Jude Winterhalter
Founder at Jackson Square Insurance Associates
415-890-6379
Bornstein Law is dedicated to helping rental property owners cauterize risk and future-proof their business, but we don't work on an island. Our web guy sat down to chat with our "go-to" insurance professional, Jude Winterhalter, to ask some questions on how landlords can best protect themselves. Edited for length and brevity.
Clearly, there are unique insurance requirements for owners of rental properties. Can you give an overview?
The best way to look at this is you have an insurance policy, and there are two components to it. One is the property side and then you have the liability side. It's the liability side we encounter the most problems with. And this is particularly problematic with rented single-family homes and condos.
You are saying that insurance coverage will be dependent on the number of units.
Yes, buildings with five or more units are considered a commercial policy and automatically come with the liability coverages a landlord needs, specifically personal injury. This covers the landlord for wrongful eviction.
With four or fewer units, many mom-and-pop landlords don’t realize they don’t have this coverage. Often it is as simple as a miscommunication with the carrier(s) because the carriers are prone to think that the owner is living on the property and it's not tenant occupied. Which of course, presents more risks, and so the owners of these smaller buildings - rented single-family homes, condos, duplexes, triplexes, quadplexes - need that personal injury coverage that they may be missing.
I'm curious what "wrongful eviction" covers. Most landlords are honest, good people, but there are always a few bad apples that engage in heavy-handed tactics like shutting off utilities, showing up at all hours, threatening evictions, improperly raising rents, and so forth.
Generally speaking, any personal injury policies will stipulate that the landlord does not engage in anything "illegal." Some of the hypotheticals you mention are borderline.
We'll have to look at the definition of the policy to see what is covered, but they all pretty much say you can't do anything illegal. Some definitions of personal injury are better than others.
Suffice it to say, insurance does not give rental property owners carte blanche to engage in illegal conduct. There can be some innocent errors made in the course of landlordlording because of naivety and ignorance of the law, and disputes may arise, but no carrier will give a "get out of jail free card" when rental housing providers are negligent, reckless, or intentionally do something illegal.
Who makes the determination of whether landlord conduct is "illegal" or not, and who decides the payout?
At the end of the day, it's the carrier's money. If the carrier wants the matter to go away, versus going to trial, they will settle. If the carrier denies a claim for whatever reason, sometimes a landlord will hire another attorney to dispute the denial - it can certainly get that far, and sometimes it comes down to the definition of what "is" is.
Attorney bills can be costly. When does the wrongful eviction coverage kick in?
A good point to remember is that the landlord must actually be sued, and the first question to be asked is whether papers were served.
Up until the point of litigation - a lawsuit is a last resort - there can be a lot of wrangling that requires an attorney, and a personal injury policy will not cover these expenses. We can put the carrier on notice, but they will not be involved in the defense of a contemplated or threatened lawsuit, only the actual lawsuit.
Is that where you as an insurance professional come in to do what, serve as an intermediary?
Not really. I can serve as a conduit. But when the matter has been escalated to litigation, the broker and the policyholder sit in the backseat and it is the carrier that drives the response.
In the next article with Jude, we'll discuss the nuances of insuring unwarranted units and mixed-use properties where there is commercial below and residential above.