CLP CLP Risk Management & Insurance 1 — Questions and Answers
Question 1: What type of insurance is most commonly required of commercial tenants under a lease agreement?
- Life insurance
- Commercial General Liability (CGL) insurance (Correct answer)
- Health insurance
- Title insurance
Correct answer: Commercial General Liability (CGL) insurance
Commercial General Liability insurance protects against bodily injury and property damage claims arising from a tenant's business operations on the leased premises.
Question 2: What does an 'additional insured' requirement in a commercial lease mean?
- The tenant must purchase supplemental life insurance
- The landlord is added to the tenant's insurance policy to receive protection from related claims (Correct answer)
- A secondary named tenant on the lease document
- An insurance endorsement covering renovation work only
Correct answer: The landlord is added to the tenant's insurance policy to receive protection from related claims
An additional insured endorsement extends the tenant's liability policy to cover the landlord, protecting them from claims arising out of the tenant's operations.
Question 3: What does a 'waiver of subrogation' clause in a commercial lease insurance provision accomplish?
- The tenant waives their right to sublease
- The insurance company waives its right to sue the other party after paying a covered claim (Correct answer)
- The landlord waives all insurance requirements
- A mutual agreement to use arbitration for all disputes
Correct answer: The insurance company waives its right to sue the other party after paying a covered claim
A waiver of subrogation prevents the insurer from pursuing legal action against the other party after compensating the insured for a covered loss.
Question 4: What is 'business interruption insurance' in the context of commercial leasing?
- Coverage replacing lost income when a covered disaster prevents a business from operating (Correct answer)
- Coverage for lease termination penalties
- A type of renter's insurance for personal property
- Insurance against lease renewal disputes
Correct answer: Coverage replacing lost income when a covered disaster prevents a business from operating
Business interruption insurance compensates tenants for lost revenue and ongoing expenses when a covered event—like a fire—forces a temporary business closure.
Question 5: What financial risk does 'environmental liability' coverage address in commercial leasing?
- Risk of tenant payment default
- Contamination cleanup costs and legal liability from hazardous materials on the property (Correct answer)
- Normal wear and tear replacement costs
- Earthquake-related structural damage to the building
Correct answer: Contamination cleanup costs and legal liability from hazardous materials on the property
Environmental liability insurance covers pollution cleanup costs, third-party bodily injury claims, and property damage liability from hazardous materials discovered on a leased property.
Question 6: In a triple-net (NNN) lease, which party is typically responsible for carrying property insurance on the building?
- Always the landlord
- Always the federal government
- The tenant, as they bear most operating expenses under a NNN lease (Correct answer)
- The mortgage lender
Correct answer: The tenant, as they bear most operating expenses under a NNN lease
In a triple-net lease, tenants pay property taxes, insurance, and maintenance, so building insurance responsibility typically falls on the tenant.
CLP CLP Risk Management & Insurance 1
What type of insurance is most commonly required of commercial tenants under a lease agreement?