Insurance is one of the most legitimate operating expenses landlords pass through to tenants. It's also one of the most abused. The combination of rising premiums and complex policy structures has turned insurance CAM billing into fertile ground for overcharges — some accidental, some not.
I built CAMAudit Rule 9 specifically for this category. Understanding what insurance can and cannot be passed through is one of the faster wins available to tenants reviewing a reconciliation statement.
40% of CAM reconciliations contain material billing errors, with insurance misallocation among the most common categories flagged (Tango Analytics / PredictAP, 2023)
What Insurance Is Typically Included in CAM
Most commercial leases permit the landlord to pass through premiums for a defined set of insurance policies that protect the property. The standard inclusions are:
Commercial property insurance. Coverage for the building structure, common areas, and landlord-owned improvements against damage from fire, wind, flood, and other named perils. This is the core policy most tenants expect to share.
Commercial general liability insurance. Coverage for bodily injury and property damage claims arising from events in common areas — a slip-and-fall in the parking lot, a falling sign, a maintenance worker's vehicle accident on the property. Since the common areas are shared, the liability exposure is shared.
Umbrella or excess liability. Additional coverage that sits above the general liability policy, providing higher limits. Reasonable umbrella policies for the property are generally passable; unusually high limits that exceed what the property's risk profile would justify are worth questioning.
Property damage and loss of rents. Some leases allow the landlord to include a rental income or loss-of-rents rider. Scrutinize this one carefully. Loss-of-rents coverage insures the landlord's revenue stream, which is the landlord's interest, not the tenant's. Whether it's passable depends entirely on your specific lease language.
What Should Not Be Passed Through
This is where the overcharges live. Several categories of insurance expense are landlord obligations, not tenant obligations, and should never appear in your CAM bill.
Directors and officers (D&O) liability. D&O insurance covers the personal liability of the management company's or landlord's directors and officers. It has nothing to do with property operations. It is a corporate governance cost. Passing it through to tenants is an overcharge by any standard.
Workers' compensation for landlord employees. If the landlord or management company employs people who work on the property — maintenance staff, security personnel — their workers' comp coverage is an employment cost, not a property operating cost. Some leases explicitly exclude it. Others don't mention it, because it's assumed to be a non-passable employment expense.
Employment practices liability insurance (EPLI). Coverage for wrongful termination, discrimination, and harassment claims against the landlord's employees. Same category as D&O — this protects the landlord's business, not the property.
Coverage for non-subject properties. If the landlord owns a portfolio of properties and insures them under a blanket policy, the allocation of that blanket premium to any specific property should reflect only the coverage attributable to that property. Applying the full blanket premium — or more than a proportional share — to tenants in a single building is an overcharge.
Flood and earthquake riders for excluded perils. This one is more nuanced. Some leases specifically exclude flood or earthquake coverage from the passable insurance categories. If yours does and the landlord's policy includes riders for those perils, you should not be paying a proportional share of those rider premiums.
"Insurance is the category where the line items look the most legitimate because they come from real invoices from real insurers. But a policy that covers 12 properties getting billed 100% to one building, or a D&O premium tucked into the 'general liability' line, won't announce itself. You have to ask for the declarations page." — Angel Campa, Founder of CAMAudit
The Policy Structure Problem
Most tenants receive a single insurance line item on their reconciliation — something like "property and liability insurance: $47,200." What's actually behind that number can be a multi-policy package that includes both legitimate CAM costs and non-passable items.
Landlords typically don't break out the premium components unless asked. The declarations page for each policy, however, shows exactly what coverage is included, what the premium is, and what properties or entities are covered.
You have the right under most audit rights clauses to request the declarations pages and premium allocations for every insurance policy included in CAM. If the landlord has bundled non-passable coverage with passable coverage and is billing the total, the declarations page will reveal it.
Request the declarations page before concluding whether a large insurance line item is appropriate.
Blanket Policies and Allocation Errors
Portfolio landlords frequently insure multiple properties under a single blanket policy. This is legitimate — insurers offer better pricing for portfolio coverage. The billing problem arises when the allocation to any specific property doesn't match that property's share of the overall portfolio risk.
