Insurance & Deductibles in Commercial Leases: Who Pays When Something Happens?

Who pays when something happens usually turns first on the lease wording, not automatically on who caused the damage or whose insurance policy responds. In the typical arrangement, the landlord insures the building, you insure your own liability, contents, and improvements, and each side pays its own deductible — but many leases quietly shift building deductibles, uninsured gaps, and repair costs onto the tenant regardless of fault. The only way to know your real exposure is to read three clauses together: the insurance clause (what each side must carry), the casualty clause (what happens after damage), and the indemnity clause (who covers whom when someone is hurt or property is damaged).

Insurance clauses can feel like boilerplate — until there's a claim. Then the exact wording determines who pays the deductible, whether rent continues while repairs happen, and whether you're responsible for damage you didn't cause. This guide explains the most common insurance terms in commercial leases and the tenant protections to ask for.

The three core insurance buckets

Most leases require the tenant to carry some combination of:

1. General liability — covers your business operations: bodily injury, property damage, and the cost of defending lawsuits arising from them (SBA).
2. Property insurance — usually your contents, inventory, and equipment, and often your tenant improvements and betterments as well.
3. Business interruption — optional in many leases, but important for businesses that can't easily relocate or absorb a closure; it replaces lost income while the space is unusable.

The landlord typically insures the building itself — but that doesn't mean the landlord bears the cost. In many leases, the building insurance premium is passed back to tenants through CAM or additional rent, so if your lease is triple-net or has a heavy operating-expense pass-through, you're likely paying for the landlord's policy already. See what an NNN lease and CAM costs include for how those pass-throughs work.

Deductibles: the hidden landmine

Even when the landlord carries the building policy, a large deductible can become your problem if the lease says "Tenant shall pay all deductibles" — or folds deductibles into the operating expenses you reimburse. Deductibles can be huge in certain risk categories (water damage, hail/wind, flood), and on some policies they're written as a percentage of building value rather than a flat dollar amount.

The math is what makes this a landmine. For example, if the building policy carries a $25,000 water-damage deductible and a pipe bursts above your suite, a deductible-shifting clause can put that entire $25,000 on you — even though you never touched the pipe and the "insurance" everyone assumed would respond pays only the amount above the deductible.

Tenant-friendly approaches to negotiate:

• Deductible responsibility tied to fault or control — you pay only when the loss arises from your own acts, omissions, or areas you control
• Deductible caps — a stated dollar maximum on what can be charged to you per occurrence or per year
• Allocation rules for multi-tenant events — if a hailstorm damages the whole building, the deductible should be allocated across tenants (or absorbed by the landlord), not billed to whoever the landlord picks

Additional insured and "waiver of subrogation"

You'll often see two standard requirements:

• The landlord must be named as an additional insured on your liability policy.
• Both parties give a waiver of subrogation. Subrogation is the process by which one party steps into the legal rights of another — here, an insurer that pays a claim acquiring its insured's right to sue whoever caused the loss (Cornell LII). Without a mutual waiver, the landlord's insurer could pay for fire damage and then turn around and sue you to recover it.

Both can be standard and even tenant-protective — a mutual waiver of subrogation is generally good for tenants. What to confirm before signing:

• the waiver runs both ways, not just in the landlord's favor
• the exact endorsements required, so your broker can actually obtain them
• whether the required coverages increase your premiums materially
• whether the landlord is asking for unusual coverages or limits for your size of business

Watch the related indemnity clause too. To indemnify means to compensate another party for damages or losses they incur (Cornell LII) — and a one-sided clause can make you compensate the landlord even for losses caused by the landlord's own negligence. Push for mutual indemnities that follow fault.

Casualty clauses: what happens after damage

Insurance and casualty clauses work together: the insurance clause decides who funds the repair; the casualty clause decides what happens to your tenancy while it's underway. Key questions:

• Does rent abate (pause or reduce) if the premises can't be used?
• Who decides whether the building is repaired versus the lease terminated?
• What is the repair timeline, and what happens if it's missed?
• Are you required to keep paying CAM and other charges even while closed?

Tenant-friendly approach: rent abatement whenever the space is not usable, plus a termination right if repairs exceed a defined, reasonable period. Remember that a lease is a contract — your rights after a casualty are whatever the document and applicable law provide (Cornell LII), so if the lease keeps rent running during a closure, the fact that the damage wasn't your fault won't change what you owe.

Common red flags

• Tenant insures the building (not just contents) in a multi-tenant property
• Tenant pays building-wide deductibles regardless of fault
• Tenant indemnifies the landlord for the landlord's own negligence
• No rent abatement despite loss of use

How BizLeaseCheck helps

BizLeaseCheck flags unusual insurance requirements, deductible-shifting language, broad indemnity clauses, and casualty language that keeps rent running during a closure — with the exact wording quoted back to you, so you can see your real exposure before you sign. For the broader picture of what to check in a lease, see the commercial lease guide.

Frequently asked questions

Who pays the deductible on the landlord's building insurance?

Whoever the lease says pays it. The default expectation — landlord's policy, landlord's deductible — holds only if the lease is silent or says so. Many leases shift deductibles to tenants outright ("Tenant shall pay all deductibles"), or indirectly by including deductibles in the operating expenses tenants reimburse. Before signing, find the deductible language, ask what the current deductibles actually are on the landlord's policy, and negotiate a cap or a fault-based allocation.

Do I have to keep paying rent if the space is damaged and I can't use it?

Only if the lease provides rent abatement — and many drafts don't, or limit it to damage covered by the landlord's insurance. If the casualty clause keeps rent (and CAM) running during repairs, your protection is business interruption insurance, which is exactly why some tenants carry it even when the lease doesn't require it. The stronger fix is negotiating abatement into the lease before signing.

What is a waiver of subrogation, and should I agree to one?

A waiver of subrogation prevents an insurer that paid a claim from suing the other party to the lease to recover what it paid (Cornell LII). A mutual waiver is standard in commercial leases and generally good for tenants — it keeps a building fire from turning into the landlord's insurer suing you personally. What you shouldn't agree to is a one-way version that protects only the landlord. Tell your insurance broker about the waiver, because your policy may need an endorsement for it to be effective.

The landlord already insures the building — do I really need my own policy?

Yes. The landlord's building policy covers the structure, not your inventory, equipment, improvements, lost income, or liability to third parties. General liability insurance protects against financial loss from bodily injury, property damage, and lawsuit defense arising from your operations (SBA) — exposure you carry whether or not the lease requires the coverage. Most leases require proof of your insurance before you take possession anyway.

This article is for informational purposes only and is not legal advice. Insurance requirements, policy terms, and claim handling vary by policy, property, and jurisdiction. Use this as a checklist and confirm specifics with a qualified insurance broker and attorney.