The effectiveness of the Lessors Risk-Only Endorsement (LRO) in Florida has come under scrutiny as commercial property owners seek to understand their liability coverage options. The LRO is designed to shift liability coverage from property owners to their commercial tenants, but its applicability and enforceability raise significant questions.
Understanding the Lessors Risk-Only Endorsement
The LRO modifies standard insurance policies, particularly the Commercial General Liability (CGL) coverage. Typically, an LRO includes specific language emphasizing that coverage is contingent on the tenant maintaining their own liability insurance. For an LRO to be effective, tenants must meet three key conditions: they must name the property owner as an additional insured, carry liability limits that meet or exceed those of the property owner, and actually purchase the required insurance. Failure to meet these stipulations can render the LRO null and void.
Florida law stipulates that insurers can deny coverage if an insured breaches policy provisions. The requirements imposed by the LRO are considered conditions precedent—criteria that must be fulfilled before the insurance policy becomes effective. Thus, if these conditions are not satisfied, the CGL coverage may not apply, leaving property owners vulnerable.
The Definition of Tenancy in Florida
The concept of tenancy is crucial in determining the applicability of the LRO. Under Florida Statutes, commercial tenancies require a lease agreement, either written or unwritten, that involves the exchange of rent for the right to occupy a property. According to Florida Statute § 83.01, a tenancy is considered valid only if there is an agreement stipulating that rent is paid for possession of the space. If no such agreement exists, the occupant may not qualify as a tenant, which would bring the LRO into question.
In situations where there is no formal lease or rental payment, the endorsement may not be enforceable against the occupant, complicating the liability landscape for property owners.
Coverage Priority and Its Implications
If the LRO is not applicable to an occupant, the next consideration is whether it effectively shifts coverage to a tenant. This is evaluated through the “Other Insurance” clauses present in competing policies. Florida recognizes three types of these clauses: pro rata, excess, and escape or no liability clauses.
When multiple policies contain excess clauses, they are often deemed mutually repugnant, leading to a pro rata distribution of coverage. This means that even if the tenant complies with the LRO, if both the owner’s policy and the tenant’s policy contain excess clauses, they may negate each other’s effects. As a result, the LRO might not fulfill its intended purpose of transferring risk entirely to the tenant.
Insurers operating in Florida must remain vigilant regarding these complexities. The lack of clarity surrounding the LRO could expose them to greater risk and liability. As property owners navigate these challenges, understanding the precise terms and conditions of their endorsements and the implications of Florida law is essential for effective risk management.
