insure this
Get Your Own Umbrella
by Various Authors
Q. Can unrelated tenants share renters’ insurance? If not, will one’s insurance cover the other’s loss?
A. While in some cases the answer to both of these questions is yes, the best answer for all parties concerned (the insured tenant, the landlord and the insurance company) is most definitely no.
The best way to provide insurance coverage for multiple, unrelated tenants of an apartment is to write a separate policy for each tenant. In doing so, each tenant has the benefit of the full coverage limits of his or her own policy, the landlord can obtain a certificate of insurance with full policy limits listed for each tenant, naming the landlord as additional insured, and the insurance company does not have to determine how coverage limits must be allocated in the event of a loss.
In a standard renters’ insurance policy (most commonly referred to as an HO-4 policy), the named insureds (covered parties) are the person or persons listed as the named insured on the policy declarations page and resident relatives. Some insurance companies are willing to list unrelated individuals as named insureds, but most will not. Those that will list unrelated individuals usually limit the
number to two.
There are many reasons why unrelated individuals sharing a single renters’ policy is not a good idea. In the event of a property loss, it’s just a matter of determining how much coverage should be fairly allocated to each insured. But that’s a problem that doesn’t need to be dealt with when each tenant has his or her own policy. The real difficulty is in the settlement of a liability claim. If a lawsuit is brought against more than one of the named insureds, how is the liability coverage limit of the policy to be allocated? One half to each of two named insureds? One third to each of three? And so on. It becomes a claims settlement nightmare that most insurance companies are not willing to take on, hence the reason that most insurance companies will not write the policy in the first place.
And, from the landlord’s perspective, what’s the value of a certificate of insurance listing a single limit of liability coverage for multiple named insureds?
The main reason that unrelated tenants would want to purchase a single renters’ policy is to save premium dollars. But the coverage sacrifices really don’t make such a purchase much of a bargain. There’s also the problem of roommates moving in and out, lack of continuous coverage for the tenant who moves out and is removed from the policy, and difficulty in obtaining multipolicy discounts when attempting to package with personal auto insurance.
As far as a policy written in the name of one tenant covering another tenant’s loss, here’s the scoop: the policy will cover the property of others, but only while the
property is located inside the apartment. The property of a named insured is covered anywhere in the world. Plus, no liability coverage is afforded to others. When all is said and done, separate policies for each tenant is the way to go. Preferably, the policies for each tenant in a single apartment should be placed with the same insurance company to further ease the settlement process of any claim. Consulting an independent agent is the best way for each tenant to secure proper coverage.
—Steve Walencik
Q. What kind of insurance do I need to cover me if my tenant’s pet bites someone?
A. In 95% of the General Liability Policies issued in California, lawsuits/claims arising out of pet problems will be covered. A General Liability Policy can be issued by an insurance company alone, or in a package, sometimes called a business owner’s policy, that includes property coverage and liability coverage. For the purposes of discussion here, we will only talk about liability.
Your General Liability Policy and the Umbrella Liability or Excess Liability will cover you if you are somehow negligent in a pet incident that causes contention, liability and a lawsuit. You must, of course, read the liability policy to be sure and/or ask your insurance seller if the policy contains any exclusions having to do with liability arising from pets. In California, I’ve heard that there are some specialty insurance carriers that will not issue or will actually rescind coverage if animals are allowed in the housing units. Usually, if these insurers are so set against animals in housing units, the policies will carry exclusions, thereby taking away coverage for you.
The good news is that you have to be negligent in some way, or at least the victims and their very creative attorney have to devise a way in which you, the landlord, can be found negligent. It’s a little difficult to be negligent about someone else’s pet, but all it takes is imagination and local statutes (which you also need to check).
Your first line of defense is, of course, the lease. In the lease you will describe, no doubt, whether there can be pets, and what kind, number, whether they must be spayed/neutered, and so on. Further, you will describe a set of rules for those pets (right?). You will describe where on the premises they can be, how they will be restrained, noise rules and, of course, who is solely liable for the behavior of those pets: the tenant.
