Those who work in commercial real estate are all too familiar with the abundance of information that must be tracked. Moving parts include tenant payments, rent escalations, lease expirations, maintenance requests — and on top of everything else, certificates of insurance.
Abbreviated as COI, a certificate of insurance supports that insurance was in place on the date the COI was issued and lays out some of the basic coverage. For owners and managers of commercial properties, real estate COI is an important step in protecting your assets and managing risks.
Why Real Estate COIs Matter
If you manage commercial real estate, it is common language in lease agreements to request being added as an additional insured to the tenant’s insurance policy. Most lease and service agreements contain language requiring COI verification. Additionally, agreements include the requirements outlining the type and depth of coverage.
Micah Colbert, Sales Advisor for Lee Agency Insurance, explains just why COIs matter. “Certificates of Insurance are an important way to support that the person you are working with has proper limits in case the unimaginable happens,” said Colbert.
“Many insurance carriers require that COIs are provided, and some also require that you are added as an additional insured (AI),” explains Colbert. “ If the tenants or management companies do not provide an up-to-date COI or the limits and coverages are insufficient, there is a chance that a carrier could exclude coverages.”
His advice? Make sure to have a relationship with an insurance agent so they can help you manage this.
Even though you may have your own insurance for your property, it’s important to verify that others with whom you regularly do business are adequately insured for their specific type of operation. A restaurant will have different insurance needs compared to a medical clinic. Examples of types of coverage may include liability coverages, property coverages, and worker’s compensation. The depth and details of coverages is rather vast and varies depending on the operation.
How to Validate a Real Estate COI
COIs are typically provided by the agent on record, rather than the policy holder. Make sure that the name of the insured on the certificate matches the party in question and verify that their coverage complies with the terms outlined in your lease or service agreement. You’ll also want to check the dates the coverage is valid. If it expires before your work is complete, you’ll want to remember to follow up with the party for an updated COI.
What Information Must Be Tracked?
Tracking information can be a headache, and it may be tempting to simply take people’s word for it and trust they are insured. However, having a COI in hand not only allows you to verify their coverage — it’ll also help you keep track of vital information, such as:
- Policy coverage dates
- Type(s) of coverage
- Limits of each type of coverage
COIs include many moving parts. While obtaining the COI is a necessary first step, it is only accurate the day you receive it. The insured party is free to cancel or alter their coverage at any time — or they could forget to pay their premium with you being none the wiser.
Even as a certificate holder or additional insured, most policy provisions do not convey you any rights. If an insurance policy changes or ceases, nobody is obligated to inform you. Therefore, as a commercial property manager, it’s your responsibility to stay on top of the data. Or in the event the unthinkable happens, as the owner you are completely on the hook if something should happen.
Because the variety of possibilities is endless, explaining the “what if’s” is nearly impossible. But, we will dive into some of the variables at play. In the event of the unthinkable, able mentioned above, where you are in a situation where the insurance lapses and there is a fire, or someone falls in the tenant’s space and sues, you must consider that:
- Some lease agreements require the lessee to obtain building coverage
- Some lease agreements require the lessee to just have property (BPP) coverage
- Some lease agreements require the lessee to have just liability
- Some do not have lease agreements.
- The list of requirements goes on and on
The agreement between lessee and lessor could also be a combination of any of the above. There are many other factors; this just lists some. If one did not have insurance in place and needed it, they would be on the hook for damages incurred out of their own assets. Insurance is there for the sudden and unexpected. If you are taken to the court of law and did not have proper protection for yourself and others, it could be that you will be found negligent.
“I often find that people think coverage is had by someone else or that a policy covers something that it doesn’t,” said Colbert. “It is not prudent to assume coverage is in place, so I recommend having a partner agent who you can be vulnerable with and have them help you protect yourself.”
Additionally, if there’s something like a fire, you would need to consider the cause of the fire:
- Was it malicious?
- Was it electrical?
- Was it weather related?
- Was it from an adjacent building?
- Was it from negligence?
The list of causes goes on and on. And it would depend on the lessee and lessor to determine who should have what covered. Depending on the cause of the fire, it would change who is responsible for remedying this situation and how it would be covered. That being said, any worthwhile lawyer will list anybody and everybody in a lawsuit. So, one could argue that you will at least need defense costs.
Use STRATAFOLIO to Keep Track of Certificates of Insurance
Historically, commercial property managers had to track this information by hand, manually obtaining and maintaining data from tenants and stakeholders. A manual process like that is not only tedious — it has the potential for misplaced and overlooked information.
Thankfully, nowadays there are programs like STRATAFOLIO to help property managers track and automate COIs and insurance policies, among a wealth of other information. With STRATAFOLIO, you can easily add insurance requirements to a lease and receive visual and email alerts when policies are set to expire. Contact us to schedule a demo now!