Landlords Should Have Both First-Party and Third-Party Insurance
Written by William Pillsbury, published in The Legal Intelligencer, July 31, 2013
While a landlord should require that either a commercial or residential tenant have insurance, this requirement should not be relied upon by the landlord as a replacement to its own insurance needs. First, any property owner should have property, or first party, insurance. This insurance should provide coverage to both the building and any personal property of the landlord within the property. In addition, many policies specifically exclude tenant’s personal property for losses caused by the tenant or a force outside the control of the landlord. A landlord should be sure, though, that, if the cause of a tenant’s loss is attributed to the landlord, that this property insurance does provide coverage to personal property of the tenant. A landlord does not want to be left paying for personal property of a tenant, especially a commercial landlord where the personal property can include very expensive equipment.
Second, a landlord should have is what is called third-party insurance. Third-party insurance is the type of insurance that protects you from suits from other people. In other words, if someone were to slip and fall on your property, it is this insurance that would be triggered and, in most cases, would cover the costs of defense and any liability owed to a third party. For your average homeowner or property owner, the property insurance often includes this type of coverage. However, landlord policies can be different and some landlords, especially those that believe they are landlords out of possession, end up not having this insurance and relying on the tenant to have this type of coverage. This approach is very risky and ignores that plaintiffs will almost always seek as many pockets as they can in a lawsuit.
An example of this issue is a case where a customer of a store slipped and fell on ice while leaving the store. The customer sued the store, but also sued the landlord. The lease included a requirement that the tenant have insurance and also included a broad indemnification agreement. Nonetheless, the tenant did not have insurance and refused to provide coverage for the landlord when they were both sued. The landlord had relied on the tenant to have third-party insurance and was left defending itself in the slip and fall case and going after the tenant for its attorneys’ fees and any settlement or liability in a subsequent action. These out-of-pocket expenses could have been avoided if the landlord had protected itself with insurance.
Even landlords who believe themselves to be out of possession should have insurance. It is true that, under most state laws, including Pennsylvania’s, a landlord out of possession “is generally not responsible for injuries suffered by a business invitee on the leased property.” Henze v. Texaco, Inc., 352 Pa. Super. 538, 541, 508 A.2d 1200 (Pa. Super. Ct. 1986). However, many exceptions to this general rule exist. In Pennsylvania, these exceptions are: (1) if the landlord has reserved control over a defective portion of the demised premises; (2) if the demised premises are so dangerously constructed as to be a nuisance per se; (3) if the landlord had knowledge of a dangerous condition existing on the property at the time of transferring possession and failed to disclose; (4) if the landlord fails to inspect for or repair dangerous conditions existing on the property before possession is transferred to the tenant and the lease is for a purpose involving admission of the public; (5) if the landlord opts to make repairs and does so in a negligent manner; and (6) if the landlord fails to make repairs after having been given notice of and a reasonable opportunity to remedy a dangerous condition existing on the leased premises. Id. at 541-42. Most plaintiff’s attorneys will know these exceptions and will be able to plead one of these exceptions in their initial complaint. As such, a landlord out of possession will likely still be required to participate in discovery and file a motion for summary judgment to get out of the case. These costs can add up quickly, so having third-party insurance, even in a landlord out of possession situation, can be cost-effective in the long run.
While paying premiums in a situation where a landlord believes he is fully protected may feel like flushing good money away, a landlord should be aware that those premiums may be a very good investment to avoid the uncertain costs of litigation.
ABOUT THE AUTHOR: William H. Pillsbury is a shareholder member of Offit Kurman’s insurance recovery, real estate and business litigation groups. He represents businesses in a wide range of litigation issues, including efforts to recover money owed to them from their insurers. He can be reached at wpillsbury@offitkurman.com or 267-338-1321.
Reprinted with permission from the July 31, 2013 edition of The Legal Intelligencer© 2013 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, reprints@alm.com or visit www.almreprints.com.