Focus on liability insurance: does my commercial lease need it?

Whether you are just starting out, or your company has grown to the point where you are moving into a commercial space, you may be wondering if your commercial lease requires you to carry liability insurance.  

The answer to this question is a resounding, ‘probably.’ You can check the terms of the lease itself to determine if it is required.  But even if liability insurance isn’t required under the terms of your lease, it’s a good idea to have it. Let’s break it down.  

Doesn’t my landlord’s insurance cover the space? 

Your landlord should have insurance coverage that protects their interests. In other words, their coverage is for damage to the premises, such as damage to the building itself due to a fire. But this does not cover your property, such as furniture or equipment, including computers. Likewise, your landlord would likely be liable if someone slipped and fell on the steps of the building because the landlord didn’t keep them clear of snow or ice. But if someone slips and falls inside your office or store because the floor is wet, that’s likely on you.

Your landlord’s insurance protects your landlord’s property – not yours, and not your customers’. That’s why most landlords will require you to have your own liability insurance. It protects you, which helps to secure the future of your business – you’re less likely to go out of business if you have a large claim.

My landlord is asking to be named on my policy. What’s that about?

Your landlord may request to be named as an additional insured on your policy. This is pretty standard procedure and may not cost extra. It simply means that if your landlord is sued for something that is covered under your policy, they’ll have coverage from your policy in certain instances. It doesn’t cover your landlord for claims that are unrelated to you.

Related: Certificate of Insurance – what is this?

You will likely be asked to provide a certificate of insurance to prove to your landlord that you have the coverage they require. A certificate of insurance, sometimes called an ACORD, shows what kind of coverage you have and what your limits are. If you’re a Hiscox policyholder, you can get a CoI instantly by visiting www.hiscox.com/manage-your-policy. 

What kind of insurance do I need for a commercial lease? 

Your lease may specify the type and amount of insurance that your landlord requires. The most basic coverage is general liability, sometimes referred to as GL. It will cover you for third-party claims of property damage or bodily injury. In other words, it’s for a claim that you damaged someone else’s property or caused someone else (not you or an employee) to suffer bodily injury. This is the minimum coverage most leases require.

Some leases will require a business owner’s policy, sometimes called BOP. This is general liability coverage, plus coverage for loss, damage, or theft of your own business property, like tools, equipment, and computers. It also covers improvements you may have made to your rented space and business interruption, which covers income you may lose due to your space being unusable. General liability coverage is included in a business owner’s policy, so you need one or the other, but not both.

Even if your lease does not specify that you need to have liability insurance, it’s always a good idea. A claim or lawsuit for bodily injury or property damage, or loss or damage to the tools you need to do your work can be prohibitively expensive for a small business.

Here’s an example of why you should have a business owner’s policy when you lease commercial space, whether the landlord requires it or not. Suppose your business has a rented space to which you made improvements, like new hardwood floors and office partitions. One night, the building is broken into. It’s vandalized, with damage to walls and floors, and equipment is stolen from several offices, including yours. Your BOP policy would likely cover the theft of your equipment and the cost of repairing the floors and walls. It could also cover the income you lost because you were unable to work until the space is repaired and your equipment is replaced.

Other types of coverage you may need

You may need other types of coverage as well for incidents unrelated to your lease. If you have a website, accept credit cards, or store customer information, you should have cyber insurance. If you offer advice to customers, consider professional liability coverage. If you have employees, you may be required to have workers compensation insurance. For more information on what kind of insurance is best for your business, visit www.hiscox.com to get a free quote.