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A Business Owner's Guide to
Property and General Liability Insurance
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It's an understated fact! Companies who lease space, as well as companies who own their own building(s), face a NUMBER of unique business insurance exposures that need to be carefully managed. Care MUST be taken to properly insure the business property and general liability insurance exposures of the business. Is your company, or your client, if you're a real estate broker, attorney or property manager, adequately covered???
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 Even though the topic of insurance can be a dry and boring subject as evidenced by Sam's body language over there, EVERY lease agreement has insurance clauses that dictate the Landlord's and Tenant's responsibility to insure! Whether you're a business owner, building owner or one of their advisors, i.e. real estate broker, attorney or property manager, you're going to absolutely LOVE this issue of our Real Estate Leasing Tips newsletter! WHY? Because it's jampacked with a wealth of easy to read and understand information on the critical matter of property and liability insurance where the key details are way too often overlooked.
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O.K. Let's start off with a real life scenario. You're an office tenant and you've put extensive upgrades into your space, i.e. your space contains highly sophisticated computer equipment; and, that a shutdown of your business, even temporarily, would have DISASTROUS financial consequences. Your office manager has an electric heater under her desk and forgets to turn it off one night. It overheats, BLOWS UP and starts a fire!  This fire causes EXTENSIVE damage not only to your office space but to the rest of the building as well - including other tenants’ spaces. NOW the question of “adequate” insurance coverage is put to the real test. And so, I ask the question again... Is your company adequately covered??? Read on to find out!
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 Most businesses will insure their business property and liability insurance exposures under a Small Business Owners Package policy, which "packages" a number of property and liability insurance coverages into one insurance policy. The business owners insurance policy or "package policy" is typically structured into two (2) sections; business property, which can be building property and/or business personal property (business contents) and a section providing business liability coverages.
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Very Important! It is suggested that the business owner review the information contained herein with his/her local insurance agent or advisor to make sure there is a mutual understanding of the business property and liability exposures that exist in the operation of their business and that the proper steps have been taken to insure, retain or transfer the risk of these exposures. And now... the FREE stuff! At the bottom of this newsletter you'll find a Property & Liability Risk Management Checklist which will be helpful in reviewing the business property and general liability insurance exposures faced by most business owners. Tenants/Landlords... PRINT THIS OFF AND USE IT!! If you're a broker, attorney or property manager, this is a great "something extra" to give your clients. Not only is it a great tool for them, but they will truly appreciate you for caring!
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Alright Then. Let's Get Started!
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The Correct Named Insured
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It is extremely important that the business insurance policy has the correct Named Insured. This is the entity or entities shown ("named") on the front page of the insurance policy. The named insured establishes which entities and individuals are provided coverage under the policy. The named insured should include the corporate entity (entities) and all related d/b/a's under which the business operates.
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Building Property Coverage
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Most business owner insurance package policies will insure the owned building for it's replacement cost on an "all-risk" basis. "All-Risk" coverage means that the building is insured for all direct physical losses, except for those losses specifically excluded in the policy. Replacement cost means that the building is insured for what it would cost to repair or replace the building at the time of loss, subject to the total amount of insurance carried on the building.
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The scope of a tenant’s property insurance will be controlled to a very significant extent by the insurance provisions of the lease. Frequently, the tenant will carry, in addition to insurance for its personal property, insurance for its improvements and betterments (e.g. fixtures and additions) that are part of the premises. These may not be owned by the tenant, although acquired at the tenant’s expense.
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Important Building Property Exclusions
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Earth Movement - Earthquake, Landslide, Volcanic Eruption
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Governmental Action - Seizure or destruction of property by a governmental authority
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Nuclear Hazard - Nuclear reaction or radiation contamination
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War - Military action
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Water - Flood, surface water, mudslides, backup of sewers or drains
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Pollution - Smog, rust corrosion, fungus decay, deterioration
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Insurance coverage for earthquake and water related exposure may be available as an optional coverage with some insurance companies.
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Deductible options: Most business owner type insurance policies will have deductible options of $100 to $1,000, with $250 to $500 being the most common deductible.
