Question About Insurance and Liability Protection

[Frank Paladino]

I am a buy and hold investor and have started to accumulate a few properties and looking to do more.  Before I do, I wanted to ask what investors do to protect themselves as they acquire more and more properties.

Homeowners insurance covers the property and some limits on liability. The LLC provides additional protection. If someone sues the LLC at least your personal assets are protected (to a large extent).

However, the assets that sit inside the LLC are still exposed to lawsuits and in theory you could lose everything in your LLC's over one bad lawsuit. What are some strategies and additional insurance coverages that investors get in order to provide protection and help sleep better at night. I imagine with hundreds of units there is always someone bringing a lawsuit for some reason (especially in todays litigious world we live in).

Any feedback would be appreciated.

Thanks.

[Bo Bond]

Frank, 

Beyond the coverage/policy feedback above, a basic understanding of the risk management process is another great tool for any investor.  You don't have to be an insurance or risk management guru to look for potential exposures (property or liability hazards), assess those risks, and make sound decisions about how to address them (eliminate them, fix them, avoid them, pass the exposure to an insurance carrier via a policy, etc.).  Documenting your efforts will be key.  When you do this, you start to reduce your potential for negligence.  

An example would be having an arborist look at all the large trees on your properties to ensure they're in good shape, not diseased, and well maintained (pruned back).  If high winds come and a large branch breaks and falls on a person (child), you're in a much better position if you can show that you've maintained the trees on a consistent basis, as opposed to doing nothing at all.  In this case, it may not even take an arborist.  It may be enough just to prune the trees prior to seasons where you might experience higher than normal windspeeds or heavy snowfall.

Many times a court will try to determine if you "acted in a reasonable and prudent manner when compared to others landlords under similar circumstances".  If the answer is yes, or that you went above and beyond what most prudent landlords might do, then you've just put yourself in a better position.  This doesn't mean you won't be sued, and doesn't mean things can't / won't ever go south for you, but certainly helps you when/if someone does try to come after you.  Hope this helps!