It is not unusual for Tenants, especially larger ones, to
negotiate for so-called "self-insurance" in their
Leases. This concept can be applied to any form of insurance
that a Landlord may require from a Tenant, except for insurance
that is mandated by law (such as workmen's compensation
insurance). It is important for Landlords to consider,
however, that self-insurance is not insurance at all. It is
merely a term used for the allocation of risk to the Tenant without
requiring insurance.
In a perfect world, a Tenant that is self-insuring is doing what
an insurance company would do... that is, maintaining a
reserve fund to which it periodically contributes reasonable
amounts based on actuarial and other empirical data, from which it
will be able to pay future, unexpected liabilities. However,
that is not actually required for a Tenant to self-insure.
Instead, unless the Lease expressly requires such a fund (a rare
occurrence), the Tenant can just go about its
