Commercial Property Insurance: Additional Insured Requirements For Your Tenants

Commercial Property Insurance: Additional Insured Requirements For Your Tenants

Introduction

As a commercial property owner or landlord, protecting your investment goes beyond maintaining the building and carrying your own insurance. One of the most important steps you can take is making sure your tenants add you as an additional insured on their liability insurance policy. This simple requirement, often written into lease agreements, can save you from unexpected financial and legal exposure.

What Does “Additional Insured” Mean?

When a tenant names you as an additional insured, it extends liability coverage from their insurance policy to you, the property owner. In practice, this means that if someone sues both the tenant and you because of something that happened in the tenant’s space, the tenant’s insurance helps defend you.

Without this protection, you might be forced to rely on your own insurance or pay out of pocket for claims that weren’t even your fault.

Real-World Example

Imagine you lease retail space to a clothing store. One day, a customer slips and falls inside the store. The injured customer sues both the store owner and you, the building owner.

If you’re listed as an additional insured:

• The tenant’s insurance can step in to cover legal defense costs.
• Any settlements or judgments related to the incident can be covered under their policy, up to the limits.

This shifts the risk away from you and ensures the tenant’s coverage is doing its job.

Why It’s Important for Landlords

1. Risk Transfer – Additional insured status helps transfer liability risk back to the tenant where it belongs.
2. Legal Defense Costs – Even if you’re found not liable, lawsuits are expensive. Coverage for legal defense is a major benefit.
3. Industry Standard – Requiring this provision has become standard in commercial real estate lease agreements.
4. Peace of Mind – You know your tenant’s insurance will back you up in case of a claim.

What It Doesn’t Cover

While additional insured status is powerful, it’s not a replacement for your own commercial property insurance. For example, it won’t cover:

• Damage to your building itself.
• Loss of rental income.
• Your own business personal property.

That’s why you still need your own commercial property insurance policy in place. The additional insured requirement simply adds another layer of protection.

Lease Agreement Best Practices

• Always include an additional insured clause in your lease.
• Verify certificates of insurance from your tenants before move-in.
• Review limits to make sure their coverage is sufficient for the size and risk of the business.

Bottom Line

Requiring tenants to name you as an additional insured is a simple, standard step that can save you from costly claims. It ensures that if an accident happens inside your tenant’s space, their policy—not yours—pays first.

For commercial property owners and real estate investors, this isn’t just a good practice—it’s essential risk management.