Essential Guide: Lessor's Risk Only Insurance in California

Lessor's risk insurance (LRO) is a type of coverage that protects building owners from potential liabilities that may arise from damage, destruction, theft, and vandalism on a property they have leased to tenants. It also covers instances where tenants or their employees experience a physical injury while on the property. 

Owners of commercial properties such as office spaces, retail buildings, malls, shopping centers, warehouses, and apartment complexes commonly use this type of insurance. Lenders usually require the owner to have this type of insurance if the building is financed and maintain it for the duration of the loan. 

Lessor's risk policies can be specific to one building or cover multiple properties, and it's best to consult with your insurance agent to determine the best options for your commercial space.

What Does California Lessor's Risk Only Insurance Cover?

Lessor's Risk Only (LRO) Insurance in California covers a number of risks associated with owning and leasing out commercial, industrial, or residential property. These include:

• Damage or destruction caused by vandalism, theft, fire, windstorms, and other natural disasters;
• Liability claims related to injuries sustained by tenants or their employees while on the property;
• Damage to rented items and other content contained within the structure, such as furniture and fixtures;
• Water-related damage (burst pipes / backups);
• Damage or destruction to buildings located on the premises;
• Loss of rental income due to damage to the building or a tenant's inability to pay rent.
• Vehicle accidents at the property;
• Data loss (if the tenants use the landlord’s network or Wi-Fi)

Lessor’s risk only (LRO) may include extra coverages as add-ons to your policy (e.g., pollution damage).

Similar to other insurance plans, this policy has its limitations. It does not protect commercial buildings from all risks: The following are some cases that are not covered by this insurance:

a) Personal property: Personal property includes items belonging to tenants, employees, and visitors of the premises. These items are not covered under a Lessor’s Risk Only Insurance policy, as this policy does not provide protection for damage or theft of residents’ belongings. It is important that tenants purchase renters insurance to cover their personal property in case of any damage or destruction. 

b) Building Damage: Lessor’s risk insurance does not cover any damage to the building or structure itself, only its contents. Building owners should consider obtaining a separate commercial property policy that covers both the physical structure and its contents. It only protects from tenant claims related to bodily injury or property damage.

c) Criminal Negligence: Lessor’s risk insurance does not cover any instances of criminal negligence, such as vandalism, theft, or civil liability arising from intentional acts. Property owners should work with their insurance agents to ensure they have the necessary coverage for these potential risks.

Who Needs Lessor’s Risk Only Insurance in California?

If you own commercial property, it's important to consider purchasing lessor's risk insurance. This type of coverage is especially crucial for small business owners, as a single lawsuit could have a significant financial impact. Additionally, many lenders require this type of insurance when issuing loans for commercial real estate.

Lessor's risk insurance policies are designed for landlords who occupy less than 25% of the leasable space within a building. This means it would not apply to a duplex or two-flat dwelling where the landlord occupies half the building. 

Types of properties that typically fall under lessor's risk insurance include apartment buildings, shopping centers, office spaces, and warehouses.

Reasons to Consider Lessor’s Risk Insurance in California

Purchasing Lessor's Risk Only (LRO) Insurance is essential for landlords in California who want to protect their investments and their tenants. The following are some of the top reasons why property owners should consider obtaining this type of coverage:

• Minimizes financial loss: Lessor's Risk Only (LRO) Insurance can help minimize financial loss in the event that damage or destruction occurs to the property. It provides protection against liability claims related to tenant injuries and losses, as well as any damage caused by natural disasters such as fire, windstorms, and flooding.
  In addition, LRO can provide coverage for lost rental income due to tenant issues or damage to the building. By obtaining this insurance, landlords can protect their investments.
• Covers legal fees: Lessor's Risk Insurance can cover the legal expenses associated with any tenant disputes or lawsuits. This includes court costs, attorney fees, and even punitive damages in case of wrongful eviction or other violations of fair housing laws.
  This type of coverage can help protect landlords financially and minimize the financial burden associated with any legal issues.
• Protects your reputation: Your reputation is important for attracting new tenants, and Lessor's Risk Insurance can help protect it. By having this coverage in place, landlords can demonstrate to prospective tenants that they take responsibility for the safety of their property. This shows potential renters that the landlord is dedicated to providing a safe living environment and is willing to take any necessary steps in order to ensure it.

