Landlords, Tenants and Renters Insurance
1) I am not an attorney which is why you should always consult with your insurance broker AND your attorney BEFORE you make a decision that may place you at risk;
2) I am not an insurance broker, agent or salesperson, nor have I ever been. I have gathered this information at the request of landlords in order to provide guidance for those people whose business involves residential tenants.
Q1) Why would a landlord want to be named on their tenant’s policy?
a) To ensure/verify your tenant has a policy.
b) To be notified if/when it has been cancelled or renewed.
c) For risk management pertaining to liability.
d) From a landlord’s perspective – use it as a tool to set the psychological standard you expect from your tenants.
Q2) If named on their tenant’s policy, what would the landlord be called on that policy and what would that provide to the landlord?
a) Additional Interest: will provide tenant policy status (see 1 above) to the person or entity named ‘Additional Interest’;
OR
b) Additional Insured: This will usually also provide tenant policy status (as in #1 above), but will also provide a level of liability risk protection (as #2 above mentions)..
As I understand it, if there is a liability claim AND the landlord is named an Additional Insured, it will likely consume the tenant’s liability first. When that ‘Limit of Liability’ is exhausted, then the property owners liability will kick in and when that is exhausted, the prudent landlord’s commercial Umbrella policy (liability coverage) will kick in. Each one gets exhausted and used 100% before the next policies liability coverage begins. ‘Limit of Liability’ means total dollar amount available for liability coverage in the policy in question (i.e. if the policy provides $50,000 in liability, the most the policy will pay is $50K. If the awarded dollar amount is equal to or greater than the Limit of Liability, then the Limit of Liability of that policy is now exhausted.
Q3) How does a landlord become an Additional Interest or an Additional Insured?
a) For a commercial policy and even an owner-occupied Homeowners policy, it appears to be by Endorsement.
b) For many, though not all Renters/Tenants policies, it seems the policy itself provides the language to allow the landlord to become either an Additional Insured or an Additional Interest on the tenant’s policy.
What I recommend:
With input from your attorney and insurance broker (where applicable) add a Clause or Addendum that states something along these lines (do not use my exact wording – remember, I am NOT an attorney):
“It is the duty and responsibility of the tenant to (1) obtain a Renters insurance policy and (2) have the landlord named Additional (Interest or Insured, your choice). If the company you choose does not offer Additional (Interest or Insured, again, choice of the landlord), you MUST choose another Insurance Provider to meet lease requirements.”
To be a ‘nice’ landlord, you may ask your tenant to request an Endorsement that covers their personal possessions on an All Physical Risk basis, although, the providing company may only offer a policy like that. However, many are written to only provide Named Peril coverage, similar to the owner-occupied policy called an HO-02.
It is also wise for the tenant to have an Endorsement that replaces their personal belongings on an RCV or Replacement Cost Basis, i.e.: what it will cost in today’s dollars to buy new stuff. As written, nearly all policies pay personal items on an ACV or Actual Cash Value basis. In other words, if you sold your older, used items today, how much would you expect to sell them for? This number is referred to as ACV, although the insurance companies use their own tables and charts to determine the Depreciation of your personal items.
Mike Mumma
PA Public Adjuster, PA#646378
www.papublicadjuster.org
215-272-0129
Advocate for the Insured