by Charles Kaliades
A resident’s pot boils out of control and sets the apartment on fire or an unattended bathtub floods apartment units below. There are dozens of similar scenarios in which a negligent resident damages property that keep apartment owners and managers up at night.
Unlike car owners, homebuyers or commercial property tenants, most apartment residents do not carry liability insurance because they mistakenly expect their landlord will pay to repair the damages. And to some degree this is true because unless the landlord requires the resident to carry insurance to cover their negligent actions, the property owner IS left paying for the renter-caused damages, which can range from thousands to hundreds of thousands of dollars or more. This leaves the property owner with the option of filing a claim with his/her property & casualty insurer, but one can most certainly expect an increase in annual premiums as a result.
Even if owners require their residents to carry a renter’s insurance policy, there is no easy method of verifying or enforcing any lease requirements to maintain mandatory insurance. Nor is there a product or method available to mass insure all residents of an apartment building or multiple-unit community.
However, a powerful risk management tool called a property damage loss waiver (“PDLW”) for multifamily owners and property managers CAN, in fact, protect them against such losses.
Unlike traditional renter’s insurance (HO4 policies) that often include certain liability insurance provisions, a PDLW program protects the apartment owner first and foremost while transferring the liability to the resident where it belongs. The program’s low monthly premium is added to residents’ monthly rent, which ensures that the policy is maintained by the resident.
In the event of damage to the apartment caused by the renter’s negligence, benefits are paid in the following priority: the owner; non-negligent resident(s) if affected by the loss, and the negligent, covered resident. A PDLW program typically covers damage as a result of fire, smoke, explosion, accidental water discharge or overflow, and accidental sewer backup caused by resident negligence.
It’s important to note that a PDLW is vastly different than traditional renter’s insurance HO4 policies or from standard liability insurance provided by HO4 policies. The key differences between a PDLW and an HO4 policy are:
| PDLW | HO4 (includes Liability Insurance) | |
| Named Insured | Owner/Property Manager | Resident |
| Protection | Damage as a result of fire, smoke, explosions, accidental water discharge or overflow, and accidental sewer backup, caused by a participating renter up to $100,000. | Personal Property/Contents: Damage to or loss of personal property and assets. Personal liability: Protection against liability lawsuits, medical bills or loss of income or guests injured in the apartment. |
| Resident Participation | Added as additional rent to the resident’s monthly rent bill. | Resident pays premiums to the insurance company. |
| Enforcement | The premium is added to the residents’ monthly rent. This helps to ensure that the insurance premium is paid and coverage is maintained throughout the lease term. The policy cannot therefore, be cancelled autonomously by the resident. In addition, the community receives continuous monitoring and tracking of the resident’s requirement to carry $100,000 of property damage liability protection in compliance with the lease agreement via an automated reporting process. | Resident pays premiums to the insurance company. Unless the owner is listed as an Additional Insured, the owner may not be notified of policy terminations or reductions, leaving little recourse to enforce indemnification. |
| Costs To Owner/Property Manager | 0 | 0 |
| Costs to Resident | $7.95 per month | $12 – $25 per month on average. |
| Deductible | $250 | $250-$500 |
| Priority of Payment in the Event of a Claim | Directly to the property owner/manager since they are the named insured under the program. | Pays the resident first as the named insured for personal property losses. Liability losses by the resident must be established by the community through litigation or subrogation. |
| Payment Limit | Community/Owner/Manager are entitled to maximum $100,000 limit of protection provided. | Payments for property damage are paid up to the policy limit to the responsible resident. Damages incurred by the community, are covered up to the liability provisions of the resident’s policy. The community many not be paid equally for damages and may require litigation. |
Residents benefit as well from a PDLW option because it allows them to easily comply with their lease terms and provides peace of mind in the event of a loss caused by their negligence.
Residents may also receive up to $10,000 of personal property protection in the event of such an event.
PDLW programs are gaining traction within the multifamily industry among both the largest owners as well as smaller regional players. By transferring the liability to the resident for a nominal monthly fee, this risk management tool can help everyone sleep a little better.
Charles Kaliades is an account executive at Renters Legal Liability Insurance LLC (RLL), a provider of PDLW programs for the multifamily industry. For more information visit www.rllinsure.com or contact Kaliades directly at charles@rllinsure.com or at 201.995.3229.