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Building Glass: Coverage for glass is usually limited to $100 per plate with a maximum of $500 for any one loss. Optional coverage is usually available that removes this glass coverage limitation.
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Business Interruption and Loss of Rental Income Insurance
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If the insured leases a portion of an owned building to other tenants, rental income from the leased space can be insured if the rental space is un-tenantable because of a covered loss. The amount of insurance is established as a flat amount or as a monthly amount for a specified number of months.
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If the insured is a tenant and damage is such that the lease is not terminated, the tenant not only requires business interruption insurance, which will continue the tenant’s earnings, but also insurance for the extra or added expense of substitute equipment and temporary quarters during the course of restoration, as well as any necessary moving costs. These latter items are not included within standard loss of income coverage, but coverage is available through endorsements. Endorsements are also available to extend the time periods covered by typical business interruption policies, which are generally limited to the time necessary to restore the building to its pre-casualty condition.
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Business Personal Property Coverage
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This coverage protects owned or leased business contents and building improvements made by the tenant to leased premises.
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Furnishings - office furniture, removable fixtures, plants, etc.
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Equipment - fax, copier, water cooler, etc.
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Supplies - stationary, brochures, miscellaneous office supplies.
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It is important that the amount of insurance carried on business personal property be equal to the replacement value of the property.
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Like the building coverage, business personal property should be insured on an "all-risk" form for its replacement value.
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Property of Others: Most Insurance forms provide very limited coverage for the personal property of others, which would include an employee's personal and business property that he or she may have in the office. If it is the intent of the business owner to provide insurance coverage for personal or business property owned by employees and associates, a specific endorsement needs to be added to the owner's business package policy to provide this coverage.
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Electronic Data Processing Equipment (EDP): Computer hardware, computerized phone systems, and computer software should be Insured on an electronic data processing form", which typically provides broader coverage (i.e. breakage) at a reduced deductible. Extra Expense coverage can also be provided to reimburse the insured for extra expenses incurred to continue normal operations following a covered loss. i.e., the cost of lease/rental of temporary data processing or office equipment.
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Signs: Signs attached to an owned building are typically insured as a portion of the building insurance amount. Outside, free standing signs will typically need to be insured for their replacement value by adding a specific endorsement to the business owners insurance policy.
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Extra Expense Coverage: This coverage may be included in the business owners insurance policy or can be purchased to pay for extra expenses incurred to continue normal business operations following a covered loss (i.e. expenses for temporary office space, telephone equipment, rental of computer equipment, office moving expenses, temporary employees, etc.).
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Employee Dishonesty Coverage: This is usually referred to as an "employee dishonesty bond", which is a type of  fidelity bond that provides protection for the theft, forgery or destruction of checks, theft or destruction of cash or other property by employees (like Joe over there trying to crack your safe). It is important to note that this coverage will not cover dishonest acts by associates who are independent contractors, as they are not employees of the insured.
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Business Liability - Comprehensive General Liability
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Comprehensive General Liability Insurance provides the insured protection for Bodily Injury and Property Damage claims or lawsuits, for which the insured is legally liable, resulting at or from the insured business premises. Legal liability generally means that there is a degree of negligence on the part of the insured. The typical general liability type claim is where a member of the public slips and falls in the office and presents a claim for his injuries, claiming the insured's negligence in the maintenance or control of the premises.
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Who is an Insured?
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The definition of "persons insured" under most business owner insurance policies includes the "named insured", meaning the name shown on the declarations page of the insurance policy and any owners, partners, officers and employees of the named insured. Sales Associates and others, if they are independent contractors, do not meet the policy definition of "persons insured" under the general liability coverage portion of a business owners package policy, as the independent contractor is not an employee of the insured. Consequently, there is no direct general liability insurance coverage for the independent contractor on an unendorsed general liability policy. However, coverage is provided for the named insured (business owner) for the activities of the independent contractor.
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There are two (2) options to resolve this significant gap in coverage:
- Have the general liability portion of the business owners Package policy endorsed to include independent contractors as additional insureds while acting on behalf of the named insured (i.e. business owner). This is done through a form called "Additional Insured-Designated Person or Organization ". The business owner's insurance agent or insurance advisor should be familiar with this form.