Further, in the lease you will have the pet owner hold you, the landlord, harmless for anything untoward that the pet might do. Then you will require the pet owner to have a general liability policy of their own (perhaps in their tenant’s insurance policy) that has at least $500,000 in liability limits for bodily injury and property damage, and names you, the landlord, as an Additional Insured. In this way, the general liability policy of the pet owner will defend you, leaving your insurer out of the fray (and therefore out of increasing your insurance premium in the future.) Note: always report an animal incident to your insurance company for the record. Tell them that the tenant has coverage and provide them with evidence of that coverage as required in the lease. Failure to report may let your insurance carrier out of a claim that could result.
Second, check the references of the renter and the pet to avoid animals that make noise or are a known problem. Talk to the former landlord about any dangerous behavior of the pet and don’t accept the renter as a tenant if anything seems to be a problem.
Third, you will need to make sure there are good pet rules on your property and consistently enforce the rules having to do with pet owners and pet behavior, especially outside of the tenant’s living unit. The rules should be clear that the pets are to be restrained and kept away from others on the property. The lease must be clear about what will happen to the tenant should any of the good-sense pet rules be breached in any way. Your attorney or property manager will know about specialized wording in your area that complies with local or state ordinances.
Last, take any complaints about pet nuisance seriously. Follow up and enforce the rules when they are broken. Be sure to correct the tenant in writing, as well as in person, and keep a list of warnings.
All in all, 35% of tenants are pet owners in California. It’s a big and lucrative market, especially in times of diminishing occupancy rates. It’s hard to turn away good money from pet owners, most of whom are responsible and good pet citizens. It’s important, however, to transfer the risk of liability from pets to the pet owner and make sure they fund that liability with a General Liability Policy or a Personal Liability Policy that clearly covers you, the landlord, for any tort that arises out of the behavior of that pet or its owner. A little planning and a little risk transfer is all you need.
—Ann Krilanovich
Q. We are raising our apartment building to install garages. What changes should I make to my standard apartment policy to cover me while the work is going on?
A. This is a great question and the answer can cover a broader set up of circumstances. A standard apartment policy is underwritten and priced based on many factors, one of which is the activity within the property. The most competitively priced programs are based on “normal activity” in and around an apartment building. There are conditions and exclusions with the insuring contract that will modify the covered cause of loss, thereby reducing your coverage or eliminating coverage completely.
Vacancy and construction activity are the two most common conditions within a property policy that quickly impact your coverage and either one can produce the same effect. The vacancy clause varies between carriers and is based on percent of occupancy after a specified period of time, usually 60 days. Typically, at 75% occupied or 25% vacant, the vacancy clause is triggered. In most policies, this will modify the covered causes of loss by excluding vandalism and theft, and possibly reducing your coverage form to actual cash value instead of replacement cost. This change in form could cost you hundreds of thousands of dollars if you have a loss under these conditions.
The construction exclusion within the property policy can be even more complicated. In general, a property owner has the right to repair and maintain the property. However, at some point the project is larger in scope than a maintenance program and clearly becomes a construction project. A good indication for a construction project is time and budget. The longer the project and the greater the budget, the more likely you are under construction. In my experience, it is the mid-term projects, three to six months, and the one- to two-hundred thousand dollar budgets that cause the most problems. We all understand you are not quite in a construction project; however, you are testing the construction exclusions.
In the case of raising and installing a garage under your apartment building, you are testing the construction exclusion based on time and budget. The activity around the property would not be considered normal for an apartment building, which will also trigger the construction exclusions. You could also incur some environmental liabilities based on the type of construction and paint the property has had in the past. So, what do you do?
In summary, if your apartment building is operating beyond a “normal condition,” such as prolonged vacancy and construction activity, you should discuss this with your insurance agent immediately. In most cases, your current policy will not provide the “full” coverage you have purchased and the policy will need to be rewritten.
—P.J. Tradelius
The opinions expressed in this article are those of the author, and do not necessarily reflect the viewpoint of the SFAA or the SF Apartment Magazine. Steve Walencik is the personal lines manager of Gordon Associates Insurance Services in Redwood City. Gordon Associates has served the insurance needs of Bay Area property owners for more than 25 years. He can be contacted at 650-232-6965 or via email at swalencik@gordoninsurance.com. Ann Krilanovich is a risk and insurance consultant (with a specialty in habitational insurance risks) and can be contacted at ann@insurancedynamics.com. Paul C. Tradelius Jr., is the president of Commercial Coverage Insurance Agency, which works with over 100 insurance companies on a national basis. He can be contacted at 415-436-9800. Copyright © 2010 by Black Point Press. All rights reserved.