Item 28 of the California Bureau of Real Estate’s standard lease agreement reads, “Tenant’s or guest’s personal property and vehicles are not insured by Landlord or, if applicable, HOA, against loss or damage due to fire, theft, vandalism, rain, water, criminal or negligent acts of others, or any other cause. Tenant is to carry Tenant’s own insurance (renter’s insurance) to protect Tenant from any such loss.”
While this legalese does serve to protect you against a potential lawsuit from a tenant for damage done to their property, having this item included on a lease agreement is not enough protection. Should your tenant’s cause damage, intentionally or unintentionally, to your property, your insurance carrier will be left paying for the damage. As a result, your premiums will increase or your policy could become subject to non-renewal.
There are many unknowns and risks owning a tenant occupied property. You, or a property manager, should screen tenants extensively with background, credit, and reference checks to ensure you are placing a responsible party in your property. However, even with the best tenants, accidents will happen. So, when the unforeseen occurs, how can you be prepared?
First, be sure that you, or your property manager, require all tenants to carry Renter’s Insurance with a minimum liability limit of $300,000. This can be required through a standard addendum to your lease agreements. As a result, you can easily enforce the requirement by demanding proof of an active renter’s policy prior to giving keys to the home for a new tenant or renewing a lease with an existing tenant. Maintaining active renter’s insurance policies for all of your tenants can save you thousands of dollars in the event of a claim.
Claim Example 1:
This client owned a tenant-occupied single family home in Southern California. The tenant of the property was allegedly cleaning bed sheets in the bath tub, which started a fire and subsequently burned down a significant part of the home. The total damage done was just shy of $140,000.
Unfortunately, in this circumstance, the owner did not require the tenant to carry renter’s insurance. Since the tenant did not have renter’s insurance to cover their liability for starting the fire, the landlord’s insurance carrier was left to foot the $140,000 bill for repairs. At renewal, the landlord’s premiums increased nearly 20% due to losing their “claims free” discount. As if the increased premiums were not insult enough, the tenant then sued the landlord for the damages done to their property to the tune of $90,000. Defense of the landlord was provided by the property owner’s insurance policy. However, the entire unfortunate circumstance could have been avoided by simply requiring renter’s insurance – something that can be purchased for as little as $10 per month.
Claim Example 2:
Our client owned a tenant-occupied single family home in the Pacific Northwest. One evening the tenant decided to smoke meat outside the home. After the tenant had finished, they negligently brought the smoker inside the garage without allowing the smoker to cool down properly. As a result, shortly thereafter the garage was in flames and proceeded to burn down nearly the entire home. Nine months after the fire, the home was rebuilt at a cost of just over $185,000.
The tenant was liable for the damages because they acted irresponsibly and caused the fire. Because our client had required the tenant to have renter’s insurance with a liability limit of $300,000, our carrier that paid out the $185,000 in damages was able to recover the full sum from the renter’s insurance policy. As a result, our client suffered no adverse impact from the claim – no increased premiums, no non-renewal of the policy, etc.
In addition to requiring renter’s insurance, another practical step in risk management is to avoid certain animals. Almost all insurance companies* have dog breed exclusions, and for good reason. Each year more than 800,000 dog-bites require medical attention! You can significantly reduce exposure and avoid policy complications by restricting the allowed weight of dogs to 40 pounds. The main breeds of concern all exceed 40 pounds. Breeds commonly excluded from coverage include: Pit Bulls, Rottweilers, Dobermans, Presa Canarios, Cane Corsos, Akitas, and Wolf-hybrids. If you decide to forgo using a weight restriction, it is critical you consult your insurance agent to identify whether or not there is coverage provided for your tenant’s dog breed(s). It is your responsibility to fully understand both the coverage provided by your policy and the policy exclusions.
DISCLAIMER: This article is provided for general informational purposes only and should not be relied upon for legal advice. Old Harbor Insurance Services, LLC recommends you consult your risk manager, attorney, business advisor, or insurance representative for all questions or concerns.
*Old Harbor is proud to have insurance products that DO NOT have dog breed exclusions.