The Basics of Insurance in Leases
Probate and Property, November/December 2000, Volume 14, Number 6
By Ann Peldo Cargile
Ann Peldo Cargile is a member of Boult, Cummings, Conners & Berry, PLC, in Nashville, Tennessee. She is Co-Chair of the Real Property Division's Retail Leasing (K-2) Committee and a member of its Mortgage Loan Structure and Origination (I-1) and Collateral for Commercial Real Estate Finance (I-5) Committees.
Insurance affects many aspects of the landlord-tenant relationship, including not only lease provisions prescribing specific insurance coverages, but also provisions on indemnity, restoration of the premises following a casualty, waivers of subrogation, self-insurance and even abatement of rent. A properly negotiated lease will treat all of these areas in a consistent manner, allocating risk in accordance with available insurance. What makes this area difficult for lawyers is the interplay between legal liability and the technical aspects of insurance terminology and coverages. To further the problem, the insurance industry periodically revises its terminology and coverages, so the lease clause that was fine five years ago may now be filled with incorrect or outmoded language. This article will outline the basic insurance coverages that arise in the leasing context, discuss applicable insurance industry terminology and conclude with a limited discussion of how a lawyer ought to coordinate the relevant lease provisions.