Commercial General Liability Coverage: Why It's So Important

Condominium

Loss happens. This is a simple, irrefutable fact. In particular, Real Estate companies have significant exposure to premises liability arising from people (tenants, their guests and contractors, delivery personnel, and even trespassers) entering an owner's property. Owners owe a legal duty to these people, which is potentially breached when a person sustains an injury on-site, and thus proper preventive risk mitigation strategies are an essential component of an owner's operations.

Along with risk mitigation, obtaining proper insurance coverage is critical to protecting an owner's financial resources. The Commercial General Liability Policy is a standard policy issued to business organizations to protect them against liability claims for bodily injury and property damage arising out of the owner's premises and operations.

The Risks

Real Estate companies are exposed to a plethora of potential losses. While some exposures may be obvious and arise from failure to provide for tenant safety, such as slip and fall injuries in inclement weather, others are not so obvious. More subtle exposures may arise from a failure to properly secure or light the premises or a failure to notice and report clear signs of human trafficking happening on-site.

Catastrophic losses are another factor to consider. Some notable examples include the 2016 Ghost Ship Warehouse fire in Oakland, CA.  The fire was caused by faulty wiring during a remodel, killing 36 people and leaving 80 people injured.

A notorious historical example was The 2003 Station Nightclub fire in Rhode Island. This fire was caused by pyrotechnics igniting polyurethane foam insulation on the ceiling of the club's stage, killing 100 people and injuring 230 more. It was one of the deadliest structure fires in US history. Catastrophes like these can cripple a company into bankruptcy and leave employees liable to potential jail time due to negligence.

Mitigating Risks

The examples above highlight the need for proper maintenance. Many companies outsource maintenance functions. Outsourcing any maintenance function requires businesses to ensure that agreements with contractors appropriately transfer risk through indemnification and insurance provisions, which ensure that losses caused by the contractor's acts or omissions will not be the owner's responsibility.

Finally, it is essential to remember that the commercial general liability policy's focus is to cover property damage and bodily injury with typical limitations of coverage that need to be addressed by other types of insurance. For example, pollution is often limited or fully excluded, and thus an environmental policy covering risks associated with mold, legionella or other pollutants should be explored to pick up coverage for this gap.

The Top Questions

Due to the unpredictable nature of risks, several questions need to be answered when procuring Commercial General Liability Coverage.

These questions include:

  • What has your experience been with general liability claims?
  • Do you have a safety committee or safety manager? What are their duties? How do they perform them? How do they coordinate activities across locations?
  • What maintenance functions do you outsource to third-party vendors? Do you utilize a standard contract? Does it include appropriate risk transfer provisions? How do you verify the vendor's insurance coverage?
  • What exposures to loss do your tenants assume, based on your lease agreement?

We Can Help

The RCM&D Real Estate practice is uniquely positioned to help you answer all of the above questions, provide risk mitigation strategies, and help procure the best possible Commercial General Liability coverage possible. Talk to your trusted advisor today for more on how to tackle risks and protect your business from loss.

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