Landlords and building owners commonly require tenants to name them as additional insured. The landlord additional insured endorsement, along with the lease indemnity agreement, is designed to protect the building owner from liability claims that result from the tenant’s activities. The standard additional insured endorsement commonly issued to landlords (ISO CG2011) has recently been revised. It is important to understand how this revision could limit the scope of coverage afforded to the landlord as an additional insured.
The latest version of the ISO CG2011 was issued in 2013 and, as respects the landlord as an additional insured, reads as follows:
A. Section II – Who is an Insured is amended to include as an additional insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability arising out of the ownership, maintenance or use of that part of the premises leased to [the named insured] and shown in the Schedule and subject to the following additional exclusions:
This insurance does not apply to:
- Any “occurrence” which takes place after [the named insured] ceases to be a tenant in that premises.
- Structural alterations, new construction or demolition operations performed by or on behalf of the [additional insured].
- The insurance afforded to such additional insured only applies to the extent permitted by law; and
- If coverage provided to the additional insured is required by a contract or agreement, the insurance afforded to such additional insured will not be broader than that which you are required by the contract or agreement to provide for such additional insured.
B. With respect to the insurance afforded to these additional insureds, the following is added to Section III – Limits of Insurance:
If coverage provided to the additional insured is required by a contract or agreement, the most we will pay on behalf of the additional insured is the amount of insurance:
- Required by the contract or agreement; or
- Available under the applicable Limits of Insurance shown in the Declarations;
Whichever is less.
The verbiage added in 2013 is underlined. A careful reading of this revised wording will reveal a few potential issues for landlords and building owners. Under the 2013 form, the landlord is afforded coverage no broader than what is required by contract (the lease). Further, the coverage limit available to the landlord is no more than what is required in the lease even if the tenant carries higher limits.
We recommend several best practices to help building owners protect themselves from liability claims that occur on the property:
- Tenants should provide a certificate of insurance and a copy of the actual additional insured endorsement to the landlord. A certificate of insurance alone is not adequate proof that the tenant’s policy has been properly endorsed to include coverage for the building owner.
- An attorney should carefully review the lease agreement to ensure there is no limiting language that could restrict coverage under the 2013 edition of the CG2011.
- Building owners and landlords should always purchase a general liability policy (or property and liability package) separate from any coverage provided by the tenant(s). This is commonly referred to as a lessors risk policy.
The 2013 revisions to the landlord additional insured endorsement only underscore the importance of carefully drafting lease documents, especially the indemnity clause and insurance requirements.