What is Lessor’s Risk Only (LRO) Insurance?
Lessor’s risk insurance. It’s one of those lessor (pun intended) known insurance coverages that are designed for owners of leased commercial properties, particularly retail complexes, warehouses, apartment buildings, and the like. It’s a must-have if you want to protect your own investment, especially because you never know what could happen. A slip-and-fall or a fire breaking out on your commercial property could also result in disaster, and your hard work – and dependable stream of income – may be at-risk. The solution? Lessor’s risk only insurance, or LRO insurance.
But how does this special insurance package work? What differentiates it from landlord insurance, general liability, or commercial property? In this blog post, Hitchings Insurance breaks down the necessity of LRO insurance for commercial property owners and why it’s so critical.
What Does Lessor’s Risk Cover?
Lessor’s risk is designed to cover several common risks. Imagine a tenant who lives in your building slips on a walkway that was freshly paved over, injured themselves, and then sued. Or perhaps a fire broke out as a result of faulty wiring that you installed and burned several units, causing damage to the tenants’ original furniture and possessions. Lessor’s risk only insures against a wide range of risks and can pay out for medical bills, legal fees, or space renovations related to tenant-occupied spaces due to the following common risks:
- Water-related damages, such as burst pipes or sewer backup
- Smoke damage
- Weather damage
- Automobile impacts on the property
Damage from pollution or the loss of important data from computer systems can also be covered, in addition to your specific property space with specially tailored LRO policies. Discuss with Hitchings Insurance if you have specific needs when it comes to acquiring LRO insurance.
Lessor’s Risk vs Landlord Insurance
What is the difference between landlord insurance and lessor’s risk only? Well, none! Landlord insurance and lessor’s risk insurance are interchangeable terms used to describe particular insurance coverages for landlords who need liability protection against potential claims filed by tenants alleging property damage or bodily injury due to faulty design, or service provided by landlords.
Lessor’s Risk vs General Liability
What is the difference between lessor’s risk only and general liability insurance? They are similar business insurance coverages that are both designed to protect you if a third party should claim that you damaged their property and/or caused them bodily injury.
The difference is that where LRO insurance applies exclusively to the use of tenants on your commercial property. General liability insurance applies to lawsuits from other third parties (not your tenant, unlike LRO insurance.) LRO would come in clutch if one of your tenants were to injure themselves on a staircase in your building and allege that the accident was due to your failure to provide adequate lighting in that area. LRO would give you the legal expense payments you need to cover your defense costs, up until the policy limits that you have purchased. If the same incident happened but to a delivery person, your general liability insurance would be what kicks in for that instance.
Lessor’s Risk vs Commercial Property Insurance
Lessor’s risk only is designed for owners of commercial properties. Those properties can include office spaces, warehouses, retail complexes, apartment buildings, and other building types. A landlord must not occupy more than 25% of the building that is being leased to tenants (i.e., the remaining 75% of the building must be occupied by tenants – you cannot qualify for lessor’s risk unless this is the case.) Lessor’s risk will not cover your building from physical damages, such as fire, vandalism, theft, windstorms, and hail. In order to have coverage against these impacts, you would need to purchase commercial property insurance. Lessor’s risk only applies to liability. Hence why it is similar visually to commercial general liability insurance from an outside point of view.
What Does Lessor’s Risk Only Insurance Exclude?
Like any insurance policy, lessor’s risk-only coverage has its exclusions. As a liability insurance policy, lessor’s risk covers claims by tenants – not claims by general third-parties or direct damages (both of which would be coverable under CGL or commercial property insurance). LRO should not be purchased as a “standalone” or “all-encompassing” insurance package, as it alone cannot fully insure your business against every potential damage or loss. Note also that LRO does not cover damages that occur to a tenant’s own property. For example, any of their personal belongings or unique furniture is not covered. For that, they will need to have a renter’s or “tenant’s” insurance policy, which they must purchase separately.
Lessor’s risk-only insurance can be a little confusing if you are new to owning a property, but this is essential coverage that landlords cannot skimp out on! Discuss with Hitchings Insurance Agency’s friendly agents if you need assistance tailoring a personal policy that protects your investment – and your own peace of mind.