Real Estate Insurance - Court Decision Puts Building Owners on Notice
Building owners who depend on tenants to provide insurance on the building are at some risk of having no coverage available after a loss. That's a bitter lesson learned by one landlord when a Dallas Court of Appeals left them empty-handed following a fire that damaged the building. In the case of Ostrovitz & Gwinn, LLC vs. First Specialty Insurance Company, several errors in the lease and the insurance policy combined to produce a really bad result for the landlord. The original lease in 1998 required the tenant to insure the buildings and name the landlord as an additional insured. The tenant's policy was written blanket to include all buildings and contents and the landlord was added under the loss payable provision of endorsement CP 12 18 (Loss Payable Provisions). When the lease was renewed in 2003, someone forgot to include the building insurance requirement, but the tenant's policy still included the endorsement. When the building burned in 2006, the landlord's claim against the policy was denied because the loss payable provision contained no clear promise to pay a claim by a loss payee in the absence of a claim by the named insured. (While the facts in the case are unclear, we assume the tenant needed some or all of the blanket limit of insurance to pay his own losses and didn't want to share with the landlord, absent a legal obligation to do so.) The court agreed.
If you are the agent for a landlord, try to convince them why it's in their best interest to procure their own insurance on the building, even if there is a perceived tax or other financial advantage, and not rely on the tenant's coverage. If you are the agent for a tenant who is required to cover the landlord's building, the best option is to obtain a separate policy in the name of the landlord. The second best option is to include building coverage on the tenant's policy and add the landlord as an additional insured using endorsement CP 12 19 (Additional Insured – Building Owner). This endorsement adds the building owner as a named insured.
Swingle, Collins & Associates specializes in commercial real estate insurance coverage coverage The descriptions of coverages listed on this website are brief and subject to the provisions, limitations, and exclusions that can only be expressed in your policy and related endorsements. For additional information of how Swingle, Collins & Associates can assist in meeting you coverage needs for commercial building insurance please contact your dedicated risk manager to discuss the benefits and services of real estate insurance coverage.
The information contained on this page is provided for informational and educational purposes only. It contains general information on insurance issues and may not reflect the most current developments in insurance coverage and is unlikely to apply in all factual scenarios. The information does not include all the terms, coverages, exclusions, limitations or conditions that may be contained in the actual insurance contract language. The policies themselves must be read for those details. Sample policy forms will be made available upon reasonable request.