Essential Guide: Lessor's Risk Only Insurance
Do you own a building and lease it as an office, retail, or warehousing space? If so, lessor’s risk only insurance is essential to protecting your business investment.
As a commercial landlord, you’re always at risk of your property being the center of a lawsuit. Lessor’s risk only insurance helps shield you from these potential risks.
Let’s explore lessor’s risk only insurance, the types of coverage, and how it helps your business.
What is Lessor's Risk Only Insurance?
Lessor’s risk insurance is a type of liability coverage that protects a building owner from risks that may arise due to damage, destruction, theft, and vandalism on a property leased to a tenant.
The policy also applies if the tenant or the tenant’s employee experiences physical injury on the premises.
Lessor’s risk insurance is a common policy among owners of commercial office space, retail buildings, malls, shopping centers, warehouses, and apartment complexes. If the building is financed, a commercial lender will likely ask the owner to get lessor’s risk only insurance and maintain the coverage for the duration of the loan.
Most lessor’s risk policies are building-specific, but some may cover multiple properties. Ask your insurance agent for the best policy options for your commercial space.
What Does Lessor's Risk Only Insurance Cover?
Lessor’s risk insurance policies cover a wide range of tenant claim scenarios, including slips and falls, vandalism, sewer backup, and fire. The lessor’s risk policy would cover reimbursement for the tenant’s physical injury and property loss. It also may cover the landlord’s legal fees.
Like most insurance policies, lessor’s risk only insurance has its limitations. It doesn’t protect your commercial building from every risk scenario. Here are a few situations not covered by lessor’s risk only insurance:
- Criminal Negligence: It does not cover incidents caused by a landlord’s criminal negligence. For instance, if the landlord deliberately started a fire to make an insurance claim for reimbursement, the claim would be rejected.
- Building Damage: Lessor’s risk insurance does not protect your building against damage. It only shields you from tenant claims. For building protection, you need commercial property insurance.
- Personal property: Lessor’s risk insurance does not cover the tenant’s personal property, like purses and wallets.
Lessor’s risk insurance is not a substitute for general liability insurance. Both types of insurance cover claims around bodily harm and damaged property that occur in the building.
However, general liability protects the landlord against lawsuits by third parties, while lessor’s risk insurance is specific to the tenant’s activities on the property. So if a delivery person slips and falls on the stairs of your apartment building, it would be covered by the general liability policy, not the lessor’s risk only insurance.
Types of Lessors Risk Insurance Coverage
Lessor’s risk insurance coverage can be tailored to a specific building. Coverage requirements also vary based on the location of the property. Here are several events typically covered by lessor’s risk insurance:
- Slips and falls
- Sewer/drain backup
- Burst pipes
- Weather-related damage
- Invasion of tenant privacy
- Wrongful entry
- Wrongful eviction
- Breakdown of tenant equipment
- Loss of digital information if tenants are using the landlord’s computer network
When considering lessor’s risk insurance, you will need to choose a coverage limit based on your property’s needs. The coverage limit is the maximum amount the insurer will pay for a single loss.
If the tenant’s injury or loss exceeds this limit, you as the building owner will be responsible for the difference. Discuss your coverage limit options with your insurance agents.
Reasons to Consider Lessor’s Risk Insurance
Purchasing insurance is an important decision for your business. As a landlord, your goal is to protect your investment and limit your liability. Here are a few reasons why you should consider lessor’s risk only insurance.
- Minimizes financial loss. Your property’s rental income is shielded from tenant injury and property damage claims.
- Covers legal fees. Lessor’s risk insurance covers not just claim settlements but also legal fees. So, whether the tenant wins or loses the case, the policy takes care of your legal costs.
- Protects your reputation. Your reputation is key to attracting and retaining high-quality tenants. Lessor’s risk insurance gives your tenants confidence that they will be compensated if something ever goes wrong.
Underwriting Considerations for Lessor's Risk Insurance
Underwriting requirements vary from one insurer to the next. That said, insurance companies will often take the following into consideration.
The building typically must be at least a majority tenant-occupied. The exact percentage varies by the insurance carrier, but if overall building occupancy falls below 30%, some policies will treat the building as vacant, and you will have to purchase a different type of policy.
For older buildings, insurance companies will want to verify that updates and/or renovations have been made to the plumbing, roof, electrical, and HVAC systems.
The policy premium itself will depend on several factors:
- The building’s age (Older buildings may be considered uninsurable.)
- Square footage (Some carriers insure no more than 30,000 square feet.)
- Construction materials
- Electrical hazards
- Building protection systems (sprinklers, fire extinguishers, smoke detectors, and carbon monoxide detectors)
- Types of business tenants
- Number of employees hired by the tenants
- Current maintenance levels
- Area crime rate (Buildings in risky areas may be considered uninsurable.)
Insurers want certainty that the landlord is doing all they can to keep tenants safe. Some lessor’s risk insurance policies will require tenants to secure property damage and liability coverage.
Get Lessor’s Risk Only Insurance
Commercial landlords must protect their investments. Lessor’s risk only insurance can shield you from tenant claims. Talk to your insurance agent about getting lessor’s risk only insurance and ask them to get you a Pathpoint quote today.