The effectiveness of the Lessors Risk-Only Endorsement (LRO) in Florida is under scrutiny as property owners grapple with its implications. Designed to shift liability coverage from commercial premises owners to their tenants, the LRO has specific conditions that must be met for it to provide adequate protection.
Understanding Lessors Risk-Only Endorsements
A standard LRO stipulates that commercial tenants must carry their own liability insurance to protect both themselves and the property owner. According to the endorsement, “coverage is written and priced on the basis that your ‘tenant(s)’ carry liability insurance.” This insurance must not only meet specified limits but also name the property owner as an Additional Insured. Failure to comply with these requirements can result in the policy being rendered null and void.
To activate the LRO coverage, three conditions must be satisfied: tenants must name the property owner as an additional insured, their insurance limits must match or exceed those of the property owner’s policy, and they must maintain valid insurance that fulfills these criteria. Under Florida law, insurers have the right to deny coverage if an insured party breaches these provisions, which are categorized as conditions precedent and subsequent.
Implications of Tenancy in Coverage
Commercial tenancies in Florida are governed by specific statutes, namely Florida Statutes, Chapter 83, Part I, and Chapter 680. The statutes define a tenancy as existing only when there is a written lease or a tenancy at will, whereby the property owner receives rent in exchange for possession. If no rent is exchanged, the occupant may not qualify as a tenant, consequently impacting the LRO’s applicability.
In instances where an agreement between the property owner and the occupant does not involve rent, the LRO may not extend coverage to that occupant. This raises significant concerns for property owners regarding the effectiveness of the LRO in protecting against potential claims.
Should the LRO fail to apply to an occupant, the next critical consideration is whether it effectively shifts coverage to a tenant. The priority of coverage under Florida law involves analyzing the “Other Insurance” clauses present in competing policies. The existence of various types of clauses—such as pro rata, excess, and escape clauses—can complicate the landscape of liability coverage.
In scenarios where both the property owner’s policy and the tenant’s insurance contain excess clauses, these provisions may be deemed mutually repugnant. This means that rather than fully shifting risk to the tenant, both insurers might be required to share liability costs on a pro rata basis according to their policy limits.
As the Florida insurance landscape evolves, property owners must remain vigilant about the conditions tied to the LRO. The potential for gaps in coverage necessitates thorough understanding and compliance with the endorsement’s requirements. In navigating these complexities, property owners are advised to seek professional guidance to ensure robust protection against unforeseen liabilities.
