The Danger of Relying on the Insurance of Others

By Bill Wilson

If you’re an insurance professional, I’m guessing your personal auto insurance policy probably includes uninsured and/or underinsured motorists (UM/UIM) coverage. Why? Because you know that, on average, at least 15% of drivers on the road carry zero auto liability insurance, according to the Insurance Research Council (IRC) as reported by the Insurance Information Institute (III).

In some states, that number is 20% to 30%. Of those drivers that do have liability coverage, it’s estimated that 20% to 40% only carry minimum or almost minimum state required limits. If these numbers are to be believed, then it’s possible that 35% to 70% of all drivers have minimal or no auto liability coverage.

That’s likely why you carry UM/UIM coverage, hopefully at limits equal to your auto liability limits. It’s also a principal reason why, for several years, my personal lines account included an E&S personal umbrella policy. Why? Because the admitted carriers my agent represented all had a maximum limit on UM/UIM coverage, so I was unable to buy UM/UIM coverage at the same limit as the auto liability coverage I carried.

As insurance professionals we know that we can’t rely on others to have the insurance or assets to cover the injuries to us that they may be legally liable for.

Wouldn’t we want to have access to the same coverage for ourselves and our loved ones as we do for total strangers under our own liability coverage? That’s the role of UM/UIM coverage.

According to numerous sources, probably at least 50% to 60% of renters carry no renter’s insurance. The most common reason cited is that renters believe the landlord would be legally responsible for damage to their property, as if the landlord could be legally liable for a tornado or hurricane. In fact, it’s possible that the lease contractually absolves the landlord of such responsibility even if otherwise legally liable for damage to a tenant’s property. But then consumers are probably no more likely to read a lease agreement than they are their insurance policies.

The 50% to 60% number, as high as it is, has declined in the last 10-15 years because an increasing number of landlords, especially apartment complexes, now require renter’s insurance as a condition of occupancy.

These requirements, though, are more focused on liability coverage than any real concern that a tenant’s property is protected. But, even so, it’s the rare renter’s insurance requirement that establishes any minimum coverage or limit standards. In my October 21, 2024 column, I wrote about my son’s first apartment and how the management firm had a relationship with an entity that could provide inexpensive renter’s insurance. The policy being sold was junk, and I ended up guiding him to a responsible agency for coverage (including an umbrella policy).

The moral here again is that we can’t rely on others to protect our personal property from damage or to protect ourselves from liability claims and lawsuits. The same is true in commercial lines when it comes to leasing premises where the lessee has property of its own to protect, not to mention property of the landlord that the tenant may be responsible for. But things can get more complicated in commercial lines.

For example, in January, policyholder attorney Chip Merlin blogged about a court case, Steadfast Investments & Properties v. AmGuard Ins. Co., involving a commercial building that was destroyed by fire. The building was insured by a tenant, presumably under a triple net lease.

I wrote about the insurance pitfalls of triple net leases in my April 7, 2025 column with regard to the tenant, not the landlord, insuring a building. My advice in that column is that it is almost always preferable that the lessor procure its own coverage on a building and not rely on the lessee to do so. I encourage you to read that earlier column online for important details. In the Steadfast case, the owner was listed on the policy procured by the tenant as a loss payee and possibly thought that took care of some of the issues I outlined in my earlier column.

The problem with loss payee status is that it doesn’t grant much in the way of insurance contract rights other than being entitled to whatever payment is forthcoming for covered losses. The key is covered losses. Without substantial due diligence, what’s to keep the lessee from procuring inferior coverage–for example, named instead of open perils? Or, as in the Steadfast case, actual cash value rather than replacement cost coverage which, according to the court, amounted to about a $647,000 shortfall?

The only named insured on the policy in that case was the tenant. As the court pointed out, as a loss payee, the building owner had no contractual right to participate in the adjustment of the claim or dispute the amount of the loss. Even if the owner had been included as a named insured, depending on the policy language, many rights under the policy could be restricted to the first named insured.

And, as I explained in my earlier triple net lease column, even if the building owner was a named insured, if a loss involved, for example, fraud on the part of a tenant, no insureds may have coverage if the policy is voided by such fraud or the loss is otherwise excluded.

In other past columns, I’ve written about the deficiencies in being named as an additional insured on CGL policies on a primary and noncontributory basis. Whether property or liability insurance, why would you want to rely exclusively or even primarily on coverage procured by another party? Protect yourself. IJ

Wilson, CPCU, ARM, AIM, AAM, is the founder and CEO of InsuranceCommentary.com and the author of six books, including “When Words Collide…Resolving Insurance Coverage and Claims Disputes,” which BookAuthority ranks as the #1 insurance book of all time. He can be reached at Bill@InsuranceCommentary.com.