“Yes, it is true”, says Al Reeder, who has over 40 years of experience insuring Commercial Real Estate.
A common problem that commercial property owners face is a plaintiff attorney filing a claim against an entity that is, perhaps, not the entity currently operating the property.
For example, you reform your ownership from a family trust to an LLC. However, the deed to the property is never properly transferred to the LLC. You call your insurance agent and have him update the named insured on your insurance policy to match the newly formed LLC. A month after making this change a tenant at your property slips and falls sustaining bodily injury.
The tenant then contacts an attorney to file a lawsuit against you. The first thing the plaintiff attorney will do is pull the deed on the property, which still shows the family trust as the property owner. The next thing you know, a lawsuit is filed against the family trust. The reason that this happens so often is the fact that the property’s deed is public record, whereas the insurance policy covering the property is not. The plaintiff attorney is much more likely to file suit against the entity that is shown as the property owner on the deed than a named insured on an insurance policy that he does not have access to.
In this case, the insurer would deny coverage because their insured is the new LLC, not the family trust named in the lawsuit. Depending on what kind of claim is filed, this can cost your business and family thousands of dollars.
The reverse can also happen. Let’s say you transfer the property to a newly formed LLC and transfer the deed, but neglect to notify your insurer of the change. The suit is filed against the LLC and coverage is denied because the insured remains the former family trust entity.
The lesson learned is to make sure the named insured on your insurance policy matches how the title is held to the property and to make sure the owner of record matches.
For more information on getting the named insured right on your policy, contact the undersigned.
Al Reeder, CIC
Office: (949) 472-6567
Fax: (949) 607-3881