Consider this scenario: the landlord signed a lease with a tenant. As part of the insurance/indemnification requirements under the lease, the tenant was obligated to name the landlord as an “additional insured” under its various insurance policies, and also to provide the landlord with a valid certificate of insurance to that effect. The tenant dutifully complies – somewhat. It provides the landlord with a certificate of insurance reflecting that the tenant is insured as of that date, and is also in good standing for a specific term (usually a one year term). Further, it lists the landlord as a “certificate holder.” The certificate is received by the landlord and is filed with the tenant’s other file documents. Incidentally, the certificate of insurance contains the following language: “should the above policy be cancelled before the expiration date, the issuing insurer will endeavor to mail a 10-day written notice to the certificate holder.” A few months later, the landlord’s agent is served with a lawsuit naming the landlord and tenant as defendants. The lawsuit alleges that the plaintiff, while a business invitee, injured herself within a portion of the tenant’s demised premises. There are also allegations in the complaint indicating that the plaintiff may have suffered a traumatic brain injury as a result.

The landlord pulls out the tenant’s file and forwards the certificate and a letter to the tenant’s insurer demanding that the carrier defend and indemnify the landlord pursuant to the certificate and the tenant’s lease. The response from the tenant’s insurer was apparently swift for a reason: The landlord’s tender for defense and indemnification was denied because the tenant’s policy had been cancelled the previous month for non-payment of premium.

It gets worse. The tenant’s lease expires in a few days and will be out the door — for good. It may also file for bankruptcy.

What just happened?

Let’s take a few steps back and assess what the landlord may have overlooked or may not have fully appreciated when it accepted the tenant’s certificate of insurance documents.

• Although the lease required that the landlord be listed as an “additional insured” in the tenant’s policy, the certificate only designated the landlord as a “certificate holder,” not an additional insured as contemplated in the lease.
• Although the certificate clearly states that the insurer will “endeavor” to provide 10 days written notice to the landlord before the cancellation of the tenant’s policy for nonpayment, the insurer will most likely not be held liable if it fails to provide such advance notice to the landlord (in Connecticut, an insurer may be absolved from liability vis-à-vis the certificate holder even if it fails to provide advance notice to the holder – notwithstanding the “endeavor” language in the certificate).
• Although the term of the tenant’s policy appeared to be for a stated duration (i.e., July 1, 2007 to June 30, 2008), that putative expiration date is often malleable; it is contingent upon the continual payment of premiums by the primary insured – the tenant.

This unfortunate scenario happens more often than you think. It can be prevented. Here are a few preventative measures that landlords should implement in order to militate against such occurences:

• Peruse the tenant’s initial insurance submission. Look beyond the certificate of insurance to ascertain that the tenant’s policy endorsements (which must also be submitted to the landlord) properly designates the landlord as a true “additional insured.” Further, such “additional insured” term as defined in the policy must be “primary and non-contributory” — irrespective of any other policies that the landlord may be carrying at the time.
• Continuously monitor the tenant’s policy status. This is painfully tedious work, but there may be no other way to accomplish this task. Sure, the tenant has a continuing obligation to notify the landlord of any changes to its policy; sure, the tenant’s insurer will “endeavor” to notify the landlord if it intends to cancel the tenant’s policy for nonpayment; however, the best and most fail-proof way to keep abreast of these changes is for the landlord to take on that initiative and designate a staff member to contact the tenant’s broker and insurer to request written confirmation that there have been no changes to the tenant’s policy and that the tenant is in good standing with its insurer. This should be done at least once a month.
• Timely renewal of expired leases. This may sound academic; however, if the tenant continues to occupy space on the landlord’s property without a lease in effect (i.e., the lease lapsed and the parties are still in the process of negotiating a renewal), it would not be far-fetched for the tenant’s insurer to link the policy term to the effective date of the lease for coverage purposes, so that coverage is only triggered upon proof of a signed lease at the time of the incident. Thus, the tenant may not have any contractual obligation to the landlord — i.e., to obtain and maintain insurance coverage — if there was no lease in effect at the time of the casualty. Consequently, not only will the landlord be precluded from tendering a claim to the tenant’s insurer, it will also have no standing to assert a claim against the tenant for indemnification.

Again, the only way that the above noted scenario could be avoided is through tedious diligence and redundancy. The landlord should not expect to rely on the tenant, its broker or insurer to keep the landlord apprised of sudden changes to the tenant’s policy. Rather, the landlord must become more proactive and take ownership of that task.