The degree of control over the premises exercised by the owner affects his or her liability situation, and this is generally reflected in the premiums charged those owners who exercise little or no control over the property leased to others. For absentee owners there may be little likelihood of liability being imposed upon them—an argument often offered by these people for not purchasing liability insurance—but there is more than an even chance that they will be joined in any suit that might arise from an accident on the premises. The high cost of defending these legal actions, in contrast with the lower insurance cost, indicates that liability insurance is needed even in this situation.

Alternative Methods of Managing the Exposure

There are, of course, alternatives to the owner's buying liability insurance. A hold harmless agreement can be included in the lease, whereby the tenant assumes some or all liability (and, presumably, defense costs) arising out of the leased premises. If, in the event of a claim against the owner, the tenant honors the hold harmless agreement and has the financial ability to pay damages, the owner will be protected without having purchased insurance. It is never certain, however, that the tenant will honor the hold harmless clause, or that a court will enforce it. Depending on the law of the jurisdiction, the relative bargaining positions of the owner and the lessee, and perhaps other matters, the court may void the hold harmless clause and, along with it, the owner's protection against a lawsuit.