Tanya bought a three-story brick building in Tacoma's Hilltop neighborhood: a bar and a nail salon on the ground floor, six apartments above. She financed it through a local bank and took over the previous owner's insurance agent along with the keys.
The bar tenant's lease came up for renewal, and Tanya's attorney suggested she have the insurance reviewed before signing anything.
What she asked for
A check that her building policy was adequate for a bar tenant.
What the review found
Her liability limit was $1 million, with no umbrella. A building with a bar, a salon, six residential units, and a public sidewalk has several ways to produce a large claim: a fall on the stairs, a fire that injures tenants, or a bar patron hurt outside. A serious injury claim can exceed $1 million, and plaintiffs often name the building owner along with the tenant.
The bar's insurance was not verified. The lease required the bar to carry liquor liability and name Tanya as an additional insured, but no one had collected a certificate in two years.
Property values were old, and the building was unreinforced masonry. Replacement cost for a century-old brick building is expensive. The limit was based on the purchase price, not rebuilding costs, and there was no earthquake coverage.
Loss of rents was missing for the commercial units. It covered the apartments only.
What we put in place
We rewrote her commercial property coverage at a replacement cost value built for the building's actual construction, with ordinance or law coverage for the upgrades a rebuild would require under current code, and loss of rents for all eight units. We priced earthquake coverage separately and walked her through the deductible structure; she chose to buy it.
We reviewed her general liability and confirmed it covered the residential and commercial portions of the building.
We added a commercial umbrella at $3 million over the building's liability. For a mixed-use property with a bar tenant, that is the most cost-effective way to protect the owner's equity against a claim that exceeds primary limits.
We set up a simple tenant certificate process and got updated certificates from both commercial tenants. The bar's liquor liability now names Tanya as an additional insured.
Why it mattered
Later that year, a bar patron fell on the building's exterior stairs late at night and sued both the bar and the building owner. The bar's liquor liability responded first because Tanya was an additional insured on it. Her own policy and umbrella sat behind it. Without the umbrella, a large verdict would have reached her equity in the building.
If you own a mixed-use property
- Add an umbrella; mixed-use buildings produce claims larger than primary limits
- Collect certificates from commercial tenants every year
- Insure older buildings at rebuild cost, with ordinance or law coverage
- Price earthquake coverage for masonry buildings
See how we work with real estate investors, or get a free policy review.