| Past Issues | Advertise | www.faahq.org | Multifamily FLORIDA archive | January 2012 |
Renter’s Insurance and the Property Manager
It is crucial for a property manager to obtain a basic understanding of the concept of renters insurance. Many, if not most, property managers fail to have a solid grasp of the components of this wide-ranging topic. On the bright side, if the property manager will spend some time learning the basic principles of renter’s insurance policies, an adequate understanding can be obtained in a relatively short amount of time. The number of renters has increased dramatically over the last seven years. However, according to some studies, less than half of all residents have renter’s insurance. That may seem like a reasonable percentage. However, keep in mind that only a tiny percentage of homeowners fail to have homeowners insurance. One would expect that renters, like homeowners, would also have an interest in protecting against personal property loss. Also, there are other good reasons for the resident to obtain renters insurance. Read the renter’s insurance policy The resident should carefully read the renter’s insurance policy in order to ascertain what is and what is not covered, based on the cause of the damage or loss. If the landlord requires a certain level of insurance coverage, the property manager should also carefully examine the policy to determine whether required coverage has been obtained. The renter’s insurance policy will itemize which perils will be covered. Many residents all too often mistakenly believe that they do not need renter’s insurance because they believe that the landlord’s insurance policies will cover them for their property loss, which is actually often not the case. Therefore, it is important for the property manager to communicate effectively to the resident the benefits of renters insurance, even when coverage is not mandatory. Items not typically covered by renter’s insurance policies Renter’s insurance policies do not cover number of events which may lead to the resident’s property loss. For example, flooding from storms, sewer back-ups, power failures, and negligent or intentional acts of the resident normally are not covered. Even worse for the resident, the landlord’s insurance policies likely will not provide coverage for the resident’s property loss. Items typically covered by renter’s insurance policies A careful reading of the renter’s insurance policy will allow the property manager to figure out what events leading to the resident’s property loss will be covered under the policy. Generally, many renter’s insurance policies cover lightning damage, theft, fire, explosions, vandalism and overflow of water from plumbing or air conditioning systems. Cash value Assuming the event which caused the property loss to the resident is covered under the renters insurance policy, one still must understand the amount of money the insurance company will reimburse the resident. Some policies call for the resident to receive the actual cash value of the item. Therefore, the resident in that case would be reimbursed the depreciated value of the item. Thus, if the damaged item, for example a computer, was very old, then the insurance company may be reimbursing the resident only a minimal amount of money. Replacement value Many renter’s insurance companies allow the resident, for a slightly higher fee, to have replacement cost coverage. That simply means that in the event the peril was covered under the policy, if the damaged item, such as a television, was very old, the resident would still be reimbursed the actual cost to replace the set, and would not be penalized for depreciation. Loss of use Often, when there is property damage to the apartment home due to a peril, the resident is unable to reside in the unit. Many renter’s insurance policies allow the resident to pay for loss of use coverage. Therefore, if the resident is forced to move temporarily into a motel, the renters insurance policy would reimburse the resident for the additional living expenses incurred. Personal liability Many renter’s insurance policies also allow the resident to pay for personal liability coverage. This coverage is important, because the resident can be held liable for injuries to guests. Also, residents that have accidents which cause damage to a neighbor’s apartment home can be held liable. Protection of the income stream Residents who fail to obtain renter’s insurance may quickly become delinquent rent payers, and the reason is simple. If the resident’s unit is damaged, the resident will need to spend money replacing personal contents like clothing, which may leave little or no monies left over to pay the rent. Likewise, if there is an accident inside the apartment home and a guest is injured, the resident may be liable to the guest for significant amounts and may be spending large amounts of money on legal bills, which would adversely impact the resident’s ability to pay the rent. Thus, renter’s insurance with personal liability coverage protects the income stream of the landlord. Waiver of Subrogation It is highly recommended that the landlord require the insurance carrier to add a waiver of subrogation endorsement to the policy. With no waiver of subrogation, the insurance carrier could file a legal action against a third party who causes the loss to the insurance carrier. For example, suppose the renter’s insurance policy provides that all proceeds will be payable to the landlord, and that the resident is the cause of an accident in the apartment home. Without the waiver of subrogation clause, the insurance carrier would pay the landlord and then turn right around and sue the resident for reimbursement of the amount of the claim that was paid. That would not be a good result from the standpoint of the landlord (or the resident). Fallacies held by landlords A common fallacy held by landlords is that the landlord is not responsible for property loss if the resident has obtained renter’s insurance, and there is property loss due to an item such as a pipe breaking inside the resident’s apartment home, causing a flood. More than likely there would have been a preexisting condition prior to the resident moving in, and so the resident would not be held responsible. Additionally, the renter’s insurance company may disclaim coverage, or, if the damage claim is paid by the renter’s insurance company to the resident, the insurance carrier may then bring a subrogation claim against the landlord. Landlords requiring residents to obtain renter’s insurance Landlords are not prohibited from requiring residents to obtain renter’s insurance as long as a court would deem the requirements to be reasonable. For example, the coverage limits should not be excessive, and the renter’s insurance lease language should be straightforward and easy for the resident to understand, so that key coverage, such as liability coverage and personal contents coverage, are readily understood. The lease should also require that the resident not only obtain renters insurance, but also maintain the renters insurance and provide proof of coverage to the landlord. Consult with your corporate office Property managers must not neglect to obtain advice from their corporate headquarters, as great care must be undertaken before rolling out the renter’s insurance program, as complex issues are presented. The property manager should consult with the risk management department and the corporate attorney. It is also recommended that advice should be obtained from the landlord’s insurance carrier. Selling insurance requires a license Selling insurance requires a license in Florida. Residents must be given the opportunity to choose the insurance carrier of their own choice. If the property manager is mandating which insurance company is to be used, then the landlord is essentially selling insurance and possibly engaging in antitrust activities, both of which are illegal. |
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