Definition of Lessor’s Risk Only (LRO) Coverage in Business Insurance

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Lessor’s Risk Only (LRO) Coverage

For landlords, there’s always a risk that tenants or other forces may damage the property’s infrastructure. As a result, that creates stress over their insurance. Property owners often fear the insurer won’t cover the costs of the damage, especially if the tenant blames the landlord. This is why building owners must consider adding lessor’s risk only (LRO) coverage to their commercial and property insurance policies.

Lessor’s Risk Only Covers Landlords

Lessor’s risk only insurance protects the property owner if a tenant sues due to injury or property damage. This coverage is particularly important if the property owner is considered a small business or commercial landlord.

Forms of Commercial Property

LRO coverage, also called landlord insurance, would protect owners of commercial property. This includes those who own:

  • Retail complexes (shopping centers)

  • Apartment buildings

  • Warehouses

  • Office space

For the coverage to take effect, the landlord couldn’t occupy more than 25% of the space. The rest would have to be leased to tenants. For instance, in a shopping center with 20 available storefronts, the landlord would only be able to operate within four of them. The rest must be occupied by outside tenants.

What LRO Covers

LRO handles a number of situations that tenants might deem worthy of a lawsuit. Examples include:

  • Slips, trips, and falls

  • Water damage due to burst pipes or sewer backups

  • Smoke or fire damage

  • Weather related damage due to wind, hail, or the weight of snow/ice on the roof

  • Theft or vandalism

  • Loss of digital information if tenants are on the landlord’s computer network.

All of these items could be deemed as negligence on behalf of the landlord. Thus, they all constitute a reason the tenant could sue. Should it happen, LRO insurance would cover the legal fees for the business owner. On top of that, it would reimburse the tenant for damaged property or injuries.

However, LRO insurance does not cover criminal negligence by the landlord. For instance, if the building owner faked a theft or caused a fire to redeem the insurance payments, LRO coverage would be denied. Those types of situations don’t fall under tort (civil) law.

LRO vs. General Liability Insurance

While they seem similar, lessor’s risk only and general liability insurance cover different situations. The former is specifically between the landlord and their tenant. General liability is protection for the building owner against a suit by a third-party. For example, it would cover damages if a visitor to one of the building’s offices slipped and got hurt.