Tennessee Lessor’s Risk Insurance

Tennessee Lessor’s Risk

Tennessee owners who rent commercial space to other businesses carry a different kind of risk than the businesses themselves. A Memphis warehouse owner worries about the roof, the loading dock, and an earthquake exclusion; a Knoxville office-building owner worries about icy steps and a tenant who lets its insurance lapse; a Nashville-area retail landlord worries about a storm taking out a sign and closing three storefronts at once. Lessor’s risk insurance is written for that owner. Freedom Insurance Group is an independent agency licensed in Tennessee, based in Flower Mound, Texas, and serving Texas since 2005.

Where LRO Fits Among Tennessee Policies

Owners sometimes come to us with the wrong form already in place—a homeowners-style dwelling policy on a building that now houses a salon, or an operating-business package on a building the owner no longer works in. Here is the quick sorting we use:

Coverage Inside a Tennessee Lessor’s Risk Policy

Building. Covers the structure and fixtures you own against the causes of loss in the form—special-form (“open perils”) policies are broader than named-peril ones. Ask whether the building is valued at replacement cost or actual cash value, and whether a coinsurance clause could reduce a claim if the limit is too low.

Business income – rental value. If a fire closes half the building, the rent stops but the mortgage and property taxes do not. Rental value coverage fills that gap for the period you select.

Landlord general liability. Responds to bodily injury or property damage claims arising from your ownership, maintenance, or use of the premises—most often the parking lot, sidewalks, shared corridors, and exterior stairs. It is not designed to absorb claims from what tenants do inside their suites.

Endorsements worth discussing: ordinance or law (code upgrades after a loss), equipment breakdown, outdoor signs, utility services interruption, and higher liability through an umbrella. More detail lives on our commercial property and general liability pages, and the lessor’s risk insurance overview explains exclusions such as vacancy.

Two Seismic Zones: Earthquake and Tennessee Buildings

The Tennessee Department of Commerce & Insurance (TDCI) points out that Tennessee has two seismic zones—the New Madrid Seismic Zone in the west and the East Tennessee Seismic Zone in the east. TDCI notes that scientists estimate a 25–40% probability of a magnitude 6.0 or greater earthquake in the central United States within a 50-year window, and states plainly that traditional homeowners and business insurance policies do not cover earthquake damage.

For a commercial lessor, that means the decision is yours: buy earthquake coverage by endorsement or separate policy, or knowingly retain the risk. TDCI’s guidance also highlights deductibles: earthquake deductibles are usually a percentage of the coverage limit (TDCI cites 10% to 20%), and there may be separate deductibles for different property. On a large building, that percentage is a big number, so model it before you choose. Older masonry buildings in West Tennessee are the ones we most often discuss with owners.

Flood and Water Questions

Flood from rising surface water is excluded from commercial property policies. Tennessee has plenty of creek and river frontage, and a building can flood without ever being in a mapped high-risk zone. Our Tennessee flood insurance page explains NFIP and private options. Separately, ask whether your property policy covers sewer or drain backup—it is often an add-on.

Tenant Insurance Requirements for Tennessee Leases

Your lease should make tenants insure what they control and protect you when their customers get hurt. Points to cover with your attorney:

• General liability with landlord as additional insured. The ISO endorsement CG 20 11 is the common form. It applies to the leased premises listed in its schedule, so a tenant that moves suites needs an updated endorsement.
• Contents and improvements. Tenants insure their own inventory, equipment, and build-out unless the lease says otherwise.
• Workers’ compensation. The Tennessee Department of Labor and Workforce Development says employers outside construction and coal mining generally must carry it with five or more employees, while construction service providers need it with even one employee. Requiring proof keeps an injured employee’s claim with the employer.
• Waiver of subrogation on both sides, matched to both policies.
• Proof at renewal. Diary each tenant’s expiration date. A certificate from two years ago is not proof of anything today.

How a Tennessee LRO Quote Comes Together

1. You send the application with the address, building age, construction, roof, and square footage.
2. We confirm tenant occupancies, vacant space, and any lender requirements.
3. We shop carriers that write that occupancy class in Tennessee and price optional earthquake and flood separately.
4. You review a side-by-side of limits, deductibles, and exclusions—not just premium.
5. After binding, we issue certificates to your lender and help you set tenant insurance requirements.

Tennessee Lessor’s Risk FAQs