Tenants Can Have High Commercial Insurance Deductibles

If the insurance provision in your lease does not specifically prohibit your tenant from having a high deductible, you should take a look at the following case. In Boston Market Corp. v. Myrus Hack, the appellate court was asked to decide “whether or not the insurance arrangements made by the tenant comply with the lease provisions respecting the tenant’s insurance obligation.”

With the lease being silent on the deductible amount, the tenant secured a $1 million dollar insurance deductible. The owner argued that because the amount was so high, it constituted self-insurance or no insurance at all. The appellate court ruled in favor of the tenant.

If you don’t want to find yourself in the same unfortunate position as the owner in this case, consider adding the following to your lease:

1. A detailed description of the type of insurance that the tenant must maintain;

2. A provision that lists the maximum deductible. This should prevent tenants from securing insurance with a deductible higher than the potential loss that could be sustained if the property was destroyed;

3. Language stating that the insurance policy must furnish “first dollar coverage.” By adding this language, the insurance carrier can pay the claim on a first dollar basis and then require the tenant to reimburse up to the deductible amount.

Source: New Jersey Law Blog