Umbrella Policy for Multifamily Properties

[Vasundhara Ranjani]

We now have several multifamily buildings - each with its own robust insurance policy. However, it was suggested by a friend that we should get an umbrella policy for each building.

I inquired with our agent and he advised that we do either of the following:

1.) Increase liability coverage per building

2.) Get an umbrella policy per LLC (apparently we can't get it per building?)

The latter is significantly more expensive, however, which option would you recommend given our situation?

Also, each of our buildings is in its own LLC and so what is the best organizational structure you would recommend that will protect us best?

Would having the buildings/LLCs in a trust or several trusts (anonymous?) help? If so, how?

Thanks in advance.

[Ben Guttman]

@Vasundhara Ranjani do you have multiple buildings at the same location in the LLC? A complex should qualify for its own umbrella

[John LaBanca]

Having each building in its own LLC should protect them from each other. In other words, if you get sued by a tenant at one building, the LLC should prevent them from suing the other LLCs.

What an umbrella policy does is give you even more protection so that if you get sued, you can afford to pay the tenant and not lose the building in the process. If you have an LLC per building, it seems like having more liability coverage in your main policy is the same as having an umbrella per LLC. An umbrella would be better if you could get a single policy that covers all of your buildings.

disclaimer - I'm not a lawyer and this is not legal advice

[Vasundhara Ranjani]

Originally posted by @Ben Guttman:

@Vasundhara Ranjani do you have multiple buildings at the same location in the LLC? A complex should qualify for its own umbrella

 In one of the LLCs, we have a few buildings under it. Most of the other buildings are in their own respective LLCs.

[Dan Biber]

Great question. Yes, having each property in its own separate LLC is the best approach from a liability standpoint. Many if not most commercial lenders require a SPE (single purpose entity) for a deal they're financing. For insurance, yes, having umbrella liability would be desirable if your asset can support the additional OPEX (operating expense) without significantly impacting the financial returns you and/or your investors desire. Also, many MF insurance firms offer a blanket type policy whereby you roll all of your properties under a single policy. We do that with all of our office properties here in Atlanta with a firm Pritchard & Jerden.

Thanks for reading. 

Dan Biber

[Jason Bott]

Originally posted by @Vasundhara Ranjani:

We now have several multifamily buildings - each with its own robust insurance policy. However, it was suggested by a friend that we should get an umbrella policy for each building.

I inquired with our agent and he advised that we do either of the following:

1.) Increase liability coverage per building

2.) Get an umbrella policy per LLC (apparently we can't get it per building?)

The latter is significantly more expensive, however, which option would you recommend given our situation?

Also, each of our buildings is in its own LLC and so what is the best organizational structure you would recommend that will protect us best?

Would having the buildings/LLCs in a trust or several trusts (anonymous?) help? If so, how?

Thanks in advance.

A separate Umbrella per LLC is not necessary unless the ownership % under each LLC is drastically different.

Save your $ and get a single Umbrella policy that names all of the LLC's and listing all of the locations.

[Brian Bault]

@Jason Bott I am still new to this.  Would the umbrella policy replace the homeowners for each property?  Also, can it reach across state lines?  I currently have a rental in WI and am looking to purchase one in Pennsylvania.  Thanks!

[Jason Bott]

Originally posted by @Brian Bault:

@Jason Bott I am still new to this.  Would the umbrella policy replace the homeowners for each property?  Also, can it reach across state lines?  I currently have a rental in WI and am looking to purchase one in Pennsylvania.  Thanks!

 Brian, the Umbrella is in addition to the underlying Rental Dwelling/Landlord policy.  The policy raises the General Liability limit from the underlying policy by $1M, $2M, etc.  It does not expand coverage (the types of claims) in any way.  

A Rental Dwelling policy will have a "Premises" liability policy.  This means the Liability on the policy only covers the parcel the rental property is on, and nothing further.  A Homeowners policy will give you "Personal Liability", and that will extend throughout the continental US.