Insurance question about office tenant

[Chris Sweeney]

I have 4-unit property that has a spare room we rent out as an office. The current tenant is a videographer and doesn't have any visiting clients (minimal liability). A new prospective tenant, a therapist, would have visiting clients, which means increased liability.

Is there any benefit to upgrading from a regular residential policy to a commercial policy for the whole building, or is simply requiring the new tenant to list us (the property owners) as additional insureds on their liability policy sufficient, making sure they carry at least $1 million in coverage? I'm thinking the latter is fine, as coverage is coverage, whether I'm the policy holder or not, just as long as we the owners are listed as insureds or additional insureds. My insurance guy recommends getting a commercial policy, but part of me can't help but think he just wants to sell me more insurance.

Thoughts?

[Francine Melia]

Hi Chris,

This is a great question around mixed use properties! If your current insurance agent (who is recommending the commercial policy) specializes in personal lines/residential policies, I would recommend talking to a commercial specialist and I'm happy to help further if you want to DM me.

Without knowing too many other details about this, in general, anything mixed use should either have individual policies for each unit OR a commercial package policy that can be customized to your specific usage percentages. In short, a residential policy isn't designed to protect any commercial spaces/uses, so your current policy would not apply to the commercial space, any liability claims that arise from it, etc. That means that this part of the building is not covered, and you can refer to your current policy, usually in the Exclusions section, as that should be described therein.

The policies/coverage that Robin is talking about sound like what he's requiring of his renters (renters insurance) and yes, I highly recommend your renters (residential and commercial) each carrying a renters insurance policy (the commercial tenant should get a COMMERCIAL renters policy, not a standard renters policy) to protect them, their contents in the unit, their liability, etc. At the very least, a liability policy for the commercial unit is helpful for claims made against the unit renter. BUT if a pipe bursts, the roof collapses, or a fire happens in that commercial unit, that's not really the place of the renters/liability policy to kick in -- it should be covered by the landlord policy as it's a loss on the physical property (which the renter does not have an insurable interest in); a residential policy would not cover the commercial unit, and that's the gap I'm seeing in the current setup regardless of who is named on said policy.

Best of luck and take care,

Francine

CA Insurance License #4138783 (In case you're in CA)

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Disclaimer: The information provided in this post does not, and is not intended to, constitute specific insurance advice. Anyone reading this must contact a licensed insurance agent or company for guidance with respect to their specific insurance matter, and should NOT act or refrain from acting on the basis of information herein without first seeking the specific advice of a licensed insurance producer.