Insurance Pass-Throughs in Commercial Leases: What's Recoverable and How to Document It

Insurance Types: Recoverable vs. Non-Recoverable

The distinction generally follows whether the insurance protects the property itself and its users (recoverable) or protects the landlord's business entity and personnel (non-recoverable). Always verify against the specific lease exclusion list.

Blanket Policies: Allocating Multi-Property Insurance

Large landlords and REITs commonly purchase insurance on a blanket basis covering their entire portfolio. While this is economically efficient, it creates a documentation challenge: tenants at each property need to know what portion of the blanket premium was allocated to their building.

The standard allocation methodology is by insured value. If a portfolio has a total insured value of $500 million and one property has an insured value of $50 million, that property is allocated 10% of the blanket premium.

Tenants who receive a blanket-policy allocation can request documentation showing the total premium, total portfolio insured value, the subject property's insured value, and the calculation. Compare the allocated rate per square foot against single-property market rates as a reasonableness check — a blanket rate should generally be at or below market for equivalent single-property coverage.

Premium Spikes: How to Document and Defend Large Year-Over-Year Increases

Commercial property insurance markets in coastal and catastrophe- exposed markets have seen 20–40% premium increases in recent years. When a tenant receives a reconciliation showing a significant insurance increase, disputes are common.

Documentation that reduces dispute risk includes:

• The actual insurance invoice from the insurer showing the premium breakdown by coverage type and property.
• Evidence of competitive quoting — that the landlord solicited quotes from at least two or three carriers before renewing. This demonstrates the premium reflects market conditions.
• A market explanation — a brief note in the reconciliation letter explaining that commercial insurance markets experienced significant hardening in [year] affecting most commercial property owners in the region.

Insurance is typically a non-controllable expense not subject to CAM caps, so tenants cannot cap the increase — but they may still dispute the reasonableness of the premium. Documentation eliminates most disputes before they escalate.

Deductibles: Generally Not Recoverable

Insurance deductibles are the landlord's out-of-pocket payment when a loss occurs — they are not a premium cost and are generally not recoverable as CAM unless the lease specifically includes them.

Some leases include a specific provision allowing the landlord to recover a "commercially reasonable deductible" for certain loss types (typically wind and hail in storm-prone markets). Without this language, billing tenants for a deductible is an unauthorized charge.

Self-Insurance: What REITs Can Recover

Large REITs and institutional landlords increasingly self-insure through captive insurance companies, where the landlord's entity purchases coverage from a captive insurer it controls. The "premium" paid to the captive may be recoverable as CAM if:

1. 1. The lease explicitly permits self-insurance and specifies that the self-insured charge is recoverable.
2. 2. The rate is commercially reasonable — i.e., at or below what a third-party insurer would charge for equivalent coverage on the same property.
3. 3. The methodology for determining the self-insured rate is documented and available to tenants upon request.

Without express lease language, a self-insured "premium" is subject to challenge. Tenants may argue that absent a real third-party insurance cost, there is no actual expense to recover.

What Can Go Wrong

Frequently Asked Questions

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