Insurance Planning for 2016: Top Ten Real Estate Liability Concerns
1. Additional Insured Coverages. Real estate transactions are complex, with multiple parties with diverse roles and durations of involvement. This means multiple policies of insurance. So, when liability occurs, think “outside the box” and look to all potential sources of insurance, rather than only to your own policies. Other sources of insurance might include policies issued to developers, property owners, property managers, lenders, tenants or contractors (and subcontractors). And, when you qualify as an additional insured, coverage may be available even where the third-party policyholder is not itself a liability target.
2. Cyber Liabilities. Cyber crime, hacks, data loss and corruption frequently top the headlines. The real estate industry is not immune from this exposure and, in some respects, it is at heightened vulnerability. This is particularly so with financing and tenant relations. In the past, cyber-related liabilities were covered under traditional general liability insurance policies. However, with exposure from cyber risk increasing, insurers have worked to limit coverage under traditional or “legacy” liability policies. Businesses engaged in the real estate market, particularly mortgage lenders and property managers, should consider some form of cyber-risk protection in their insurance portfolio.
3. Pollution Liability Policies (for lenders). Unknown environmental problems can impose liabilities that far exceed those caused by fire, vandalism, theft or title risks. This is particularly significant for lenders, who are removed from day-to-day activity at the property, yet rely heavily on property value to protect their financial investment. When collateral property is contaminated, value falls, increasing risk. Even where the lender assumes ownership of the property through foreclosure or otherwise, the lender may still not recoup the loan balance due to the cost of cleanup and the resulting diminution in value. Lender liability insurance can help mitigate this risk. The insurance can be bought by the lender or the borrower as a condition to the loan.
4. Mergers and Acquisitions. Real property transfer is often a significant part of
corporate mergers, acquisitions and consolidations. Insurance may not be viewed
as a high-priority item in the transaction, or it may be overlooked altogether.
Those involved should take care that existing insurance is not forfeited when
new legal entities are formed or when existing entities are dissolved. The
insurance contracts themselves should always be reviewed for provisions
governing assignment of the contract, notice to the carrier or other terms that
could affect the viability of the insurance after the transaction is complete.
1 This information is not intended to create an attorney-client or similar relationship. This paper is only a general overview and is not legal advice; if you have specific questions about your insurance coverage, and how these situations may affect it, please contact the authors at the contact information below.
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