Feature
by Andrew J. Wiegel and Clifford E. Fried
The cost of litigation is substantial. Even an owner, who is wrongly sued by a tenant and wins vindication through the court, can lose tens of thousands of dollars in the process if there is inadequate insurance coverage. Most property owners are unaware of the subtle distinctions between the coverage offered by different insurance policies. Many insurance brokers and agents fail to explain these differences. Worse yet, some mistakenly advise owners that their insurance covers claims that it does not.
Most lenders require the owner to maintain an insurance policy covering improvements on the property against loss caused by fire or covered peril. This type of coverage, often called a fire policy, does not offer protection against lawsuits. A property owner should also have liability coverage.
There are many types of liability provisions in the insurance industry. A basic liability policy covers claims for bodily injury and property damage arising out of an “occurrence.” Although this might seem to be adequate, an owner should realize that bodily injury is carefully defined in a manner that excludes intangible and economic harms, which are not caused by an injury to the body of the claimant. For example, this type of policy does not cover claims of libel and slander. More important to property owners, claims for wrongful eviction or invasion of privacy are not covered by this type of policy. The courts have also interpreted this type of policy to exclude coverage for claims of emotional distress.
Basic liability coverage is inadequate for the protection of an owner or operator of multi-unit residential housing, or anyone contemplating an eviction. Additional coverage specifically insuring against wrongful eviction should be obtained. We also recommend obtaining liability coverage limits of at least $1 million under an excess or umbrella liability policy.
Wrongful eviction insurance can be provided either by policy endorsements
specifically adding this coverage to a policy or by a broader comprehensive
general liability insurance policy. In either case, the actual text
of the policy must be scrutinized to ascertain whether the desired
coverage really exists in the policy.
Wrongful eviction coverage is usually found within the definition
of “personal injury” under insurance policies that state
they cover personal injury as well as the usual bodily injury coverage.
In the definitions section of the policy, “personal injury”
is often defined as including “wrongful entry or eviction or
other invasion of right to private occupancy.” Look for this
language in the sections of the policy on liability and definitions.
Unfortunately, in an apparent attempt to avoid covering rent control claims, some carriers have imposed a requirement that the claim arise from an “occurrence” or “loss,” otherwise defined as “an accident.” We have seen letters from attorneys for these companies, including Allstate, that claim wrongful eviction insurance does not cover a claim resulting from service of an eviction notice because it is not “an accident.”
The phrase “other invasion of the right to private occupancy” does not exist in all wrongful eviction coverage. However, this phrase is an important element of coverage for a San Francisco landlord because of the potential liability created under the local Rent Ordinance. The San Francisco Residential Rent Stabilization and Arbitration Ordinance adds another layer of complexity to the legal relationship and procedural requirements of the landlord-tenant relationship. An owner must comply with this ordinance in order to successfully raise rent, evict a tenant or manage an apartment building in San Francisco. Even an innocent technical infraction can result in a lawsuit by a tenant against the owner.
In San Francisco, a landlord can be sued by a tenant for the mere attempt to evict, even the attempt to negotiate without any eviction notice. If the attempt is unsuccessful, some insurance carriers, whose policies lack this critical coverage for “invasion of right to private occupancy,” will refuse to defend the resulting suit because an eviction did not occur.
Some insurance carriers, whose policies require “an accident” for coverage to apply, may refuse to defend a property owner from any wrongful eviction suit based on an eviction notice or attempted negotiation.
With insurance companies facing financial challenges, obtaining coverage for some properties is difficult. You may be offered coverage from a “non-admitted” or “surplus lines” carrier. These terms refer to insurance companies that do not qualify as “admitted” carriers for the California Insurance Guaranty Association (CIGA). This association provides a pool of funds to reinsure losses covered by “admitted” carriers that become insolvent. “Non-admitted” or “surplus lines” carriers do not offer that additional layer of protection.
There is no insurance coverage that will protect property owners from claims for punitive damages or breach of contract, nor is there coverage that will pay your eviction of a tenant. Read your policy carefully and recognize the limitations of the protection you receive.
The opinions expressed in this article are those of the authors and do not necessarily reflect the viewpoint of the SFAA or the SF Apartment Magazine. This information is general in nature and not legal advice, for any specific matter please consult a qualified attorney. Andrew J. Wiegel and Clifford E. Fried are partners of the law firm of Wiegel & Fried, LLP. They can both be reached at 415-552-8230. Copyright © Wiegel & Fried, LLP 2002.