insure this!

By Various Authors

Q. During a recent storm, a leak from my rooftop deck damaged my tenant’s mattress, bed sheets and covers. Am I responsible for these damaged items? Does it make a difference if the tenant has renter’s insurance?

A. Landlords are not generally held responsible for damage to tenants’ personal property so long as they have taken reasonable care to maintain the building. So, if a storm blows some tiles off the roof and water enters the building, the landlord will not be responsible for the damage to the tenant’s furniture caused by water or wind entering the building.

If, however, the landlord was negligent and reasonable maintenance would have included periodic inspections of the roof, which he had not done in 15 years, or maybe a tenant who had noticed the roof’s condition while sunbathing told the owner it needed repairs and the owner ignored him, then it may very well be that the landlord is liable by way of his negligence.

In this case, the loss to the tenant’s property would be covered under the liability section of the policy, not under the property section. Such a liability claim would certainly raise the eyebrows of the insurance company, and it would likely do a thorough inspection to see if other items of deferred maintenance were looming.

All that said, however, we all know that the big equalizer is money, so if the money is there to repair the damaged goods of the tenant, everyone will be happy. Since there is no way for a landlord to cover the personal property of his tenants (there is no insurable interest in the property of another, unless it is mortgaged), then the best choice is for the tenant to have a renter’s insurance policy that would cover his own property against such loss.

So the action item here, outside of keeping your building in a good state of repair, would be to clearly state in the “house rules” or rental agreement that you are not responsible for tenants’ personal property and that you require your tenants to carry renter’s insurance. You could enforce this by asking them to provide you with an annual certificate of insurance from their insurance carrier.

This is regularly done by virtually all commercial tenants and is becoming more popular in residential tenancy as well. A residential renter’s policy would typically cost between $20 and $40 per month and would cover their liability from things like a waterbed leaking into your other units, as well as their personal property; so it is valuable to them as well as to you.

Even if you don’t audit for certificates, just having the requirement to carry renter’s insurance in your rental agreement would put them in breach of contract with you if they don’t have it in place when a loss occurs. It would also more clearly show that they are responsible for their personal property in all circumstances.

- David Gordon

Q. One of my tenants’ units was burglarized recently, and the thieves not only stole the contents of the room but also damaged the unit’s walls and doors. My tenant has renter’s insurance but says his policy only covers his missing items, not the damage to the building, and that I need to make a separate claim on my policy. Is he right?

A. Insurable interest is a concept that comes into play here. Let’s examine the interests and responsibilities of both the renter and the landlord, and how insurance is used to protect each.

The tenant owns personal property such as furniture, clothing, jewelry and electronics. As with all property, there is some risk of loss. There is also the danger that someone may be injured inside the apartment or through some action
of the tenant.

The tenant may choose to mitigate the risks of personal loss by purchasing renter’s insurance, which offers the coverage listed below, specifically designed to protect tenants:

Personal Property
This coverage replaces the renter’s personal property if it has been stolen, vandalized or damaged by fire, smoke or even plumbing leaks.

Additional Living Expenses
If the apartment is damaged and cannot be occupied while repairs are being done, the costs of other accommodations such as a hotel or motel room, as well as the expenses of eating in restaurants, is included in this coverage.

Personal Liability Coverage
If the renter is found liable for injury to another or damage to another’s property, this coverage will protect the renter from personal loss.

Landlords have concerns similar to those of tenants; they need protection from loss due to property damage and lawsuits. The property includes business personal property found inside individual
apartments, such as stoves and refrigerators, as well as commercial property—the building itself, including the plumbing and electrical systems.

The risk of being named as a defendant in a lawsuit is also very real. There are two policies commonly held by people who own apartment buildings:

Commercial Property
This insurance is in place to protect the owner against direct physical loss from fire, lightning, windstorm, explosions and other perils.

General Liability
Also known as “slip, trip and fall” coverage, a liability policy protects the insured from lawsuits.

Landlords would not insure the personal property owned by tenants. In the event all the tenant’s goods are stolen, the landlord suffers no financial loss.

Therefore, the landlord has no insurable interest, and should not be able to profit from a loss suffered by the tenant. Likewise, the tenant would not insure the property belonging to the landlord. The tenant has no insurable interest in the apartment building, either.

The clearest value of a renter’s policy to a landlord can be found in the Liability Coverage. If someone should suffer a loss, such as property damage or personal injury, caused by the tenant, then the renter’s policy will act as the primary defense. If the damages are greater than the coverage provided in the renter’s policy, the landlord’s General Liability policy would insulate the landlord from financial loss.

In conclusion, your tenant is correct: the renter’s policy will not cover the physical damage to your building.

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The opinions expressed in this article are those of the authors and do not necessarily reflect the viewpoint of SFAA or SF Apartment Magazine. David Gordon is an independent insurance broker who has been serving the needs of Bay Area property owners for more than 25 years. He is available at 877-877-7755, ex. 6972. P.J. Tradelius is with Commercial Coverage and can be reached at 415-436-9800. Copyright © 2008 by SF Apartment Magazine. All rights reserved.