I’ve seen this drawback too many instances to depend. A latest federal court docket resolution out of Tennessee drives the lesson residence with painful readability. Property homeowners 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 an extra insured. Then a hearth happens, the constructing is a complete loss, and the proprietor learns far too late that they had been by no means really insured for what they thought mattered most.
The case concerned a business 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 likewise appeared in an extra 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 complete 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 price provisions, and contained an appraisal clause. 1 That a part of the ruling is necessary, however the extra instructive and troubling lesson for property homeowners lies within the more moderen findings ending the case.
The proprietor argued that, as a loss payee and meant beneficiary of the coverage, it had the fitting to problem the insurer’s valuation and implement the coverage’s fee obligations. The court docket agreed, partially, that the proprietor was an meant beneficiary, however solely of a really slim promise. The coverage provision that mattered stated the insurer would alter the loss with the tenant and subject fee collectively to the tenant and the loss payee. That promise was saved. The insurer adjusted the loss with the tenant and issued a joint test.
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 price or coverage limits. These rights belonged solely to the named insured, who was the tenant. The court docket emphasised that even an meant third-party beneficiary can solely implement the particular guarantees made for its profit, not the whole insurance coverage contract.
In plain English, the court docket dominated that the proprietor had a proper to be on the test, however no proper to argue about how massive the test must be. 2
This consequence ought to concern each property proprietor and actual property legal professional working with business property homeowners who depend on tenant-placed insurance coverage. Loss payee standing is usually handled as a security internet. It isn’t. Being a loss payee sometimes ensures fee is made collectively, however it doesn’t confer management, valuation rights, or standing to problem how the insurer adjusts the declare. Extra insured endorsements will be equally deceptive, particularly after they apply solely to legal responsibility protection and to not property harm.
I’ve written and spoken about this subject for many years as a result of it retains recurring. Homeowners 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 onerous stance.
The repair just isn’t difficult, however it requires vigilance. Property homeowners, property managers, and actual property attorneys concerned with these points ought to insist on being named insureds on property protection, or no less than make sure the coverage features a true constructing proprietor loss payable clause that offers the proprietor adjustment rights and direct fee obligations. Reviewing declarations pages and endorsements just isn’t 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 homeowners from unfavorable buildings just because the consequence feels unfair after a loss. Insurance coverage is a contract drafted lengthy earlier than the hearth, not a sympathy instrument utilized afterward.
The attorneys on each side of this case are glorious. I anticipate there could also be an enchantment. I’ll maintain readers abreast of what occurs.
Thought For The Day
“An oz. of prevention is price a pound of remedy.”
— 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).