Insurance Requirements for Your Tenant, Customer, or Subcontractors

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In every industry, there are risks and liabilities that should insured against to avoid financial losses. Risks can come in different forms, such as natural calamities, accidents, product malfunction, and many more. If not addressed by a well-designed insurance package, any of these risks could lead to potential loss, up to and including the business needing to shut down.

Managing risk and ensuring proper protection are critical to every business. But in the world of construction and property management, it has become a major problem affecting small to midsize business owners. Depending on the location, plans, specifications, subcontractors, project management, and inspectors – each project has unique characteristics.

The same principle applies for property owners leasing their units to clients and subcontractors. There’s always a possibility of damage to the property which can make the property unfit for occupation, causing a loss of revenue to the business. Not having adequate insurance to protect your property and not managing risks can be detrimental to any business.

It’s essential that all risks and liabilities are fully understood by all involved parties – including you, your tenants, customers, or subcontractors. Additionally, it should be agreed in writing to avoid unwanted legal claims and costly defense proceedings.

Why is it important to set insurance requirements?

Risk of loss can be transferred via agreement or contract. Without both your business and your tenant having the proper insurance coverage in place your tenant’s risks can become your risks as outlined in the following example.

You are the owner of the property and you leased some of the space to a tenant for business purposes. Since you have your own insurance, you didn’t bother asking the tenant leasing your space if they have their own insurance and what are the coverages and limits of their policy, if they have one.

During normal business hours, one of their clients slipped and fell from the office building causing severe injuries that requires multiple medical treatments amounting to $500,000. Several weeks after the accident, you received a lawsuit from the client’s attorney stating that you are held responsible for paying the client’s medical treatment as the property owner of the leased office space.

The problem is, your tenant didn’t purchase their own insurance, so you might be held fully accountable and legally liable to pay the client’s damages of $500,000

This demonstrates the importance of setting minimum insurance requirements. You should require your tenant to buy the same limits of insurance than you have. So you are not getting sued for the damages they may have caused.

Designing a set of insurance requirements

Crafting your own insurance requirements doesn’t have to be complicated. Below you can find an easy guide on how to set insurance requirement.

  1. When building a set of insurance requirements, a great starting point is to check the coverage and limits of your current policies. Make sure that your client, tenant, or subcontractor have the same insurance coverage to avoid any gaps in the policy. Following this helps protect you from possible lawsuits and legal liabilities. Example: Apply the following minimum limits for General Liability.

    • $1,000,000 for each occurrence (to cover both bodily injury and property damage).
    • $1,000,000 for personal and advertising injury liabilities including libel, slander, etc.
    • $1,000,000 aggregate for products and completed operations.
    • $2,000,000 for general aggregate.
  2. If your landlord, client, and/or master contractor requires that you name them as an Additional Insured, or that you Waive your right to Subrogate against them in the contract that you have with that party, you will likely also want to be sure to include those same requirements “downstream” with your tenant, client or subcontractor.

  3. To be fair with all parties involved, review your current contracts with customers especially the required clauses, fine print and other relevant details. This is an important step to prove your compliance with all contracts, even if you are the owner.

  4. After putting together your set of insurance requirements and before finalizing any deals, take extra precautions and discuss things with your legal counsel. Your primary goal is to protect your business in the best way possible. The omission of seemingly small details or an inaccurate choice of language can lead to lawsuits and legal claims.

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Business Insurance

Running a business is challenging enough without having to worry about lawsuits, employee injuries or property damage. Having the right insurance gives you the peace of mind to focus on what matters - running your business.

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