Wait Until After The Fire To See If There Was Insurance Coverage

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Like it or lump it – the insurance industry doesn’t care about your problems as a landlord or a tenant or a lender. A lot has been written about the only useful element of a certificate of insurance, the ability to use the reverse side as scratch paper (assuming it is blank). In addition, we all write lease and loan documents as if the parties can get their insurance carriers to give notices of non-renewal or cancellation, but those provisions aren’t self-enforcing. There is no willingness on the part of the insurance industry to provide a mechanism for such notices.

A number of work-arounds have been used. My favorite useless provision in an agreement is that the party who is required to carry the insurance must give notice to the “concerned” party that the reporting party’s own policy has been cancelled. So, when it doesn’t do so, is it guilty of a “double default” – first for losing the insurance and then for failing to turn itself in?? That’s kind of like this dialog: [Dean Wormer’s plotting to get rid of Delta House in the movie Animal House]: Greg Marmalard: “But Delta’s already on probation.” Dean Vernon Wormer: “They are? Well, as of this moment, they’re on DOUBLE SECRET PROBATION!”

Some have suggested that a “manuscript” (i.e., custom drawn) endorsement be used. Well, there is such a process, but only the biggest of insureds can get such endorsements. And, if you are big enough to get a manuscript endorsement, you don’t really need to carry the paltry insurance called for in your typical lease and real estate loan agreements.

Some ask that the “broker” be responsible for telling the requesting party (who is most often an additional insured) if and when a policy has been cancelled. Almost always, the broker will know. But, the broker isn’t a party to the lease or loan and isn’t going to expose itself to the liability associated with an uncovered loss.

So, “What’s a girl to do?” (Bat For Lashes) or “What’s a guy to do?” (Usher).

First and foremost – CARRY YOUR OWN INSURANCE. If you own a property, carry the property insurance and get the premium reimbursed to you by your tenants, even if you are dealing with a single-tenant property. If you don’t think your tenant, from its own pocket, can pay to replace the building, then why take the risk that the same tenant won’t let the building’s insurance lapse? Lenders carry back-up insurance for that purpose and it is priced into the loan. As to liability insurance, landlords, tenants, and lenders should rely on their own insurance to cover their own deeds. In almost every case, tenants are paying for their landlord’s liability insurance already.

This isn’t to say that one party doesn’t have a legitimate interest in seeing that the other party is adequately insured. At a minimum, you want to see that the other party can survive a lawsuit or fire. In that regard, those interests are aligned, the injured party wants to recover from the loss and stay in business. In prior postings, we’ve already posited that some parties don’t need to carry insurance because they can well bear the risk of loss. We’ve also opined that insurance is merely a “credit enhancement” and therefore some parties have good enough credit to meet their own needs. By example, a 500 store chain shouldn’t need to insure its store inventory or store fixtures. Those items are easily replaceable from “stock,” representing 0.2% of the chain’s goods and fixtures.

Second, if you want to know whether the other party is carrying agreed-upon insurance, you have to monitor that insurance yourself. If more lease negotiators realized that the last time anyone paid attention to certificates of insurance and similar lease requirements was when they, the negotiators, finished the documents, they would wonder: “why did I spend my energy and lease negotiating capital” on the subject. Basically, if a party (landlord, tenant or lender) truly cares about whether its counterparty is “insured,” it needs to spend the money to find out. It needs to “administer” the agreement. It needs to ask for proof of insurance before the existing policy terms run out.

This task can be done internally or through an outside service. Parties should ask themselves – “is this important or will I be satisfied to find out only after the fire or accident?” If it is important, and you want the job done right: (a) do it yourself; (b) give it to a professional; or (c) give it to the busiest person you know. There are monitoring services, the cost for which should be recoverable as part of operating expenses. Every true commercial real estate broker can point you in the right direction.



  1. what i want to know is when you truly buy insurance how do you know before the fire if you are really insured?
    we had purchased insurance for our multi family and when there was a hail storm that damaged the roofs with hail the size of oranges the insurance co denied the claim.first they said that there was no storm.it was in another part of town.then they said that our roofs were old and had not been installed properly. they had inspected them before issuing the insurance.they approved the roofs when they were looking for the policy to be written and the premiums were going to be paid to them.ah! they like the premiums but have found that the way to increase their prof is to deny the claims.
    how do you find out ahead of time m how do you know if you will be paid on a loss?

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