Most leases require the tenant to maintain liability insurance that covers the risk of someone being injured on the property and suing. Since that injured party is likely to sue both the tenant and the property owner, leases typically require the tenant’s insurance company to designate the landlord as an “additional insured.” In this way, the insurance company is obliged to protect both the tenant and the owner of the property when the lawsuit begins.
All of this should bring comfort to the property owner. But comfort isn’t complete, as a new case in New York has shown once again. There, someone tripped and fell onto the sidewalk. They sued both the tenant and the property owner. The property owner was named as a co-insured on the renter’s insurance policy and asked the renter’s insurance company to handle the litigation.
The renter’s insurance company refused the insurance cover for the owner. The company explained that liability insurance only covers an “additional insured” if the liability is based on the negligence of the policyholder, in this case the renter. If the renter was responsible for maintaining the sidewalk and was negligent in failing to do so, the insurance company would have covered both the renter and the property owner.
In this case, however, the tenant was clearly not responsible for the pavement and therefore could not carelessly maintain it. Only the property owner who was legally responsible for the maintenance of the sidewalk could be considered negligent. In this specific legal dispute, the homeowner therefore did not benefit from being registered as an additional insured person in the tenants’ liability insurance.
The case teaches many familiar lessons.
First, the world of insurance is full of surprises, which generally entail differences between the coverage actually provided and the coverage assumed. These differences and the surprises that come with them are generally uncomfortable.
Second, even if an owner requires a renter to maintain liability insurance, that coverage is unlikely to protect the owner from liability for his own negligence. Therefore, if there is any conceivable basis on which an owner could be held liable as a result of his own acts or omissions, he should maintain his own insurance.
Third, because the world of insurance is full of surprises, an owner should probably maintain their own liability insurance even if they believe there is no possible basis on which they could be considered negligent as a result of their own acts or omissions.
Fourth, a property owner should understand the allocation of risks and responsibilities in their leases and plan their insurance program accordingly. In the New York case discussed above, the lease made the tenant responsible for his own premises, but not for the sidewalk. The owner remained responsible for the sidewalk, and that’s where the accident happened. As a result, the property owner could not rely on the tenant’s insurance policy, even though the owner was additionally insured under that policy.