- The business owner requires each independent contractor to maintain his/her own general liability policy, with an endorsement naming the business entity as an additional insured.
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Liability Limits
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Most business owners package insurance policies will offer general liability insurance limits of $500,000 to $2,000,000 per occurrence. Most lease agreements will require that the business maintain liability limits of at least $1,000,000.
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Medical Payments vs. Legal Liability
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Medical payments coverage is provided as part of the general liability insurance to pay medical costs of injured third parties, regardless of the insured's negligence or legal liability. The amount of this coverage is usually $5,000 to $10,000 per person.
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Additional Liability Coverages
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Personal Injury: This coverage provides protection for claims of false arrest, detention or imprisonment, malicious prosecution, wrongful eviction from or entry into a room, dwelling or premises, invasion of privacy, oral or written slander or libel and defamation of character.
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Advertising Injury: Provides coverage for claims resulting from oral or written publication of material that slanders or libels a person or organization or disparages an organization's good, products or services. It also includes coverage for claims involving misappropriation of advertising ideas or style of doing business or infringement of copyright, title or slogan.
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Host Liquor Liability: Provides coverage for claims resulting from the acts of intoxicated employees or third parties at a function held by or sponsored by the insured, as long as the insured is not in the business of manufacturing, selling, or serving alcoholic beverages.
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Fire Damage Liability: This coverage modifies the "care, custody, control exclusion" in the general liability policy to provide coverage for fire damage to a rented or leased premises if the insured is legally liable for such damage.
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Employers Auto Non-Ownership Liability: Provides coverage for claims resulting from the operation of a non-owned automobile by employees, or the operation of an employee's personal automobile while conducting business for the employer.
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Employees As Insureds: With this coverage, employees of the named insured are specifically included in the policy definition of "who is an insured" for acts within the scope of their employment. Note that this coverage does not provide coverage for independent contractors.
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Employee Benefits Liability: This coverage provides protection for liability claims arising out of the errors and omissions in the administration of an employee benefit plan; i.e. group life insurance, group health insurance, pension/profit sharing plans, unemployment insurance, disability benefits, etc. Such errors or omissions could include errors in record keeping, enrolling, or canceling participants, improper advice to employees about benefits or improper interpretation of a benefit programs rules and regulations.
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Employment Practices Liability: This is a separate specialized coverage that provides protection for major types of employment related claims, such as wrongful termination, discrimination, sexual harassment.
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 I know, I know... INFORMATION OVERLOAD! And to boot, we all know it's not the most exciting topic in the world BUT... like I said before, every lease agreement has insurance clauses that dictate the Landlord's and Tenant's responsibility to insure! This is a critical component of a lease and can only be put into the proper perspective when each party has a full understanding of property and liability insurance. To be very straightforward, insurance issues CAN be OVERWHELMING and are complicated and fraught with numerous "pitfalls" awaiting the unwary. Few people, even experienced brokers, landlords and corporate real estate executives, have a complete understanding of the issues and my clients pay me extremely well for access to that knowledge.
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While I hope you value these newsletters, I'm sure you understand that I can't give away everything for free. By putting this knowledge into a special how-to course, many people are guaranteed to make their lease negotiations more successful and if you are a broker, your enhanced ability to negotiate on your clients behalf will blow the competition out of the water. In the course, I reveal all of the "nitty gritty" on EXACTLY what you need to know in order to successfully consummate a commercial real estate lease… and exactly what I have done so successfully, time after time, for my own clients.
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It's a "No-Brainer"
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This course contains my real "gems" of information that give my clients an unfair advantage over the other landlords, tenants and brokers who are out there. You simply have to read the course materials and follow my steps, and you are on your way to having the ability to competently lease commercial real estate. I just can't give that away… I have to save that for my special clients… like you… who believe in me and want to invest in my home study course. I want to give them an edge that they can't get anywhere else - I am sure you would do the same for your clients.
Click here if you would like more details on the course.
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 Like I have always taught, model someone that is successful. I am giving you the key here, it is your job to unlock the door and let the knowledge flow in. In an effort to make sure you realize how powerful the information in this how-to course can be, let me share that checklist I mentioned earlier that will help you better define a business owner's insurance needs.
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