If you are a landlord, be sure to get the right insurance policy to cover against tenant lawsuits for wrongful eviction, injury, harassment, and failure to maintain, or you could be left holding the bag. Inexperienced landlords often purchase policies that do not cover against tenant claims at all. Insurance brokers do not know the intricacies. In general, there are three types of policies that come up in landlord-tenant litigation.
The policy that has the worst protection is the homeowner’s policy. Usually offered to owners of single-family homes and condominiums, the homeowner’s policy covers physical bodily injury and property damage only. Homeowner’s policies often have express exclusions against renting out any portion of the property. These policies never cover claims for wrongful eviction, trespass, failure to repair, or emotional distress. Landlords with these policies will get very little help from their insurance companies when they are sued. The insurance companies will either not defend the lawsuit at all or will defend the lawsuit and then make the landlord pay for the entire settlement of judgement.
A better policy for landlords to purchase is known as the landlord-protector policy. A homeowner’s policy with a landlord rider offers similar protections. These policies will cover bodily injury and property damage but will also cover wrongful eviction, trespass, failure to maintain, and emotional distress. When it comes time to settling tenant claims, landlords with this policy will pay less and the insurance company will pay more.
By far the best for landlords is the commercial general liability policy. Usually purchased by landlords with multi-unit dwellings or mixed-use properties, the commercial general liability policy will often cover all the damages raised in tenant lawsuits. Because the policy will have fewer exclusions, insurance companies will have fewer grounds on which to demand landlord contribution to a settlement or award.
Regardless of which policy you purchase, be on the lookout for dangerous clauses. Policies will often exclude attorney fees that are paid to the prevailing tenant. Attorney fees in tenant litigation range from $250,000 to $750,000. If the policy excludes attorney fees, the insurance company will look to the landlord to pay the tenant’s fees. Some policies exclude repair claims altogether. A recent court case held that an insurance company did not have a duty to defend a landlord at all because the tenant’s lawsuit mentioned repair issues and the policy excluded all lawsuits mentioning repairs. Newer policies are starting to exclude statutory damages, like penalties and triple damages. Most tenant lawsuits assert statutory claims. In fact, the lion’s share of damages in most tenant lawsuits are statutory. If the policy excludes statutory damages, the insurance company will look for a big contribution from the landlord to settle the claim.
