant was negligent and caused the fire, the carrier may recover from the tenant. See Zurich American Insurance Company v. Puccini, LLC, No. 3D17-0690 (3rd DCA Feb. 6, 2019).
If only the tenant had been explicitly named as an additional insured under the landlord’s casualty policy – it would have been a happier tenant.
For Part 1, click here
Bill’s experience includes but is not limited to commercial law transactions and litigation; asset-based lending, asset sales, and leasing; business sales; corporate, partnership, and LLC matters; and bank and lender representation.
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