Insurance issues are like casualty and condemnation: When they come up in lease negotiations, they are often left to the lawyers to handle. But insurance issues can be complicated, and many lawyersrely on their clients' insurance advisers to be sure they are getting it right.
Even some of the basic lease provisions covering insurance and indemnity concerns can baffle inexperienced counsel. One insurance issue that often stymies shopping center professionals is the difference in meanings of the terms "named insured," "additional insured" and "additional named insured."
Landlords often require a tenant to obtain both property damage insurance and liability insurance. Landlords require coverage as an additional named insured on property damage policies and as an additional insured on liability policies.
Property damage policies The tenant's property damage insurance will often be required to cover the leasehold improvements installed by the tenant in the leased premises. Because these leasehold improvements actually become a part of the real estate, the landlord wants to be covered under the tenant's property insurance as an owner.
Since it is the tenant's property damage policy, and the tenant's interest in the leasehold improvements is being insured, the tenant is the named insured. To acknowledge the landlord's ownership interest in the property being insured and to provide the landlord the same type of coverage that the tenant receives, the landlord must be shown on the policy as an additional named insured.
Thus, both the tenant and the landlord essentially are given the same coverage; they are both named insureds on the policy. The landlord is simply an additional party who is given the same coverage as the named insured, i.e., an additional named insured.
Liability policies Many states place ultimate responsibility on the owner of real estate for injuries sustained by persons invited to the owner's property, even if the injury is not caused by the acts of the owner itself. Thus, shopping center landlords carry liability insurance as the owner of the shopping center.
However, if the injury was actually caused by the tenant while operating in the shopping center, the landlord will want the tenant to cover the landlord for any liability it incurs because of the tenant. Thus, landlords will require that the tenant carry liability insurance to cover the liability caused by the tenant. The tenant is the named insured on the policy, since it is a policy covering acts of the tenant. The landlord wants to be an additional insured on the policy, who will be covered for any liability it incurs due to the acts of the tenant.
As an additional insured, the landlord is not given the same full coverage as the tenant. In other words, the tenant isn't covered against liability caused by the landlord's acts. Instead, it is covered only against liability due to the acts of the tenant.
If the landlord were to be shown as an additional named insured on the liability policy, it would actually be covered as a named insured for any liability caused by its own acts. However, since most states have a public policy against permitting one party to protect a second party against the second party's own negligent acts, generally a landlord does not demand to be an additional named insured on the tenant's liability policy. It usually suffices if the landlord is protected against liability caused only by the tenant.
Sometimes tenants with a great deal of leverage will demand that the landlord add the tenant as an additional insured on the landlord's liability policy. The tenant takes the position that it should be able to look to the landlord's liability policy, and not the tenant's own liability policy, for coverage in the event a suit is brought against it for injuries to a customer at the shopping center caused not by the tenant, but by the landlord. Landlords often resist this if they have a blanket liability policy that covers many shopping centers with hundreds of tenants.
Drafting tip The word "named" should be used very carefully in the lease when describing the coverage required. Be sure that only the party who is to be afforded all the rights of an owner of the policy is required to be a named insured, whether as the original named insured or as an additional named insured.
Just to keep things straight, it might be best when referring to giving a party only additional insured status, to use the term "add a party as an additional insured" rather than naming such party as additional insured.