Insurance on your rental property is an absolute requirement. Please keep in mind that insurance covers both property damage plus liability resulting from injuries that occur on the property. You must have a “Landlord” policy; otherwise your insurance company will either cancel your policy or deny you coverage in case of a claim.
Here are some issues extremely important for you to look for in a landlord policy:
There have been situations when after an investor has purchased their 4th or 5th rental property, the personal umbrella becomes void (every company has their own formula). A Commercial Umbrella policy covers everything you need without limits and has a reasonable premium.
Although PMI Georgia has been fortunate enough to avoid any claims over the years, I’ve collected some stories from other Property Management companies who have…. Hopefully, we have helped clarify the importance of this!
There is something that the insurance company and lawyers refer to called "Premises Liability". You've heard the example about a neighbor walks across your lawn, breaks his leg, and you are liable because it happened on your property. The homeowner has insurance to defend and/or pay those claims. That's the liability portion of his/her landlord policy.
A neighbor to one of our rental houses was hurt on the property; stepped in a hole and broke his leg and this neighbor decided to sue for damages. His attorney named as defendants: the tenant who dug the hole, the owner of the property, and the property manager for not preventing the hole from being dug.
Here's why the "Additional Insured" clause is for the owner’s protection. Your management agreement also includes an "Indemnification Clause". So if you had to defend yourself, the owner has agreed to pay your costs of defense (to indemnify you). In this case, because the owner's insurance company added us as an "additional insured", when this claim occurred the owner's insurance company defended the owner AND us at the same time. If the owner had not added us as an additional insured, then we would have had to defend ourselves or our own general liability insurance company would have defended us. Then we’d go back against the owner to get reimbursed for the costs of our defense. So the "Additional Insured" clause that your client is asking about is really there to protect him/her.
I have two personal cases (one an insurance claim, one a law suit) that have come up in my 13+ years.
On Halloween night a kid, out joy riding, popped a curb and ran through the garage door of a house that I manage. A police report was filed. I contacted the owner's insurance company and because I was listed on the policy as "additional insured" was able to start the claim. I had the vendor that I use for garage doors do the repairs. The insurance company sent my company a check. I paid the vendor. Everyone was happy, especially the "out of State" owner, who didn't have to lift a finger. Had I not been listed on his policy, the insurance company would not have even discussed the matter with me. It went very smoothly, by the way.
Next, I was served papers at my home one evening listing me as a defendant in a million dollar law suit. This was ten months after I had quit managing a small complex in a not-so-nice part of town, a tenant was severely beaten when he went to retrieve his mail out on the street. The mail boxes were US owned, the complex was well maintained with lights and yard maintenance, good visual, etc. The owner, the current property manager, the previous property manager (me), and maybe others, were listed. I contacted my Insurance Company and they in turn contacted the owner's insurance company and because I was listed as "additional insured" the owner's insurance company took care of the whole matter.
We are involved in a lawsuit over carbon monoxide poisoning, where the plaintiff is claiming $3 million in damages. USAA, the owners insurance, would not agree to add us as additional insured. Yet they are defending us. The owner is in the military and essentially exempt from prosecution while on active duty, so the plaintiff sued us. USAA, once we had our attorney write them a letter saying, if we lose we will sue the owner once they are out of the military, decided to get involved. They are paying all defense costs, but it was only after we forced the issue. At the end of the day, we owe it to our business, our employees and all the owners who rely on us to manage their homes to protect ourselves and pursue our contract rights in such cases. Again, the “additional insured” endorsement would have handled this in partnership with the owner rather than adversarial.
Our tenant complained of mold and filed a lawsuit against owner and us. Since owner’s insurance company refused to defend us initially we contacted our insurance company that appointed an attorney. After reviewing the management agreement our attorney’s first step was to send a letter to the owner stating, per the indemnification clause, our insurance company would be suing the owner to recover costs of defense. The owner’s insurance company had a change of heart and decided to defend us. While the settlements were not big to the tenants, the legal fees for the mold case ran 5 figures – that’s what the owner would have had to pay if their insurance company had not had a change of heart.
Second example was a similar situation but in this case the tenant had fallen thru his ceiling while in the attic changing the HVAC filter. The tenant sued landlord, property management company, and HVAC vendor. Like above, the owner’s insurance company reluctantly decided to defend us. After 2 years of legal nonsense the tenant’s attorney settled for a total of $1000 to go away (total from all parties). Again, the settlement was small, but the legal fees were close to $5,000; covered by the owners insurance policy rather than the owner being charged that amount by us.
We're in a lawsuit now, being sued not by a tenant but by a former friend of a tenant who had been visiting. Apparently after consuming some adult beverages and someone's loss of personality a discussion ensured in the driveway of the property. One of the tenants attempted to leave but the friend, standing beside the car, tried to get him to come back inside. With the car door open the tenant backs out, the car door knocks the friend down and she suffers a back injury. Two years after this tenant vacated the property they and we are being sued by the visitor. Our client did not have us as Additional Insured and stonewalled us when we asked for a copy of his policy. After being reminded of the indemnity clause in an email he still refused to give us any information. We got our own attorney to answer the complaint. Only after that did we hear from the owner's insurance company and they agreed to defend us, saying this could go on for months. I billed the owner the cost of our attorney, almost a thousand dollars. Lucky for him his insurance company did step in or our client could end up with a bill for many thousands more! How much better and cheaper had he added us as Additional Insured?