I have seen this problem too many times to count. A recent federal court decision out of Tennessee drives the lesson home with painful clarity. Property owners routinely assume they are protected because their tenant procured insurance, listed them as a loss payee, and maybe even added them as an additional insured. Then a fire occurs, the building is a total loss, and the owner learns far too late that they were never truly insured for what they thought mattered most.
The case involved a commercial building owned by Steadfast Investments and leased to a tenant. The tenant bought the insurance policy and was the only named insured. The owner was listed as a loss payee and also appeared in an additional insured endorsement limited to liability coverage. After a fire destroyed the building, the insurer paid an actual cash value amount jointly to the tenant and the owner. The owner believed the policy was a valued policy and demanded the full policy limit for the building. The insurer refused. Litigation followed.
The court first ruled that the policy was an open policy, not a valued policy, because the contract language required valuation after the loss, included replacement cost provisions, and contained an appraisal clause. 1 That part of the ruling is important, but the more instructive and troubling lesson for property owners lies in the more recent findings ending the case.
The owner argued that, as a loss payee and intended beneficiary of the policy, it had the right to challenge the insurer’s valuation and enforce the policy’s payment obligations. The court agreed, in part, that the owner was an intended beneficiary, but only of a very narrow promise. The policy provision that mattered said the insurer would adjust the loss with the tenant and issue payment jointly to the tenant and the loss payee. That promise was kept. The insurer adjusted the loss with the tenant and issued a joint check.
The court noted that what the policy did not do was give the building owner any right to participate in the adjustment, dispute the amount of loss, demand appraisal, or claim replacement cost or policy limits. Those rights belonged exclusively to the named insured, who was the tenant. The court emphasized that even an intended third-party beneficiary can only enforce the specific promises made for its benefit, not the entire insurance contract.
In plain English, the court ruled that the owner had a right to be on the check, but no right to argue about how big the check should be. 2
This outcome should concern every property owner and real estate attorney working with commercial property owners who rely on tenant-placed insurance. Loss payee status is often treated as a safety net. It is not. Being a loss payee typically ensures payment is made jointly, but it does not confer control, valuation rights, or standing to challenge how the insurer adjusts the claim. Additional insured endorsements can be equally misleading, especially when they apply only to liability coverage and not to property damage.
I have written and spoken about this issue for decades because it keeps recurring. Owners sign leases requiring tenants to insure the property. Certificates of insurance are collected and filed away. Everyone feels comfortable until a catastrophic loss exposes the gap between perceived protection and actual coverage. At that point, the policy language, not assumptions or intentions, controls the outcome. Some insurers agree to adjust the claim with the owner, while others take a very hard stance.
The fix is not complicated, but it requires vigilance. Property owners, property managers, and real estate attorneys involved with these issues should insist on being named insureds on property coverage, or at least ensure the policy includes a true building owner loss payable clause that gives the owner adjustment rights and direct payment obligations. Reviewing declarations pages and endorsements is not busywork. It is risk management in its most basic form.
This Tennessee case is a reminder that courts will enforce insurance contracts exactly as written. They will not rescue owners from unfavorable structures simply because the result feels unfair after a loss. Insurance is a contract drafted long before the fire, not a sympathy instrument applied afterward.
The attorneys on both sides of this case are excellent. I expect there may be an appeal. I will keep readers abreast of what happens.
Thought For The Day
“An ounce of prevention is worth a pound of cure.”
— Benjamin Franklin
1 Steadfast Investments & Properties v. AmGuard Ins. Co., No. 1:23-CV-01091 (W.D. Tenn. Julu 1, 2024).
2 Steadfast Investments & Properties v. AmGuard Ins. Co., No. 1:23-CV-01091 (W.D. Tenn. Jan. 8, 2026).
