Insure This
by Various Authors
Q. When it comes to insurance, how can I protect myself against wrongful evictions? How about discrimination?
A. Beyond the due diligence of using a good real-estate attorney when evicting a tenant, the next best safety net is to be sure you have wrongful eviction coverage in your insurance policy.
This is normally included in most apartment building policies. It can be found in the liability section under the heading of personal injury. Since not every policy includes wrongful eviction or its cousin, wrongful entry, owners should be sure to check that both items are included. If the policy does not cover both of these items, it is better to simply find one that does than to modify a substandard policy.
Discrimination is a different situation. It is excluded on virtually every apartment policy. An owner may be exposed to discrimination towards tenants, as well as discrimination towards employees if there are managers or any other employees.
Discrimination towards tenants could include claims such as the owner did not rent to them because of their age, religion, sex, sexual preference or other causes. Although there are actually lawsuit-happy tenants who use such claims as a means of earning an income, most of these suits are brought by folks who believe that they did not get the unit due to one of the illegal types of discrimination. Tenant discrimination coverage is available only through separate policies designed to cover this exposure.
Discrimination towards employees is part of the coverage found under an employment practices liability policy. It can cover such things as wrongful termination, discrimination in hiring practices, or sexual or other types of harassment.
There are some policies which can cover both discrimination to tenants and the employment practices liability. Sometimes these can be included on a property manager’s professional liability policy as options. Some insurance companies will allow a property owner to purchase the property manager’s professional liability coverage, which is the best way to bundle many valuable coverages.
In summary,
wrongful eviction and
discrimination coverages are extremely important. The former is typically
excluded but not always—so owners need to check. The latter is typically
never found in standard policies and must be purchased
separately. Since the biggest cost is often the defense of such suits,
the insurance pays for itself many times over if ever used even once
in a decade.
– Dave Gordon
Q. What are the differences between replacement cost, actual cash value and guaranteed replacement cost?
A. You insured your apartment building for one million dollars (building limit) and it is now burned to the ground, a total covered loss. What can you expect? Typically you will not receive an amount greater than what you have insured the building for, the building limit. However, the type of property policy you have will determine the valuation and the total payment an insurance company pays. The common types of policies and valuations written in property insurance today are: actual cash value, replacement cost and guaranteed replacement cost (extended replacement cost).
An actual cash value (ACV) policy pays for the cost to repair or replace the damaged property at the time of loss, less depreciation. ACV as defined by the California Insurance code states that losses shall be compensated “to the extent of the actual cash value of the property at the time of the loss.” ACV means fair market value, which is the amount a willing buyer would pay a willing seller if neither were under duress. In our million-dollar example above, you may receive an amount less than what you are insured for due to depreciation of the building.
A replacement cost (RC) policy pays the insured’s covered loss up to a maximum of the building limit without any deductions for depreciation. You should expect to receive the building limit in the event of a total loss. You should not expect a payment greater than building limit if the cost to rebuild is greater than the limit you insured for. In this sense, replacement cost is the valuation method used at the time of loss. In our million-dollar example above, you will receive full payment of the million dollars, regardless of the cost to rebuild.
A guaranteed replacement cost policy pays to replace the building to its intended use with like kind and quality of materials regardless of the cost to rebuild. If the cost to rebuild is greater than the building limit, the carrier will pay for the increased costs. Another variation is called Extended Replacement Cost, which adds 15-25 percent to the building limit in order to cover rebuilding costs. Both of these policy types are commonly associated with residential property and are very limited in terms of commercial property. In most cases, the commercial property must qualify for the program. In our million-dollar example above, you will receive the required payments to rebuild the property regardless of the building limit you insured for.
So which one is best for you? It goes back to risk vs. return or, in this case, the premium you pay. A guaranteed replacement cost policy transfers all the risk to the carrier for future building costs, which in turn will require a greater premium. In order to reduce insurance expenses, you can consider an RC or ACV policy type with the correct policy limit to cover you in the event of a loss. In some cases, the additional premium paid for a better policy or adjusting limits on your current policy is worth the extra peace of mind. – Paul Tradelius
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of the SFAA or the San Francisco Apartment Magazine. Consult the advice of an insurance agent for any specific problem. Dave Gordon is with Gordon Associates Insurance Services, Inc., 877-877-7755, dave@gordon-insurance.com and Paul Tradelius is with Cal North Insurance Brokerage, 863-1111 x 10, pjtrade@calnorth.com. Copyright © 2004. All rights reserved.