I’ve seen this drawback too many instances to depend. A current federal court docket determination out of Tennessee drives the lesson house with painful readability. Property house owners routinely assume they’re protected as a result of their tenant procured insurance coverage, listed them as a loss payee, and perhaps even added them as a further insured. Then a hearth happens, the constructing is a complete loss, and the proprietor learns far too late that they have been by no means actually insured for what they thought mattered most.
The case concerned a industrial constructing owned by Steadfast Investments and leased to a tenant. The tenant purchased the insurance coverage coverage and was the one named insured. The proprietor was listed as a loss payee and in addition appeared in a further insured endorsement restricted to legal responsibility protection. After a hearth destroyed the constructing, the insurer paid an precise money worth quantity collectively to the tenant and the proprietor. The proprietor believed the coverage was a valued coverage and demanded the total coverage restrict for the constructing. The insurer refused. Litigation adopted.
The court docket first dominated that the coverage was an open coverage, not a valued coverage, as a result of the contract language required valuation after the loss, included alternative value provisions, and contained an appraisal clause. 1 That a part of the ruling is vital, however the extra instructive and troubling lesson for property house owners lies within the newer findings ending the case.
The proprietor argued that, as a loss payee and meant beneficiary of the coverage, it had the best to problem the insurer’s valuation and implement the coverage’s cost obligations. The court docket agreed, partly, that the proprietor was an meant beneficiary, however solely of a really slender promise. The coverage provision that mattered stated the insurer would alter the loss with the tenant and situation cost collectively to the tenant and the loss payee. That promise was stored. The insurer adjusted the loss with the tenant and issued a joint verify.
The court docket famous that what the coverage did not do was give the constructing proprietor any proper to take part within the adjustment, dispute the quantity of loss, demand appraisal, or declare alternative value or coverage limits. These rights belonged completely to the named insured, who was the tenant. The court docket emphasised that even an meant third-party beneficiary can solely implement the precise guarantees made for its profit, not your complete insurance coverage contract.
In plain English, the court docket dominated that the proprietor had a proper to be on the verify, however no proper to argue about how large the verify ought to be. 2
This consequence ought to concern each property proprietor and actual property lawyer working with industrial property house owners who depend on tenant-placed insurance coverage. Loss payee standing is commonly handled as a security internet. It isn’t. Being a loss payee sometimes ensures cost is made collectively, but it surely doesn’t confer management, valuation rights, or standing to problem how the insurer adjusts the declare. Extra insured endorsements may be equally deceptive, particularly once they apply solely to legal responsibility protection and to not property harm.
I’ve written and spoken about this situation for many years as a result of it retains recurring. House owners signal leases requiring tenants to insure the property. Certificates of insurance coverage are collected and filed away. Everybody feels comfy till a catastrophic loss exposes the hole between perceived safety and precise protection. At that time, the coverage language, not assumptions or intentions, controls the end result. Some insurers agree to regulate the declare with the proprietor, whereas others take a really arduous stance.
The repair will not be difficult, but it surely requires vigilance. Property house owners, property managers, and actual property attorneys concerned with these points ought to insist on being named insureds on property protection, or a minimum of make sure the coverage features a true constructing proprietor loss payable clause that offers the proprietor adjustment rights and direct cost obligations. Reviewing declarations pages and endorsements will not be busywork. It’s threat administration in its most simple type.
This Tennessee case is a reminder that courts will implement insurance coverage contracts precisely as written. They won’t rescue house owners from unfavorable constructions just because the consequence feels unfair after a loss. Insurance coverage is a contract drafted lengthy earlier than the fireplace, not a sympathy instrument utilized afterward.
The attorneys on either side of this case are wonderful. I anticipate there could also be an attraction. I’ll hold readers abreast of what occurs.
Thought For The Day
“An oz of prevention is price a pound of treatment.”
— Benjamin Franklin
1 Steadfast Investments & Properties v. AmGuard Ins. Co., No. 1:23-CV-01091 (W.D. Tenn. Julu 1, 2024).
2 Steadfast Investments & Properties v. AmGuard Ins. Co., No. 1:23-CV-01091 (W.D. Tenn. Jan. 8, 2026).