RENTERS INSURANCE

If you are unsure as to exactly what renters insurance is, then you are not alone. Renters insurance is a topic that perplexes both residents and property managers, because there is not an adequate one or two sentence description that will do justice to this topic. There are many nuances involved, and a capable property manager should be aware of them. The good news is that you do not have to be an expert in the field of insurance to gain a basic understanding of renters insurance. However, what you do need to do is set aside some time to learn about it. Our hope is that this article will assist you in that process. Some studies suggest that the number of renters have increased steadliy. Some studies suggest only 43 percent of renters have renters insurance, while 96 percent of those who own homes have homeowners insurance. Why is there such a gap? Your residents have personal property just like homeowners. Do they not want to protect their personal belongings? Do not get the wrong impression, though; renters insurance has the capacity to protect the residents from much more than just personal property loss.

How Does Renters Insurance Protect the Resident From Personal Property Loss?

Mary lives in an apartment home located in Orlando. One night after returning home from work, she saw that her front window was busted. Sure enough, her apartment home was burglarized, and all of her valuable possessions, including her jewelry, were stolen. Edward lives an apartment home in Jacksonville, and a huge storm swept through the area. Edward’s unit was damaged due to flooding related to the storm, and among the items damaged were his valuable baseball card collection. Cindy lives in West Palm Beach and rents a single family home. Unfortunately, a fire swept through the house, and all of Cindy’s clothes and furniture, including her flat screen televisions, were destroyed. Most renter’s insurance policies cover theft and fire, so Mary and Cindy should be able to recoup some or all of their losses. Edward’s situation will be a different story. Property loss due to flooding is not covered in most renter’s insurance policies, so it is important to understand that while renters insurance offers protection, it does not offer complete protection to the resident for losses. The renter’s insurance policy will dictate what is and what is not covered based on the cause of the damage or loss. The policy will list which perils will be covered. Many renters’ insurance policies cover fire, lightning, explosions, vandalism, theft, and overflow of water from plumbing or air conditioning systems. Items typically not covered are sewer back ups, flooding, power failures, negligent or intentional acts. The key is to read what the policy says! Sadly, many residents buy into the fallacy that the manager is responsible in those instances, and that they will be covered by the manager’s insurance policies, when then is often not true.

Cash Value vs. Replacement Value

Elron was surfing the internet during what had been a very nice day. Out of nowhere a bolt of lighting flashed through the sky. The lighting bolt struck Elron’s unit, which in turn caused his computer to be fried. Elron previously purchased renters insurance. Assuming that losses from lightning are covered under the policy, how much money will Elron receive from the insurance carrier? If the policy allows for him to receive actual cash value, then Elron will be reimbursed the depreciated value of the computer. If the computer is very old, then the reimbursement may be minimal. For slightly more money, Elron would have been better served having replacement cost coverage, because it is going to cost him more to replace the computer than what the old computer’s actual value is.

How Does Renters Insurance Protect the Resident From Personal Liability and Loss of Use?

Tim, a resident at the XYZ Apartment Homes, had a very bad day! Tim invited Abby to watch some football playoff games, but an accidental fire started when Tim’s dog, Klumso, knocked a lit candle onto the carpet and newspapers. Tim was filling the bath in anticipation of washing Klumso when the fire started, and in the confusion of the moment, forgot to shut off the water, which then overflowed through the apartment and flooded his neighbor’s unit as well. Abby was injured trying to put the fire out, and Tim was forced to stay in a motel for ten days. If Tim had elected to pay for loss of use coverage in conjunction with his renter’s insurance policy, then he would be reimbursed for additional living expenses incurred, because he could not use his apartment home. Even more importantly, had Tim also selected personal liability coverage with appropriate coverage limits as part of his renters insurance policy, then he would be able to use those proceeds from the policy for potential liability to Abby, such as medical expenses. The resident can be held liable for injuries to guests. Additionally, residents that have accidents which cause damage to a neighbor’s unit can also be held liable. Therefore renters insurance with personal liability coverage is a must.

Why Should the Manager Care?

Mildred leased a two bedroom apartment for $1300 a month. A fire started in her kitchen while she and a guest were inside the unit. The guest was injured trying to put the fire out. Mildred had not purchased a renters insurance policy covering her personal contents or for personal liability. Her manager Mitch tells her it is not his problem, and she will pay the consequences for her failure to secure adequate insurance. Mitch could not be more wrong! Mildred will need to replace her personal contents that were damaged by the fire, such as her clothing, and may also be spending monies on legal bills if she is sued by her guest because of his injuries. How in the world is Mildred going to pay her rent? Renters insurance protects the income stream of the manager. Guests injured in a rented unit can also sue the manager. Soon Mildred’s guest may be coming after Mitch with a personal injury lawsuit in hand. There is no doubt that it is in the best interest of the manager to have residents obtain renters insurance with personal liability coverage.

Waiver of Subrogation

Not all renters’ insurance policies are the same. The manager should require the insurance company to add a waiver of subrogation endorsement to the policy. Without the waiver of subrogation, the insurance company could file a legal action against a third party who causes the loss to the insurance company. Here is how this plays out in the renter’s insurance scenario. The resident obtains a renters insurance policy and agrees that any proceeds will be payable to the manager. Suppose the resident causes an accident in the unit. Without the waiver of subrogation clause, the insurance company would pay the manager and then go after the resident for reimbursement of the amount of the claim that was paid. Such a result could be devastating.

Requiring Residents to Obtain Renters Insurance

Managers are not prohibited from requiring residents to obtain renters insurance as long as the requirements are reasonable in the eyes of the court. Telling residents they must obtain renters insurance is meaningless on its face. From reading this article you can see that renters insurance can include many different types of coverage. The first step that should be taken when rolling out a program requiring residents to obtain renters insurance is to obtain advice from your corporate attorney and/or risk management department and/or your insurance carrier, as the issues presented are quite complex. For instance, many property managers are more anxious for the resident to obtain personal liability insurance, as that is a huge potential risk for a manager. There should be full disclosure to your residents as to the requirements, and it should be in writing in the lease or in a renter’s insurance addendum. The coverage limits should be reasonable, and the addendum should be easy for the resident to understand, so that they know the differences between liability coverage and personal contents coverage. The lease or addendum should also make it clear that residents may choose the insurance carrier of their own choice. Selling insurance requires a license. If the property manager is mandating which insurance company be used, then the manager is essentially selling insurance and possibly engaging in antitrust activities, both of which are illegal! The lease or addendum should also spell out exactly the type of insurance that is not maintained by the manager, so the resident understands the consequences of not obtaining renters insurance. Finally, the lease or addendum should require the resident to not only obtain the renters insurance policy, but to maintain it as well, and to provide proof of the insurance coverage to the manager. The lease or addendum should also have a clause stating that any noncompliance by the resident with respect to those obligations listed in the lease or addendum would be considered a lease default.

A final caution to managers that do require and confirm the resident has obtained renters insurance: a common fallacy held by managers is that the manager is not responsible for property loss if an item such as a pipe breaks inside a resident’s unit, causing a flood. Most likely there were problems with the pipe or a pre-existing condition prior to the resident moving in, and if so, the resident would not be liable for the resulting property loss. Even if the resident had renters insurance, the manager should not expect the renter’s insurance policy to cover the resulting losses, since the resident is not responsible for those losses. The renter’s insurance carrier may disclaim coverage, looking to the manager’s liability carrier for coverage, or if the damage claim is paid by the renter’s insurance carrier to the resident, the renter’s insurance carrier may then bring a subrogation claim against the manager, as discussed above.