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Best Practices for Lease Insurance Specifications

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Best Practices for Lease Insurance Specifications BEST PRACTICES FOR LEASE INSURANCE SPECIFICATIONS CHECKLIST VERSUS NARRATIVE FORMAT William H. Locke, Jr. Graves Dougherty Hearon & Moody Austin, Texas ACREL Annual Meeting Leasing and Insurance Committees Chicago October, 2012 1685471v2 TABLE OF CONTENTS I. INTRODUCTION .......................................................................................................................................................... 1 A. Contractual Risk Allocation .................................................................................................................................... 1 B. Risk of Casualty Loss and Injuries in Leased Premises .......................................................................................... 1 C. Heightened Risk Concern Arising During Periods of Financial Distress ................................................................ 2 D. Annotated Forms ..................................................................................................................................................... 2 II. FORMS ........................................................................................................................................................................... 3 A. Lease Provisions ...................................................................................................................................................... 3 1. Form A.1. - Insurance Specifications as Exhibit to Lease ............................................................................... 3 A. General Insurance Requirements .............................................................................................................. 3 1. Definitions ........................................................................................................................................ 3 2. Policies ............................................................................................................................................. 3 3. Limits, Deductibles and Retentions .................................................................................................. 4 4. Forms ................................................................................................................................................ 4 5. Evidence of Insurance ....................................................................................................................... 4 6. Tenant Insurance Representations to Landlord Parties ..................................................................... 5 7. Insurance Requirements of Tenant’s Subtenants .............................................................................. 6 8. Use of the Landlord’s Property ......................................................................................................... 6 9. Release and Waiver .......................................................................................................................... 6 10. Self-Insurance, Large Deductibles and/or Retentions ....................................................................... 6 B. Specific Insurance Requirements ............................................................................................................. 7 1. Policies To Be Provided by Tenant .................................................................................................. 7 2. Policies To Be Provided By Tenant’s Contractors ......................................................................... 11 3. Policies To Be Provided By Landlord ............................................................................................ 15 2. Form A.2. - Insurance Specifications in Narrative Format ........................................................................... 16 A. Landlord’s Insurance .............................................................................................................................. 16 B. Tenant’s Insurance Payment .................................................................................................................. 16 C. Tenant’s Insurance ................................................................................................................................. 16 D. Indemnification Obligations of Tenant................................................................................................... 17 E. Indemnification Obligations of Landlord ............................................................................................... 18 F. Mutual Waiver of Subrogation ............................................................................................................... 18 B. Liability Insurance Forms ..................................................................................................................................... 19 1. Form B.1 - ISO CG 02 05 12 04 Texas Changes - Amendment of Cancellation Provisions or Coverage Change ........................................................................................................................................... 19 2. Form B.2 - ISO CU 24 19 12 01 Lessor - Additional Insured and Loss Payee .............................................. 20 3. Form B.3 - ISO CG 20 10 07 04 Additional Insured - Owners, Lessees or Contractors - Scheduled Person or Organization .................................................................................................................................. 21 4. Form B.4 - ISO CG 20 11 01 96 Additional Insured - Managers or Lessors of Premises ............................. 22 5. Form B.5 - ISO CG 20 18 11 85 Additional Insured - Mortgagee, Assignee, or Receiver ............................ 23 6. Form B.6 - ISO CG 20 26 07 04 Additional Insured - Designated Person or Organization .......................... 24 7. Form B.7 - ISO CG 21 39 10 93 Contractual Liability Limitation ................................................................ 25 8. Form B.8 - ISO CG 24 26 07 04 Amendment of Insured Contract Definition .............................................. 26 9. Form B.9 - ISO CG 21 44 07 98 Limitation OF COVERAGE TO DESIGNATED Premises or project ...... 27 C. Property Insurance Forms ..................................................................................................................................... 28 1. Form C.1 - ISO CP DS 00 10 00 Commercial Property Coverage Part - Declarations Page ......................... 28 2. Form C.2 - ISO IL 00 17 11 98 Common Policy Conditions ........................................................................ 29 3. Form C.3 - ISO CP 00 90 (07/88) Commercial Property Conditions ............................................................ 31 4. Form C.4 - ISO CP 00 10 06 07 Building and Personal Property Coverage Form ........................................ 33 5. Form C.5 - ISO CP 12 18 06 07 Loss Payable Provisions ............................................................................. 49 6. Form C.6 - ISO CP 12 19 06 07 Additional Insured - Building Owner ......................................................... 52 D. Certificates, Evidences and Insurance Binder ....................................................................................................... 53 1. Form D.1 - ACORD 24 (2009/09) Certificate of Property Insurance ............................................................ 53 2. Form D.2 - ACORD 25 (2010/05) Certificate of Liability Insurance ............................................................ 54 3. Form D.3 - ACORD 28 (2009/12) Evidence of Commercial Property Insurance ......................................... 55 4. Form D.4 - ACORD 75 (2010/04) Insurance Binder ..................................................................................... 57 Endnotes ............................................................................................................................................................................... 59 Best Practices for Lease Insurance Specifications: Checklist Versus Narrative Format1 I. INTRODUCTION ● The performance of the contract is monitored A. Contractual Risk Allocation. and regularly evaluated. Risk allocation provisions are contained in all B. Risk of Casualty Loss and Injuries in Leased contracts. They are used in an attempt to assure the Premises. intended economic objectives of the “deal.” The most common methods by which risk is shifted in a Leases, being a creature of property law and contract, contract are by the use of representations and have the following special risks and risk allocation warranties, insurance covenants, express assumption issues: of liabilities, indemnity, exculpation, release and limitation of liability provisions. Every provision of a ● Upon casualty loss, what happens to the lease, contract is either restating the rule that would be does it terminate or does it continue? And at supplied by the court in the absence of the provision whose option? or is expressly shifting a risk from one party to the other. The most common method of risk ● If due to a casualty loss the premises become management is through contractual provisions for untenantable, what happens to the rent? insurance. The success of an entity’s approach to contractual risk transfer can be considered successful ● Who is responsible for the restoration of the if it meets the following criteria: premises? ● Risk is transferred to party best able to control ● Are there premises located in special hazard the risk. areas, such as flood zones, hurricane or earthquake
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