Know Your Tenant's Risk - E&O Tip of the Week

Commercial Real Estate agents are charged with the responsibility of leasing spaces to a myriad of tenants. However, real estate agents and brokers are increasingly held to a higher standard of ensuring that tenants are good public citizens and are properly insured. Contrary to popular belief real estate agents can be sued when tenants don’t pay their rent, a property sustains damage, or someone is injured or killed on the property.

We have seen a flood of claims lately where the real estate agent is held responsible for the actions of their tenants on properties they lease or manage. I’ve listed below are some common issues and a few claims examples for you to consider.

Certificate of Insurance Issues

1. Updates to the Certificate: Certificates of insurance are only a snapshot of the insurance in effect on the day the certificate is issued. Tenants have the right to cancel or alter their insurance as they see fit, but the insurance carrier may not be obligated to tell the building owner of such changes. Further, many E&O claims occur when the property manager fails to monitor the tenant’s policy expiration date and fails to get an updated certificate.

Claims Example: A property manager leased a space to retail store and obtained a certificate of insurance. The store fell on hard times and allowed their insurance to lapse. The property manager did not require a thirty day notice of cancellation and also did not follow up the following year for an updated certificate. Unfortunately, someone fell and was hurt on the premises. After the store filed for bankruptcy and went out of business, the injured person sued the landlord. The landlord settled with the injured person, then sued the property manager for failing to ensure that all tenants were properly insured. The landlord and property manager arrived at a settlement of $150,000.

2. Additional Insured Status: It is common for a lease to require the building owner to be listed as an additional insured on the general liability policy. The purpose of this is to protect the building owner in the event of a slip and fall or other claim caused by the tenant’s negligence. One common mistake we see is that the additional insured status for the landlord is granted to a fictitious name (DBA) and not to the actual corporate name of the building owner.

3. Certificate of Insurance for All Vendors: Property managers hire a variety of vendors for a property under management. Often, the decision of who to hire is made at the last minute or is someone the property manager has been doing business with for many years. I am often surprised at the number of vendors who do not have insurance and at the number of others who have insurance that does cover the work that is being done. It’s important to confirm not only that the contractor is appropriately licensed, but also that the company is insured for the specific work being performed.

4. Additional Insured Status Vendors: It is also common for property managers to require vendors to show evidence of insurance and show the building owner as an additional insured. It should be noted that the additional insured status in a general liability policy is not a “magic bullet” for the landlord. The language of the policy will dictate under what circumstances the landlord may benefit from the policy. For example, some policies will only defend and indemnify a landlord if there is a previously established, contractual obligation to do so. When a vendor doesn’t have a written contract that includes a contractual obligation to indemnify the landlord, the liability insurer likely will not extend coverage to the landlord, even though the landlord is listed as additional insured.

5. Bars, Restaurants and Taverns – Assault and Battery: Businesses that sell alcoholic beverages face a variety of exposures, including a marked exposure for assault and battery claims. One common and significant issue facing these businesses, and the landlords who rent them space, is a lack of coverage for assault and battery. Typically, there is no coverage for assault and batter in the basic liability policy, if the establishment sells a good amount of alcohol. Establishments such as these generally must buy a separate policy to address the exposures of selling alcoholic beverages. Liquor Liability is often much more expensive than a standard liability policy. A property manager may get a certificate of insurance from a bar, tavern or nightclub tenant, but it may be worthless in the event of an assault and battery claim.

Claims Example: A property manager leased an out parcel to a restaurant with a large and busy bar. They obtained the necessary certificate of insurance for their general liability insurance, but did not confirm that there was assault and battery coverage. They also did not require that the building owner be named as an additional insured. One night a fight broke out and someone was knifed and killed on the premises. The family of the deceased sued the restaurant for negligence in the serving of alcohol. They also sued the building owner. The restaurant was not covered for the loss because the amount of alcoholic beverages they sold precluded coverage for assault and battery claims. The restaurant was eventually forced to file for bankruptcy protection. The building owner’s insurance company paid over $500,000 to settle with the deceased’s family. The insurance company then sued the property manager, even though his contract indemnified him, for failing to ensure that the tenant was properly insured. Had the property manager confirmed that the tenant had assault and battery coverage and that the landlord was properly listed as additional insured, the restaurant would probably still be in business and the property manager would not have been sued. Eventually the property manager settled with the landlord’s insurance company for $160,000.

For more information on this topic, please contact one of our licensed representatives at 201-847-9175 or at

Uncategorized, E&O Tip of the Week, Real Estate, Risk Management, Insurance Articles

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