Your landlord is asking you for a certificate of insurance before you get the keys to your office. What exactly is this document? What does it say? Why does your landlord require this?
Below, I have outlined a few of the key insurance terms you will hear from a landlord or property manager. By having a rough understanding of these terms, you will be more equipped to communicate with your landlord and your insurance agent.
CERTIFICATE OF INSURANCE (COI)
- What: This document provides a summary of your insurance portfolio. Your coverage levels are listed, as are specific endorsements to your policy you are asked to provide or make reference to. The additional insured endorsement is a popular endorsement that will be discussed towards the end of this post.
- Why: Your landlord wants to see this document to make sure you have insurance. If you do not have insurance, then your claims may trigger your landlord’s policy, causing financial damage to your landlord. Furthermore, most landlord policies have a subjectivity in them that requires tenants to have insurance. If the landlord does not meet this requirement, their coverage may be reduced.
GENERAL LIABILITY INSURANCE
- What: General liability insurance covers claims that result from bodily injury and/or property damage to a third-party. Slip and fall claims/lawsuits are likely the most popular general liability claim. General liability is a broad term that encompasses other coverages, like personal & advertising injury - and products/completed operations. Ultimately, landlords are typically only concerned with bodily injury.
- Why: If one of your customers or vendors comes to your office and is injured on your property, your general liability policy usually covers it. If you did not have this policy in place, there would be no coverage, and the injured party would resort to filing a claim against your landlord.
You’ve probably heard a landlord say they need “a million-dollar policy”. This is only half true.
- What: When people reference “a million-dollar policy,” they are referring to the per occurrence limit of your policy. The occurrence limit is the maximum the insurance company will pay, per single claim occurrence.
- Why: This is a way for the insurance carrier to limit their loss exposure. Imagine a customer breaks their leg in your office. This is a single occurrence. The total cost of this claim is $1,200,000. The insurance company will pay up to $1,000,000 and you are responsible for the excess $200,000.
The insurance company has an additional way to stop or limit their loss exposure, and they do this by adding an “aggregate limit”.
- What: The aggregate limit is the total amount an insurance company will pay out to the policyholder during a policy term (usually 12 months). Landlord’s usually like to see a $2,000,000 aggregate.
- Why: If there were no aggregate limit, the insurance carrier could be responsible for paying any number of claims up to the occurrence limit. To illustrate why there is an aggregate limit, imagine a fire breaks out in your office and several customers are injured. Let’s say this results in 10 claims that cost $300,000 each, for a total of $3,000,000. In this scenario, the insurance company only cover up to the the aggregate limit of $2,000,000, leaving you responsible for the excess $1,000,000.
ADDITIONAL INSURED ENDORSEMENT
- What: The additional insured endorsement is an enhancement to your policy that benefits the landlord. Endorsements function similarly to contract addendums - they add something not originally included in the policy. Endorsements are usually referenced in your certificate of insurance.
- Why: By adding your landlord as an additional insured, they are able to access your policy limits in the event of a lawsuit. If someone is injured on your premise, and they seeks damages from your landlord, the landlord can present your policy and use your policy limits as opposed to their own.
As a business owner, you have plenty to worry about. Don’t get caught having to managing your vendors - like insurance agents. Working with Wind Water Realty helps you to focus on what you do. Our network of brokers, insurance agents, contractors, attorneys, and other other professionals work together to support your objectives.
This post is a summary only, and does not constitute legal or insurance advice. Consult with your insurance agent to address your specific insurance requirements.
For more information on insurance requirements, please feel to contact me.
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