Product Update

Subrogation in Real Property Leases Reviewed in Contractual Risk Transfer

Real property leases typically assign the responsibility for insuring the property to either the lessor or lessee. For example, under long-term leases, especially when a single entity occupies the entire premises, the obligation of maintaining insurance often falls on the lessee (tenant). In other circumstances, such as the leasing of apartments, office space in commercial buildings, or retail property in a shopping center or mall, the lessor typically maintains property insurance. Similarly, a real property lease may contain a waiver of recovery rights between lessor and lessee when property damage is caused by the negligence of one party or the other. But not all leases address these recovery rights or the derivative right of the property insurer to recover against a negligent third party (lessor or lessee) through subrogation. When contracting parties' rights of recovery against each other and their insurers' rights of subrogation are not spelled out in the contract, the insurer's right to recover against a negligent third party once it has paid a covered claim is based on equitable subrogation. However, the question of a lessor's (lessee's) insurer's right of equitable subrogation against a negligent lessee (lessor) varies from state to state. That said, courts typically take one of three approaches when determining whether a lessor's insurer has a right of equitable subrogation against a negligent lessee. Learn more about each of these three approaches as well as the impact they have on an insurer's right of equitable subrogation in this Contractual Risk Transfer release.

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