How Much Does Lessor's Risk Only Insurance Cost in California?

The cost of Lessor's Risk Only (LRO) Insurance in California varies depending on a number of factors which include:

a) The size and type of property: The size and type of property will affect the overall premium cost. For example, larger properties or those with higher risk factors, such as proximity to a flood zone, may be more expensive to insure than smaller, less risky properties.

b) Location: The property's location can also impact the cost of LRO insurance. Properties located in high-risk areas such as earthquake zones or areas prone to hurricanes may be pricier to insure than properties in more moderate climates.

c) Deductibles & Limits: The deductible and limits of the policy will also affect the overall cost of LRO insurance. Higher deductibles and limits will typically result in lower premiums, while lower deductibles and limits may result in higher premiums.

d) Type of coverage: The selected coverage can also affect the cost of LRO insurance. Basic policies may be less expensive than more comprehensive coverage but will provide fewer benefits in case of a claim.

e) Current maintenance levels: The current maintenance levels of the property can impact the cost of LRO insurance. Properties with higher levels of upkeep and safety measures may be eligible for lower premiums than those that are poorly maintained or not up to code.

f) Electrical hazards: The presence of electrical hazards on the property can also affect the cost of LRO insurance. Properties with higher electrical risks may be more expensive to insure than those without any issues.

g) Types of business tenants: The types of business tenants on the property can also influence the price of LRO insurance. Properties with higher-risk businesses, such as bars or nightclubs, may be more costly to insure than those with lower-risk businesses, such as retail stores.

h) The building's age: The age of the building can also affect the cost of LRO Insurance. Older properties may be more expensive to insure than newer ones due to potential structural issues and other age-related risks.

In order to get an accurate estimate of how much Lessor's Risk Only Insurance costs in California, it is best to contact an experienced insurance agent or broker. They will be able to provide you with quotes on different policies and help you find the right coverage for your needs.

What Is the Difference Between LRO and General Liability Insurance?

While both general liability insurance and Lessor’s Risk Only Insurance (LRO) provide protection for landlords, there are a few differences between the two policies. 

General Liability Insurance covers claims of bodily injury and property damage that occur on the property as a result of negligence by the landlord or their employees. Additionally, this type of coverage also provides protection for tenant lawsuits against landlords related to breach of contract or discrimination.

Lessor’s Risk Only Insurance (LRO) provides coverage for property damage due to fire, wind, hail, and other perils that are listed in the policy. This type of coverage does not provide protection for claims related to bodily injury or tenant lawsuits against landlords. LRO policies may also include additional coverages such as earthquake damage, flood damage, and vandalism.

When Do You Need to Purchase LRO Insurance in California?

It is important to purchase Lessor’s Risk Only Insurance (LRO) before leasing a property in California. Most landlords are required by law to carry adequate insurance to protect their tenants and their leasing property. Additionally, some mortgage lenders may require landlords to purchase this type of coverage before approving a loan.

In order to ensure that the landlord is properly protected, it is important to purchase an adequate amount of coverage and consult with an experienced insurance agent or broker before signing any policy. They can help you determine your needs and provide quotes on different policies to find the right coverage for your situation.

Have Questions? Talk to A California LRO Agent Today!

If you are considering purchasing Lessor’s Risk Only Insurance (LRO) in California, it is important to contact an experienced insurance agent or broker. They can provide quotes on different policies and help you find the right coverage for your situation. 

Brighton Financial and Insurance Services is a leading provider of LRO Insurance in California. Our experienced agents can help you determine your needs and provide you with quotes on different policies so that you can find the right coverage for your situation. 

Contact us today to speak with an agent and get started on finding the perfect LRO policy for your needs. We look forward to hearing from you!