Previously we discussed whether your real estate lease includes the most current property insurance requirements. Now let’s talk about the type of liability insurance coverage your lease requires and, depending on the language in your lease, whether you actually have any coverage at all.
The most common risk allocation scenario is for retail Landlords to provide commercial general liability (“CGL”) coverage for the common areas and for Tenants to provide CGL coverage within the leased premises. This type of allocated responsibility can be used not only to cover risk but also as a tool to cover the parties’ respective indemnification obligations in their lease.
In the past, comprehensive general liability insurance was offered as a basic policy with numerous possible endorsements. In 1986, the Insurance Services Office, Inc. (“ISO”), a company that provides advisory services and information to insurance companies and that develops and publishes insurance policy language that many insurance companies use as the basis for their products, issued ISO form CG 00 01 commonly referred to as a CGL policy.
This policy simplifies matters by including within a single policy the coverages that previously could be obtained only through multiple endorsements. If your lease form requires comprehensive general liability insurance be provided, we recommend you consider changing your form to require commercial general liability insurance, on an occurrence basis, issued on a form at least as broad as ISO Form CG 00 01 10 01 or another ISO CGL “occurrence” form providing equivalent coverage including broad form contractual liability coverage, specifically covering but not limited to any indemnification obligations. It is important, however, that you understand the exclusions from coverage in such a policy since some changes were made to some of the exclusions sections in 2001.
We also recommend the policy be issued on an “occurrence” basis rather than a “claims made” basis. If coverage is on a “claims made” basis, a loss is covered only if the event happened and the claim is made during the term of the policy. An “occurrence” based CGL policy covers incidents that occur during the policy period regardless of when the claim arising out of the event is actually filed. In addition, occurrence based CGL policies often provide defense costs in addition to the coverage and do not reduce the coverage – another important distinction with claims made coverage.
The other important aspect of CGL coverage is that these policies are written with a per occurrence limit for all bodily injury and property damage. Liability claims have an annual aggregate for all claims arising during the applicable policy year. If the aggregate limit is reached in a given policy year, an umbrella policy is needed to provide additional coverage for any claims in excess of the annual aggregate amount.
For many years, a certificate of insurance issued by a broker was thought to ensure that the party named as an “additional insured” was, in fact, insured.
However, it’s important to understand that certificates of insurance, whether in the form of an ACORD certificate or otherwise, indicate the existence of insurance but are not evidence that the additional insured has insurance coverage under the specified policy. Additionally, an insurance agent may not be authorized to issue a certificate of insurance or may have limited authority.
The best practice to ensure that a party expecting to be an additional insured is to obtain an additional insured endorsement(s) to the insurance policy (ISO CG 20 11 – Additional Insured – Managers or Lessors of Premises) issued by the insurance company to confirm the additional insured coverage.
…and make sure the endorsement is completely and properly filled out!