Property Damaged-Is my Property Manager Liabile???

Question

Hey guys, here's my situation- Would love some input & advice.

I have an apartment house, and one of the tenants had some sort of bathroom party and burst a pipe in the bathroom. It ended up causing flood damage to their apartment, and the apartment below.  When my property manager initially told me about this, they clearly stated it was the tenants fault.

The total bill for damage ended up being $4200. The property manager then emailed me, slightly shifting the blame away from the tenants and asking me if I would just put the bill through my insurance. This is an absolute no-go for me, because of my $2500 deductible, and amount of different insurance policies I carry (would do more harm than good in the long run)

It is in the tenants lease, (property manager's company lease) that tenant must carry renters insurance. This tenant did not have renters insurance.  I was told through my insurance agent that most of the damage would have been covered if they had. My questions is- Is it my property managers job to verify and make sure that they do? If so, I should be able to sue (likely severing relations with PM) through their E/O policy (errors and omissions)

To my understanding, the tenant does not make very much money, and it would be a long-shot to ever get my money back from him.  Please share your thoughts and opinions, eager to hear the BP response!!

Thank you

Dan

Nicole A. · Answer

From what you're saying, I would push back if I were you. It's in writing that the tenant should have renter's insurance. It was said before that the tenant caused the damage (the plumber I assume would verify this). The tenants need to pay. Your PM can set up some sort of payment plan so that you can at least recoop *some* of the money...

I'm guessing it's standard to get proof of renter's insurance at lease signing and perhaps once a year. If the tenants are new, they could have gotten insurance and then cancelled it shortly after. Or if it's been a while, perhaps they didn't renew.

Jason Moore · Answer

Nathan G., but unless I'm mis-understanding something here (which is entirely possible)... I have to say that I think you're off-base on this one.

Cheers!

Nathan Gesner · Answer

I'm a Property Manager and know a thing or two about this. The Property Manager's responsibility is to protect you, the client. It's his fiduciary responsibility.

If the manager signed a lease requiring the tenant to have insurance, it is the manager's responsibility to ensure compliance.

In any disagreement, it's a matter of considering the facts and determining responsibility.

1. Tenant broke the pipe through negligence. Therefore, tenant is responsible for the repair and your PM should do everything in his power to collect those funds.

2. If the PM is unable or unwilling to collect from the tenant, then that is their problem and the PM can pay the bill.

This is not a maintenance issue. It is not a neglect issue. Therefore, that bill should never be in your name and your PM shouldn't even be talking to you about it except to tell you that there was damage and that it was handled.

The bad news is that the plumber could place a lien on your property since you are the owner. If the PM can't resolve this quickly, I would contact an attorney and get this resolved.

Robert Melcher · Answer

I have had issues collecting on tenant damages through renter's insurance.  I put it on the tenant to settle the charges.

The standard answer is that the insurance is for the renter's possessions and not for the property.

The liability coverage is for injury on the property, not damage to it.

Shaun Patterson · Answer

The Pm's fault is for not verifying the renters insurance which is easy to do. If they are lacking in this simple system there are alot of other things that they may also be lacking in. Homeowners insurance is there to make the property whole again while your PM goes after the Tenant for damages caused to the property. Was there a lack of screening standards? I don't know since I wasn't there. It could be.. We have it set up with our software so we know when the insurance was paid and with some tenants we charge the premium in full, Talk to previous landlords, don't just call to verify payment history rent only. I would be wary if the PM is now trying to have you pay out of pocket instead of going through the proper insurance channels. From the looks of it you will be giving that insurance agent a call soon.

Nathan Gesner · Answer

@Jason Moore thanks for the response.

Yes, the tenant is ultimately responsible and the Property Manager should go after the tenant. The reason I call out the Property Manager is two-fold. First, even though the tenant appears to be at fault for the damages, the Property Manager is trying to convince the Landlord to pay for it in an effort to protect the tenant. That is a violation of the Property Manager's fiduciary duty and I would encourage the Landlord to go after him. Second, if the Property Manager requires renters insurance then the Property Manager should have a system in place to track compliance. It's like telling the tenant to maintain the lawn and then never checking up on them, only to discover it's a jungle when the tenant moves out a year later. Again, the Property Manager is not responsible for every action of the Tenant but they do carry some responsibility when they are negligent in their responsibilities to manage the property.

If a Property Manager requires renters insurance, they can track compliance by requiring the tenant to add the Landlord as "additional insured" to the policy. This will include the Landlord under the liability coverage and the Landlord will receive a notice that coverage is in place. If the Tenant ever cancels the policy or allows it to lapse, the Landlord will receive notification. That's a simple way to track it.

HOWEVER...this provides an important lesson for Landlords. A recent court case in California proved that not all lease violations are grounds for eviction. In this case, a Landlord attempted to evict a tenant for failing to maintain renter's insurance. The court said renter's insurance is not a material breach because the insurance is for the benefit of the Tenant. In other words, Landlords can mandate it but they can't kick the tenant out for failing to comply.

Jason Moore · Answer

@Daniel Gupta - Just so you don't think I've ignored the post entirely. I'm sorry - but I just don't agree that Renter's Insurance would have covered the damages that you're speaking of. Your Insurance should cover this (assuming you've insured the unit as a rental), and it's possible that your Insurance Agent is hoping that another Entity will cover the costs? Ultimately, Insurance Co's are in the business of profit after all (not that they necessarily should be).

Check with your PM to see if they have a Dec. page of the renters Insurance Policy. That said... this is more of a check to see if your PM is doing what they've agreed to do - rather than something that might help you in this situation.

Sounds like a crappy situation, but if you're fairly confident that you'll be unable to collect from the tenant - I'm not sure that I see you having much more luck collecting from the PM. Depending on the size of your deductible, it may just be something that you'll have to "grin and bear".

Sorry to hear about your struggles, cheers!

Nathan Gesner · Answer

If the PM fails to make it right, I would fire them while I'm at it. Be sure to find a new PM first so you're not left hanging in the wind.

Property Damaged-Is my Property Manager Liabile???

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