Tenant Damaged Property while house hacking

[Justin Scull]

Hello BP Community, 

I am currently house hacking a duplex that I purchased last year.  When I purchased the property, there was already a tenant in place in one of the units and I moved into the first level unit.  The tenant was signed on with a management company and they had high praise for this tenant.  The management company provided me with a lease and also a payment record.  Everything was good and the tenant has been on-time with rent every month and so I approved a 16 month renewal in February.  

Fast forward to last month, my tenant was cleaning and she was washing a few items in the bathtub.  She left the bathtub running as she worked on other things and forgot to shut off the water to the tub which then overflowed onto the floor and into the my unit below.  I was pulling in the driveway when this happened and my girlfriend called me frantically trying to catch the water in buckets before it did any damage.  I ran upstairs to find my tenant outside on her deck and told her what was going on and she ran inside to shut it off.  However, at that point the damage was done and water continued to flow out into the lower unit and so I opened up a claim with my insurance company to repair the extensive damage.  At the time of the incident, my tenant advised that she was clearly responsible and would cover my deductible, however her commitment changed when she started to get an idea of the cost associated with water removal and repair.  Furthermore, she then went on to say that the reason the tub overflowed was due to a blocked overflow and so she was only partially responsible, (there was an overflow in the tub but it looks like it was tampered with and caulked over, possibly as a way to dodge responsibility but I can't prove this.)   However, my insurance adjuster advised me to not collect any money directly from her and that because the damage was caused by the negligence of a 3rd party that they would need to file a claim against her renter's policy for the loss.  I sent over a copy of the lease which had her insurance information and they told me they were taking care of it and that I didn't have a choice on whether or not I wanted to go after her for the damage.  

When my insurance company reached out to the company shown on her lease, it turns out that she either canceled the policy or never had one at all.  My insurance company said that they then tried to contact her directly but she would not return their calls and so they have turned over the claim to a collections company.  

At this point, I am not sure what to do.  I am very disappointed in my management company for not verifying her information but I am more worried about what I should do now with my tenant.  I have not spoken with her since I have found out about the insurance and collections agency.  She paid her rent this month on time but I am worried that this claim will either bankrupt her or cause her to take her frustration out on my property.  She still has a lease going until June of 2018, but she has also violated her lease by not having active renters insurance.  

Has this ever happened to anyone else?  Should I keep her on as a tenant or should I start looking into the eviction process?  Should I reach out to her to clarify that I did not ask the insurance company to file suit against her?

Any help at this point would be appreciated.  Thank you all in advance.