September 01, 2001

The Perils of Self-Insurance in Leases (2001, 15:05)

The Perils of Self-Insurance in Leases

Probate and Property, September/October 2001, Volume 15, Number 5

By Ann Peldo Cargile

Self-insurance sounds like a simple concept. A party to the lease, usually the tenant, desires to assume the risk of loss rather than pay an insurance company to do so. Accomplishing that task, however, can be a complicated process. Most leases allocate risk on the assumption that third-party insurers will bear most of the losses. When self-insurance enters the picture, either the landlord or tenant must assume the risk of an unpredictable loss, rather than the predictable cost of an insurance premium. A prudent leasing practitioner must consider how self-insurance creates exposure and how to craft the lease to reallocate risk to match the expectations of the parties.

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