Generally, if an item is excluded from the Property Coverage on your investor client’s property, it is likely not covered in their Liability Coverage either. Keep in mind that while your client’s Property Coverage protects damage that happens to their investment property, (i.e., the physical building), Liability Coverage protects their financial well-being associated with that property (i.e., if their negligence at that property were to harm someone else).
What type of damage is excluded?
Let’s use mold as an example. It may damage the building itself as well as cause health issues for tenants. If excluded from the investor client’s Property Coverage, any repairs to the physical structure would not be covered, such as replacing sheet rock. In addition, the bodily injury resulting from mold may also be excluded from their Liability Coverage. As an example, let’s say your investor client has a tenant become sick from toxic mold. Whether or not your client is negligent in having allowed their tenants to live in that toxic environment or attempted to correct a hazardous living condition, their Liability Coverage may not pay for the doctor’s bills from that tenant’s illness.
Are there any exceptions?
Yes. For example, standard U.S. Property Coverage doesn’t pay for items considered to be routine maintenance because those items are excluded under Wear-and-Tear. The purpose of insurance isn’t to replace items that wear out under normal circumstances over time. Insurance is meant to step in to help with unforeseen, unexpected, sudden events. Although, if the investor client was negligent in maintaining items around the property, such as a set of stairs, and someone was injured due to that negligence, there may be coverage available for the event through their Liability Coverage.
What does the technical lingo for this exclusion look like in the investor client’s policy?
It is possible for the language to be the exact same for both the Property and Liability Coverage sections. While the exclusion below deals specifically with mold, it is just one of several examples.
Sample policy language may look like this:
“Microorganism Exclusion (Absolute)
…this Policy does not insure any loss, damage, claim, cost, expense or other sum directly or indirectly arising out of or relating to:
Mold, mildew, fungus, spores or other microorganism of any type, nature, or description including but not limited to any substance whose presence poses an actual or potential threat to human health.”
*As insurance policies may vary, investors should check their own policy for language specific to the covered property.
What can this type of damage cost the investor?
Injuries from slip and fall accidents are the most common type of liability claim and the most common basis for bodily injury accusations in lawsuits. Depending upon the severity, a slip and fall could equate to a sprained ankle, a complex back injury that increases in severity over time, or even death. There is a reason that the lowest limit for Liability Coverage is generally $100,000, while most investors should keep a limit of at least $1 Million per Occurrence. If an injury or property damage caused by the investor isn’t covered by insurance, it could easily cost them their business. Not to mention the impact that it could have on their personal, financial, or emotional well-being.
How can investors protect themselves from liability issues?
Being proactive with routine maintenance and documenting those tasks are two of the most important things investors can do to protect themselves from liability issues. Investors should stay on top of repairs before they become a hazard to a tenant or any passersby. For example, a couple of very easy tasks to keep up with are the changing of furnace filters and testing of smoke and Carbon Monoxide alarm batteries. If the investor checks on their properties regularly, they are less likely to be surprised by emergency repair requests and may help tenants and their guests avoid an injury.