Another alternative to the owner's buying his or her own insurance is to require the tenant to bear the cost of adding the owner as an additional  insured under the tenant's liability policy. This approach, however, has the same inherent weakness as the owner relying on the tenant's liability insurance to fund a hold harmless agreement. In both instances, the owner has no control over the insurance. The tenant may cancel the policy, reduce its limits, or otherwise alter it without the knowledge of the owner.

The additional insured endorsement (CG 20 11 04 13 Additional Insured—Managers or Lessors of Premises) used for this purpose imposes restrictions on coverage. First, the additional insured (the owner) is an insured only with respect to that part of the premises leased to the named insured (the tenant). So, for example, if someone on their way to the tenant's portion of the premises slipped and fell in a common area, the insurance would not protect the additional insured. Second, the endorsement does not cover the owner with respect to occurrences that take place after the named insured ceases to be a tenant at the owner's premises. Third, the endorsement excludes structural alterations, new construction, or demolition operations performed by or on behalf of the additional insured (owner). Finally, the endorsement makes no provision for extending policy limits separately to the additional insured. Thus, the tenant's limits would be shared by both parties if both are brought into a claim or a lawsuit.

When the owner is a partnership or corporation instead of an individual, there is another point to consider. The "who is an insured" provision of the tenant's general liability policy gives insured status to partners and officers of the named insured (the tenant) but not to partners or officers of the additional insured (the owner).

The CG 20 11 additional insured endorsement also has decidedly undesirable points of view for the tenant. There is an additional premium charge for the endorsement that is set by the insurer; this additional charge is limited only by the insurance company's underwriting guidelines and the press of insurer competition. Also, the disadvantage of having to share limits between both insureds in the event of a claim against both applies to the tenant as well.

There are two other endorsements that merit mention at this point. Endorsement CG 20 24 04 13, Additional Insured—Owners or Other Interests From Whom Land has Been Leased, parallels the coverage offered by CG 20 11 except that, where CG 20 11 speaks of premises being leased, CG 20 24 refers to land being leased. CG 20 26 04 13, Additional Insured—Designated Person or Organization, declares that the "who is an insured" section of the commercial general liability coverage form is amended to include as an insured any and all entities shown in the schedule; this is, however, only with respect to liability arising out of the operations of the named insured or premises owned by or rented to the named insured. CG 20 24 is offered to the insured at no additional charge; CG 20 26 requires an additional charge, subject to the guidelines of the insurer.

Classification and Rating

One of three situations is generally involved when writing liability insurance for an owner. They apply as well, incidentally, to a general lessee—one who assumes all responsibility for operating the premises, subleasing all or part of it or having complete control over it. Because in this case the general lessee stands in the same position as the owner, all references to "owner" in this discussion apply equally to general lessees.

The three situations are:

(1) where the owner does not occupy any part of the building and leases the entire building to one other party;

(2) where the owner does not occupy any part of the building and has more than one tenant; and

(3) where the owner occupies part of the building, leasing the remainder to one or more other parties.

Under the current commercial general liability program, Rule 31 in the Commercial Lines Manual (CLM)—Building or Premises—Offices or Residential Occupancy or Leased to Others— states that for classification assignment purposes, one should choose the classification that best describes the risk based on the ownership or occupancy of the premises. If the buildings or premises are owned and occupied entirely by the insured, classification and rates are based on the occupancy. If the buildings or premises are owned and only partially occupied by the insured, that part of the area occupied by the insured is classified and rated based on the occupancy; the remainder of the premises is classified and rated according to the appropriate lessor's risk only classification; if 90% or more of the premises is occupied by the insured, the entire premises is put under the insured's classification. For buildings or premises owned but not occupied by the insured, the risk is classified according to the appropriate lessor's risk only classification as found in the CLM.

The purpose of the current classification system is to group insureds into classifications so that the rate for each class reflects the hazards common to those insureds. The proper classification is based on that class that best describes the insured's operations. More than one classification assignment is allowed for risks with multiple business operations, and, if none of the classifications listed adequately describe an operation, the insurer will assign one that is acceptable to all parties. The rules indicate that the classification that best describes the risk based on the ownership or occupancy of the premises is the one that should be used for rating purposes. This approach certainly gives the parties to the insurance contract more leeway in setting classifications and rates and should lead to a final premium that is acceptable to all.

Originally published November24, 2008

Reviewed and updated February 28, 2020