Expand Parties Covered in 'Additional Insured' Term

Sometimes a lawsuit stems from someone being injured in your tenant’s space. Savvy shopping center and office building owners know that they can protect themselves by requiring the tenant to name them as an “additional insured” on their liability insurance policies. But if your lease requires only that the party identified in the lease as the “Landlord” be named in the tenant’s policy as an additional insured it won’t give insurance coverage to everyone needing protection.

For example, a successor owner may have no coverage under the tenant’s liability insurance policy because it’s not the “Landlord” named in the lease. And parties such as managers, employees, and affiliates who are working for or related to the Landlord—whether the original or a successor owner—won’t be covered. These parties also need protection under the tenant’s policy.

If you and your related parties aren’t considered additional insureds, the tenant’s insurer has no obligation to defend you against any claim by someone hurt at the property. So you’ll have to fend for yourselves unless your own insurance will cover the defense or you can get the tenant to indemnify—that is, reimburse your legal costs and defend—you and your property manager.

You can even suffer if you’re protected in the lease as the Landlord but your successor is sued. For example, suppose you set up a subsidiary and transfer your office building or shopping center to it, along with all of your building’s or center’s leases. The subsidiary is your successor. But the leases require the tenant to name only you—not your successors—as an additional insured in its liability policy. As a result, if someone sues the subsidiary and its employees because he was injured in the space, the tenant’s insurer will have no obligation to defend the subsidiary and its employees in the lawsuit because they’re not covered by the tenant’s policy.

And a third-party buyer of your building or center could raise objections if your tenants’ insurance policies don’t have to protect successor owners.

Relying on the tenant to indemnify you isn’t worthwhile; you may have to go to court to enforce the indemnity and, since many states have anti-indemnity laws, the court may rule that the indemnity is unenforceable. Also, under most insurance policies, the costs of defending you count toward the tenant’s limits of liability, which can rapidly erode the coverage available to you.

So say in the lease that the tenant must name you and all of your related parties—also known as “Landlord Parties”—in its liability policy as “additional insureds.” Landlord Parties should include: (1) you, as the property owner; (2) managers, officers, directors, shareholders, partners, members, and employees; (3) lenders; and (4) successors, assignees, affiliates, and subsidiaries of all the above parties.

To make sure all of your related parties and their successors and assignees are properly protected under the tenant’s liability policy, replace “Landlord” with “Landlord Parties” in the section of the lease that requires the tenant to name the Landlord as an additional insured, and add the following definition of Landlord Parties:

Model Lease Language

For the purposes of this Clause [insert number of insurance clause], “Landlord Parties” shall mean: (a) Landlord; (b) any lender whose loan is secured by a lien against the [Building/ Center] (“Lender”); (c) [Building/Center] manager; and (d) the respective affiliates, subsidiaries, successors, assigns, heirs, officers, directors, shareholders, partners, members, employees, agents, and contractors of Landlord, [insert name of party owning the Building/Center, if not Landlord], Lender, and [Building/Center] manager.