Tenant’s Legal Liability 101

Tenant’s Legal Liability Insurance

Should a tenant or a tenant’s employee damage the premises occupied by the tenant, the tenant could be held responsible for such damages. If the building owner insures the building and the owner’s insurer repairs the damages, the owner’s insurer may subrogate for the damages paid from the tenant. The tenant’s premises liability will not respond because these premises are in his care, custody and control. Such a loss would be covered if the tenant has a tenant’s legal liability coverage.

What Does Tenant’s Legal Liability Insurance Cover?

Tenant’s legal liability may be written on a restricted form which will only cover losses caused by the tenant and caused by the perils of fire, smoke, explosion (limited) and leakage from fire protection equipment. Coverage can be obtained on a broad form (all risk) but subject to a deductible. The latest Insurance Bureau of Canada commercial general liability includes the broad form tenant’s legal liability but may be subject to a low limit.

This may be another one of the coverages considered to be a “frill” coverage that is not reviewed with the client. Since it may be included with the liability wording or in some other package form, it is often overlooked in the review of insurance requirements with the insured.

Tenants must be told that just because they have liability insurance and may pay as an adjustable operating cost a proportionate share of the landlord’s insurance, that may not be enough to protect the tenant against claims by the landlord’s insurer. If the landlord’s insurer subrogates back to the negligent tenant and the tenant’s legal liability limit is inadequate, the tenant may be held personally responsible for the damages that exceed the limit of his tenant’s legal liability. To establish an adequate limit, the square footage of the area occupied by the tenant, construction cost of the building, etc. must be taken into account.

Do All Tenants Need Tenant’s Insurance?

There is no legal requirement for a commercial tenant to carry tenant’s legal liability insurance unless there is one written into the lease agreement the tenant signs. In fact, every day, more and more landlords and property owners are writing those stipulations into their lease agreements because they want to ensure that if the tenant or one of their employees is responsible for property damages, to a third party’s property and/or injuries to a third party, that they have insurance that can cover their liability.

If your landlord does not require you to carry tenant’s insurance as part of the lease agreement, it’s still insurance coverage that’s well worth the cost. While in your office or unit, someone could slip on a wet floor, you or one of your employees could accidentally cause damage to the unit you are leasing or, even worse, you or one of your employees could be responsible for starting a fire that spreads and causes damage to several units and/or neighbouring properties. If one of those scenarios plays out, you and/or your business could be responsible for paying the massive costs associated with it.

Will Tenant’s Insurance Cover Personal Liability?

The purpose of tenant legal liability insurance is to protect you and your business from having to pay medical bills for injured third parties, repair or replacement costs for damaged property and lawyer’s fees, settlement costs and awards for damages if you’re served with a lawsuit pertaining to your liability as a tenant.

Having said that, the limit of the policy and possible gaps in your coverage may still leave you personally liable, subject to your business’s legal structure, the circumstances of the case and how those circumstances relate to the current law of the land. For more information, speak to a broker who can advise you on your potential liabilities based on what your business does, where you’re located, the number of employees you employ and other factors.

Why Landlords are Liable for the Personal Injuries of Tenants?

Generally speaking, landlords may be held liable for the personal injuries of tenants. Whether they are or not depends largely on the lease agreement and who is responsible for repairs and maintenance and which repairs and maintenance each party is responsible for.

Usually, the tenant is responsible for maintaining things that break down over time due to ‘wear and tear’. This can mean items such as flooring, light fixtures (usually not the electrical), bathroom fixtures, kitchen fixtures, etc. If a tenant’s injuries result from an issue that the tenant is responsible for, it’s unlikely the landlord would be liable.

For other issues like HVAC, electrical, foundations, walls, roof, fire and safety codes, etc., if the landlord is responsible for maintaining it and the tenant’s injury is related to one of those issues, unless the issue was caused by the tenant’s negligence, the landlord may be held liable.

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