CGL Insurance – Our Top Advice To Save Your Business Money

Practically all commercial leases contain a list of insurance policies the tenant must carry. The most common type of insurance in the commercial lease is Commercial General Liability insurance, also known as CGL insurance. A CGL insurance policy will ensure the business is protected if you’re found legally liable for injury or property damage, accidents on your premises, your operation or at your client’s location. Let’s explore our top advice for managing your CGL insurance policy.

It may be an obvious point, but your CGL insurance and other insurance policies must meet the minimum coverage amounts set forth in your lease. Your landlord will review these policies from time to time, but it is the tenant’s responsibility to ensure compliance. An experienced commercial insurance agent will be very useful for review of your policies. This review is especially important when signing a new lease but also when a tenant renews their existing lease. Remember that signing a lease amendment allows the tenant an opportunity to re-negotiate certain deal points of their lease. If you determine the coverages required by your lease are not appropriate for your use of the space – fight it during your next renewal.

Insurance policies can be difficult to understand and there are plenty of details that can be overlooked. This can be true for your CGL insurance as well as the other policies you may be carrying. Below are a few examples of what to watch for:

a) If your agreement includes wording such as “Pay on behalf of”, for example, you may be agreeing to insurance claims being paid directly to your landlord. This saves your landlord out of pocket expenses but means the tenant will carry the cost burden. As mentioned in our article on auditing building operating expenses, a landlord will often slip expenses into the lease agreement to avoid having to pay higher outputs themselves.

b) Your landlord may also include verbiage like “additional insured” in your lease. The additional insured might include the landlord, his employees, managers, affiliates, and anyone else he chooses to name. His eccentric Aunt Ethel probably doesn’t need to be included here. That may seem funny, but you may be surprised at the “others” who end up in these agreements! Pay attention and don’t assume anything.

c) You may receive a rude awakening if you find your company in the precarious position of having to file a claim and the reality that your CGL insurance includes a “waiver of subrogation” in favor of the landlord. In this case your landlord’s losses are the priority and your company will only receive a payout to cover its losses if there is enough left over after payout to the landlord.

Each tenant’s insurance needs will be different so there is not going to be a one-size solution for all businesses. However, we have found that for most office tenants a CGL insurance policy with coverage of $1 million per occurrence and $2 million aggregate is a sufficient safety net. We advise tenants to beware umbrella policies required by their landlords. These policies can be quite expensive and are often unnecessary for a general office use. For industrial users and for larger companies with multiple locations an umbrella policy may be advisable.

Occasionally it will make sense for a tenant to carry CGL insurance in amounts exceeding $3 million aggregate, but this will be a case by case determination. The key is not to blindly accept the coverages requested by the landlord in your commercial lease. It is key to understand the insurance requirements outlined in your lease and negotiate changes to those coverages when needed. A mutually beneficial agreement about the coverages your company will carry could save you thousands of dollars every year.

Keep in mind that commercial tenants must maintain their CGL insurance and other insurance policies throughout their lease term. The landlord will require proof of insurance from the tenant prior to move in. If a tenant cannot demonstrate they have the appropriate CGL insurance policies in place they could be in default under the lease. No tenant wants to default on their lease obligations so this is crucial to remember. We recommend setting an annual reminder to review insurance policies with your agent. This will allow an opportunity to review the premium expenses, confirm your policies meet the requirements of your lease, and shop for alternative policies.

We advice our clients not to overlook the tenant insurance requirements of their commercial lease. It is important to consult with your commercial insurance agent, especially when negotiating a new lease agreement or lease renewal. You don’t want to pay for CGL insurance coverage you don’t need, but when you need the coverage you want to be paid out first. Ideally potential claims will be filtered through your company to cover your losses and costs incurred as the priority. We encourage you to reach out to our team today if you have questions about your insurance requirements or any other provisions of your commercial lease.