Owners of commercial properties that lease space to tenants such as warehouses, apartment buildings, and retail strip malls should purchase lessor’s risk only insurance to protect their investments. Also referred to as LRO and landlord insurance, lessor’s risk only insurance covers commercial property owners that face tenant lawsuits for injuries and/or property damage. LRO insurance often is part of a larger insurance package for commercial property owners that also includes liability and commercial property insurance.

What Does LRO Insurance Cover?

The most common reason for investing in LRO insurance is to help protect a commercial property owner against claims by tenants that suffer financial losses as the result of weather-related damage.  When storms strike, LRO insurance can protect against claims for financial losses suffered by tenants as a result of wind or loss of rental income in the event the building cannot be occupied while being repaired, for example.

However, weather is not the only factor that contributes to the filing of an LRO claim. Fires and the resulting smoke damage also represent a common factor that can trigger the coverage of an LRO policy. LRO insurance may also protect commercial property owners against the negative financial consequences of criminal acts, such as theft and vandalism. Flooding that results from burst pipes or sewer backups also is covered by most LRO policies. One of the most common types of LRO claims involve slip and fall incidents by tenants, which also can form the basis of a civil lawsuit filed under premises liability law.

What Does LRO Insurance Not Cover?

Although LRO insurance coverage can protect commercial property owners against the liability faced by landlords regarding the damage and injuries sustained by tenants, LRO insurance does not cover other types of events. LRO insurance does not cover commercial property owners faced with a tenant’s claim for the damages and/or injuries sustained by a third party – e.g., a delivery person. Commercial general liability insurance is designed to cover claims filed by such third parties. For direct damages on an owner’s property, commercial property insurance generally provides coverage. Since LRO insurance covers a limited number of events that cause damage and/or injuries to tenants and their property, it typically is packaged by commercial property owners with other types of insurance.

What is the Difference Between LRO and Liability Insurance?

“Do both types of insurance cover the same people?” The answer is no because LRO insurance is designed to cover the injuries and property damage sustained by the tenants of a commercial property. On the other hand, general liability insurance is designed to cover the damages and injuries sustained by third parties such as customers and delivery personnel.

For example, if a severe storm damages the space leased by a tenant and a vehicle owned by a customer of the business, LRO insurance is designed to cover the tenant’s property damage while general liability insurance is designed to cover the damage sustained by the customer.

What is the Cost of Buying LRO Insurance?

Several factors impact the cost of a LRO insurance policy.

Location

The high cost of living is not the only location-related factor that impacts the cost of an LRO policy. If your commercial property is located in a high-risk area, such as near the Gulf of Mexico or in a high-crime neighborhood, you can expect to pay more for LRO insurance.

Property Value

The higher a commercial property value, the higher the premiums paid for LRO insurance.

Type of Property

The type of commercial property plays an influential role in determining the cost of an LRO insurance policy. For instance, the owner of a large shopping mall usually will pay more for LRO coverage than the owner of a small retail strip mall that consists of fewer than 10 stores.

Claims History

The number of claims filed by tenants impacts the cost of LRO insurance. The more claims filed against a commercial property owner, the higher the owner can expect to pay in premiums.

Deductible

Many factors are out of the hands of commercial property owners when it comes to the cost of an LRO policy. However, deductibles are not one of the factors. You can lower LRO premiums by selecting a higher annual deductible.

Type of Coverage

You can customize an LRO insurance policy to leave out certain coverage, such as removing earthquake coverage if you own a commercial property outside of any fault zones. The more endorsements for an LRO policy, the higher the cost of the policy.  Your insurance agent can help you select the most appropriate insurance coverages for your situation.