In the Spotlight: The Use of a Captive Insurance Company By a Commercial Tenant

In a typical commercial lease, a landlord will require a tenant to carry a minimum amount of general liability insurance (e.g., $3 million per occurrence and $3 million general aggregate) and will also require that the insurance carrier meet certain standards, such as a minimum policyholder rating and financial size (as rated by an agency such as AM Best). In many cases, the tenant will agree to obtain the required insurance from a commercial insurance company. However, there are tenants that will request the right to “self-insure” or to insure through the use of a “captive insurance company.” This article addresses what it means for a tenant to self-insure or obtain insurance through a captive, and how a landlord and tenant can modify their lease accordingly.