A blanket policy covers ten properties and the total premium is $800,000. A straightforward allocation would give each property 10% of the premium, or $80,000. But the properties differ in value, size, occupancy risk, and claims history. The insurer's underwriting already accounts for these differences in setting the overall premium, but the landlord's allocation to individual buildings may or may not reflect the same logic.
If the landlord is allocating based on building square footage but the policy was priced primarily on building value, the correlation may be reasonable or unreasonable depending on the specific portfolio. Ask for the allocation methodology in writing. Compare your building's share to the percentage of total portfolio square footage or value it represents. A material discrepancy is worth disputing.
The Lease Language That Limits Your Obligation
Your lease defines what you owe. The insurance provisions — typically in the CAM exhibit or a dedicated insurance clause — specify which policies are passable and sometimes cap the premium amount or limit increases.
Common lease-side protections to look for:
"Reasonable and customary" standard. Some leases limit insurance pass-throughs to premiums that are "reasonable and customary" for properties of comparable size and type in the same market. This is a vague standard, but it gives you a basis to challenge a premium that is dramatically higher than market comparables.
Per-square-foot caps. Some leases cap insurance pass-throughs at a specific dollar amount per rentable square foot. If the cap is $2.50/SF and the landlord is billing $3.80/SF, the excess is an overcharge.
Coverage type definitions. Leases that explicitly list which insurance types are passable give tenants the clearest protection. If the list says "property and general liability" and the landlord is also billing workers' comp and D&O, the excess is a clear violation.
Base year limitations. If your lease uses a base year structure, you're only responsible for increases in insurance premiums above the base year amount. The base year premium acts as a floor below which you owe nothing. Confirm that the base year premium the landlord is using matches the actual premium from that year.
Anchor Tenant Departure and Insurance Pool Changes
When a major tenant — an anchor retailer, a large office user — vacates a property, the insurance exposure and cost structure for the building can change in ways that affect remaining tenants.
An anchor tenant's departure may trigger:
- A change in the property's blanket policy coverage or pricing, since a partially occupied building presents different risk than a fully occupied one
- A reduction in the number of tenants sharing the insurance premium, which mechanically increases each remaining tenant's share
- Potential changes in the landlord's insurer or coverage structure as the risk profile shifts
None of these changes necessarily constitute an overcharge. But they can create situations where your insurance allocation increases significantly in a year where the underlying coverage didn't materially change. If your insurance line item jumped 30% in a year when the property lost an anchor tenant, that increase warrants scrutiny.
Your lease's CAM cap may or may not apply to insurance increases depending on how the cap is structured — many leases exclude insurance and taxes from the cap calculation. Check both the cap provisions and the underlying insurance allocation.
CAMAudit Rule 9
Rule 9 in our detection engine applies AI classification to every insurance-related line item in your reconciliation. The classifier is trained on the categories of insurance expense that commercial leases typically permit versus exclude.
When a line item matches a non-passable category — D&O, workers' comp, EPLI, coverage for non-subject properties — the rule flags it with the classification rationale and the dollar amount. When a large insurance line is present without a breakout, the rule flags it for manual review and generates a document request for the declarations page.
The classification is probabilistic, not deterministic. For insurance more than for any other CAM category, the underlying policy documents are essential for a definitive determination. The rule tells you where to look; the declarations page tells you what's there.
What to Do If Your Insurance Line Looks Wrong
Start with a request for the declarations page and premium allocation schedule for every insurance policy included in your CAM charge. Send this request in writing, citing your audit rights clause and the specific line item you're questioning. This is not an accusation of error — it's due diligence.
Once you have the declarations pages, identify every policy type and confirm it against your lease's list of passable insurance expenses. Calculate the portion of the total premium attributable to non-passable coverage. That portion is your potential overcharge.
If you identify a clear error, send a formal dispute letter with the specific clause reference, the policy breakdown, and your calculated overcharge. CAMAudit generates a dispute letter draft grounded in the specific findings from your audit scan, including the relevant lease language and the dollar amount at stake.
Check your dispute deadline. The window from reconciliation delivery to formal dispute is typically 90 to 180 days. The insurance category is no different from any other — miss the window and the right to recover that year's overcharge generally expires.