LLCs and Property Insurance

[Ben Curry]

I'm in the process of moving each of my properties into separate LLCs to segregate them from each other. In the event that one tenant goes crazy and tries to sue me, I want to have a legal separation between the entities so they are insulated from legal recourse on all of them. As I quit claim deed each property from my personal name to the specific LLC, I also want to ensure the insurance on each property follows suit. Currently I am getting an amazing rate with Encompass Insurance as they bundle our rentals as well as personal home, auto, etc. Encompass does not allow for an LLC to be named as the policy owner, only as a secondary insured. I got a quote from our insurance agent and Foremost Insurance will allow the policy owner to be the policy owner but the rates are double what we are currently paying.

The question is this - to prevent the "piercing of the veil" of the LLC, does the insurance also have to be out of my personal name and in the LLC's? Or can I keep the insurance in my personal name with the LLC as secondary insured while still keeping the veil intact?

Thanks for your input.

~ Ben

[Greg Scott]

This is a great case study of the challenges of asset protection in single family. I'm not an attorney, but have faced similar issues to what you are discussing.

Seems like anything that includes you personally, not as a manager, officer, etc, opens you up for liability.  If some celebrity died on your property and a bulldog lawyer was sufficiently motivated, your LLC can likely be pierced.  You have to decide how comfortable you feel. 

Personally, I played with all this.  Eventually, I left my SF rentals in my name and beefed-up insurance, including an umbrella.  For commercial properties, we are 100% LLC but the banks and insurance providers like that on commercial and working against you on SF.

[Mitchell Zoll]

There’s a little too much concern on BP about “piercing the veil” without thinking through just what it actually means. In practice, separate entities should be separate. Think about it this way: if the two companies were entirely separate -as in the owners never knew each other- would they operate the same way? It’s not necessarily commingling the entities to have them all as additional insureds on one insurance policy if there is a valid business purpose (think general contractor in large construction) but in this case it goes to an argument that they aren’t really separate entities. You are tying to separate them but keep them together where it benefits you (premium cost saving). If this is the only instance then it probably won’t tip the scale. But if this is a pattern of operating the entities as one, someone will make an argument (not necessarily a successful one). I’d rethink the decision to put the LLCs in separate entities and discuss with your lawyer the pros and cons and if it is really necessary.

[Eliott Elias]

Insurance and LLC have to be in the same name

[Sean Morrison]

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

This is the trade-off with LLCs. Insurance rates go up. The issue is less about piercing the veil, and more about giving the insurance company an excuse not to pay out because the LLC is not the primary covered. LLCs are great, but insurance is the first line of defense. You need to determine how much asset protection you gain from the LLC versus how much you lose through either paying higher insurance premiums or taking the risk of not being covered when the time comes.

[Ben Curry]

Quote from @Eliott Elias:

Insurance and LLC have to be in the same name

Thanks for your input. What makes you say that they both have to be in the same name? I was told by my insurance agent that I could be listed as primary insured and LLC as secondary. Do you have experience that would suggest that this would not be a good route to go?

[Olia Fogel]

@Ben Curry If you own multiple properties, then I would recommend looking into a Series LLC, rather than setting up a separate standalone LLC per property. Series has unlimited scalability, and creating new series does not require any additional filings or fees with the state. Each series receives complete liability protections while you avoid the cost of creating an entirely new LLC each time you acquire a new property. 

When it comes to insurance, it is usually sufficient to add the legal property owner (LLC in this case) as an additional insured to your existing policy.

[John Mocker]

Ben,

The LLC is the owner of the property. The policy should have the LLC as a Named Insured, not additional insured. Once you transfer the ownership to the LLC, you individually do not have an interest in the property. If the company would not write the LLC as a named insured and they are the owner, it could be an issue at claim time.

There are Many Insurance companies that will write the policy in the name of the LLC. They will often want to know that the LLC is not used for other purposes and that the owners are related aka husband & wife). You need to shop it to an Independent agent (or agents) and find out what the cost truly is to insure it correctly and then make your decision.

[Roger Pack]

Series LLC looks nice. Not sure if it would help with the anti-commingling?

[Tom W.]

Does quit claim deed into an LLC trigger any title tax?