Owning a building that is leased to others can be a lucrative real estate asset, but these properties come with many risks and the lease contracts can be quite complex. Some lease agreements require a tenant to purchase a policy with the property owner listed as a named insured, while other leases may allow the property owner to be listed as an additional insured only. The difference between a named insured and an additional insured is an important distinction. If your property lease is a triple-net lease, it likely requires that the liability insurance name the property owner as additional insured.
A named insured is the person or organization named on the policy as the insured entity, to whom benefits are conferred by the policy for defense and indemnity. This means that if there is a claim of negligence against a named insured, the person or entity will be defended by the insurance company, and if any settlement is required, the policy will pay a claimant on behalf of the insured.
A policy may also have additional insureds listed on the policy. The real status of an additional insured under a policy will depend heavily on the language of the policy as well as the language of the lease. It is important not to confuse an additional insured with a named insured, or a loss payee. A loss payee is person or entity who has a financial interest in the insured property aside from liability exposures.
In either case, it is important to understand that an insurance policy can protect an insured party by paying for liability claims that arise out of negligence on the part of the insured. A lease agreement will often require that this liability protection is provided by either the lessor or the lessee. It is very important to understand the full terms of your lease and the insurance and indemnification requirements. In some cases, these requirements impose a significant burden on one party to afford protection to the other. There may also be a hold harmless agreement, waiver of subrogation and additional insured requirements on a primary and non-contributory basis.
Before entering a lease agreement, be sure to have your agent review the insurance requirements so that you can put a program in place that complies with your lease and affords the best protection for you and your business.