Blog Question – Uninsured Tenant
I trust that you are keeping well. I am pleased to advise you that I have recently subscribed to your Blog and am enjoying receiving & reading your periodical posts. Very informative and useful information.
Here’s one for you a question from one of my clients.
Further to our discussion on the 20th April have you any feedback in relation to the insurers view and the possible exposure to [our organisation] should the lessee not have any public liability insurance?
It is an essential term of the lease however if the tenant fails to provide it’s is then up to the owner to determine whether they terminate the tenancy or accept the risk.
We need clarity if the owner is at risk or if their own building insurance will cover any potential loss.
In this case we are referring to [name withheld for privacy reasons].
I await your advice.
What is the most accurate response that I can offer this asset manager (and the Lessor – our insured) on this matter?
Please can I ask you to keep the names & addresses confidential, for obvious reasons.
Allan, I thank you for your attention to this matter and look forward to soon hearing from you.
Simon [surname and email provided]
I answered as follows:
It is difficult to answer this with 100% accuracy without reading the lease. I say this as many leases these days have an indemnity clause, which means that should the landlord be held responsible, the tenant and their insurer will step in and meet the full cost incurred by the landlord.
In most cases involving public liability it is deemed to be a occupiers liability. They have day to day control over the premises and have a duty to keep it safe for their employees and/or customers/visitors. While it should not happen, what can and does happen is what is known as “deep pockets” syndrome. If, say, someone was seriously injured and could not work again or a child required serious medical attention for the rest of their lives and the amount required to compensate the injured party was a large amount of money, then the courts may go out of their way to find, where the tenant has no insurance or assets to cover the amount, that the landlord is in someone responsible just so that they contribute or pick up the costs awarded to the injured party.
Another exposure is that if the tenant were to accidentally damage the building, say, cause a fire, the landlords insurance does not have the protection of the tenant’s liability program.
In all these cases the Landlord should still be protected subject to the policy limits of their own coverage on the building, loss or rent and liability.
My own thoughts are that if a tenant is so silly to operate their business without basic public liability cover then any significant claim against the entity will send it into liquidation, creating a contingent liability for the landlord. If they are going to penny pinch and get the most widely purchased and reasonably priced insurance protection for their business what other cost saving measures are they going to take. I doubt they would be maintaining their own equipment etc well, let alone the landlord’s valuable asset.
For me, I would not want a tenant who breaks this important condition of the lease. If they break this condition what other ones are next?
I hope this helps.
PS It sounds like this tenant needs the advice of a good insurance broker. Go and visit them and sort them out!