Insurance is a fact of every day commercial life. Risks to be insured include personal injuries on the premises, adverse weather conditions, water pipes bursting, and many more. The responsibility of getting insurance can be allocated by commercial landlords and tenants. Often the landlord will want the tenant to get insurance and name it as an insured. A tenant will want the landlord to have insurance for risks that might occur in the locations for which it is responsible.
In addition, many leases require one party or the other to indemnify the other in certain circumstances. For example, if someone slips and falls in the tenant’s space and the landlord gets sued—even if erroneously—the tenant might have to indemnify the landlord for their attorney fees, costs, and for any judgment rendered against them.
The indemnity provisions might be rendered irrelevant if insurance covers the claim, but what if, contrary to the lease, the party obligated to get the insurance has failed to do so or let it lapse? What if, moreover, the party responsible for indemnifying the other cannot afford to pay the claim? Then, someone has a problem.
Careful drafting of the lease terms can solve some of these problems by making sure that the appropriate party gets notices or copies of key papers, that indemnity provisions are consistent with insurance provisions, that the terms of insurance policy cover the appropriate risks, and that the amount of the insurance is sufficient.
Setting up monitoring systems can be just as important. The insured party should get notice of any lapse of the policy even if they are not the ones who are supposed to get the insurance or pay for it. Keeping track of renewal dates, actually examining the policy to judge whether it is adequate, knowing the name of the insurance agent and having the independent right to contact him or her can prevent problems.
In one case, a tenant’s lease excluded a certain hazard from landlord responsibility, the tenant borrowed money from a bank for equipment, insurance was required for this hazard, but not in sufficient amountsto cover the cost of remediating the risk when it actually occurred.