Owners Entitled to Insurance Proceeds from Tenant's Policy

Facts: A commercial lease required the tenant to maintain general liability insurance, as well as risk insurance, to protect its moveable property against wind damage. The tenant maintained a package policy that covered general liability and all risk insurance. The tenant filed suit to recover insurance proceeds shortly after Hurricane Katrina. The owners intervened, claiming that they were entitled to the insurance money.

The tenant asked the court to declare that the owners were not entitled to the money. It said that the owners had violated the lease by not maintaining risk insurance for the leased building. The owners argued that the dispute did not concern the lease, but only the insurance contract.

Decision: A U.S. district court in Louisiana ruled that only the insurance contract was at issue. Under that contract, the owners were entitled to the insurance proceeds.

Reasoning: The court determined that the lease was not needed to decide who should receive the insurance money. The policy clearly listed the “Estate of …” as an additional insured. And since the tenant's insurance documents specified that the “Estate of …” includes all of the owners, it was clear to the court that the owners “were intended to be additional insureds.” That meant that the insurance proceeds should go to the owners.

• Marketfare Annunciation, et al. v. United Fire and Casualty Insurance Co., July 2007.

Lesson Learned: To avoid insurance disputes when disaster strikes, make sure your lease requires your tenants to maintain the coverage you want, and that you're listed as a “loss payee” or “additional insured” on all policies.