Lawsuit Part II: Negligence versus gross negligence

[Collin Hays]

This is worth five minutes of your reading time.

If you have a liability claim at your vacation rental, the claimant is alleging negligence on your part and asserting that you are then liable for damages as a result. Liability claims typically arise as a result of property damage, human injury, or human death. Claims come in all shapes and sizes, and a myriad of circumstances. A lot of homeowners like to play lawyer and think they can avoid any liability by having an all-inclusive disclaimer and rental contract. That doesn't fly.

About four years ago, we had a "slip and fall" claim at a client's property. An elderly woman claimed to have slipped on some stairs climbing onto the porch, which caused her to fall and sustain a compound fracture of her leg. Both my management company and the homeowner were sued. I never felt that the claim against either of us was a valid one, but my opinion didn't make any difference: Someone was suing us for damage and seeking a significant amount of money, and both we and our homeowner client had to cooperate fully with the insurance company.

The insurance company zeroed in on the condition of the stairs and railings. Were any of the stairs rotting? No. Were the railings solid and secure? Yes. Were any of the stair treads uneven? No. There was, however, moss/algae growing on two of the stair treads which made them slippery when wet. And it rains a lot in the Smokies. Were we negligent not to notice the algae and remove it? The insurance company said yes. In the end, our insurance, combined with the homeowner's policy, paid out $240,000 to the claimant.

But a much greater problem could have arisen if the insurance company concluded that we were guilty of GROSS NEGLIGENCE. This is a biggie for STR investors: Depending on the state, gross negligence claims are eligible for not only actual damages but "punitive" or "exemplary" damages of up to four times actual damages. These damages are intended to punish the defendant for egregious or malicious behavior. Worst of all, insurance companies are often not required to pay in the event of gross negligence, leaving the homeowner to pay the damages.

So what is "Egregious or malicious behavior"? The bar is lower than you might think. Gross negligence means:

• An act taken without exercising even the most basic amount of care owed to others.
• A deliberate disregard for the safety or well-being of another person.
• A lack of care that demonstrates reckless disregard for the safety or lives of others.
• A conscious and voluntary disregard of the need to use reasonable care, likely to cause foreseeable grave injury or harm.

In other words, if there are potential hazards that exist at your property that you are ignoring, you could be considered grossly negligent. You could also be considered grossly negligent if you are failing to continuously inspect and monitor the safety of your property. Here is how to avoid GROSS NEGLIGENCE:

1. Inspect your property regularly, or have it inspected professionally, and document these with checklists and signature stamps.

2. Do not defer repairs if a potentially dangerous situation arises.

3. When you have a claim, the less said, the better. Help the claimant with an immediate need - finding medical care, etc. But otherwise, keep your mouth shut.

4. Contact your insurance company, connect them with the claimant, and get out of the way. Your actions/reactions may well serve to hurt your case.

[Michael Baum]

Thanks for the info. This is something I have been preaching in more basic detail. The gross negligence thing is very interesting. I found this on an attorney's website. Some case law quotes on how to determine what constitutes "gross".

• “Gross negligence is the twilight zone which exists somewhere between ordinary negligence and intentional injury.”

  -Pleasant v. Johnson, 325 S.E.2d 244 (N.C. 1985)

• “Gross negligence represents an extreme departure from the standards of ordinary care to the extent that the danger was either known to the defendant or so obvious that the defendant must have been aware of it.”

  -Saltz v. First Frontier, L.P., 782 F. Supp. 2d 61, 75 (S.D.N.Y. 2010)

• “Gross negligence is the failure to use even slight care.”

  -Spence v. Vaught, 367 S.W.2d 238, 240 (Ark. 1963)

• “Gross negligence is the want of that diligence which even careless men are accustomed to exercise.”

  -Ambrose v. New Orleans Police Dep’t. Ambulance Serv., 639 So.2d 216, 219-20 (La.1994)

• “Gross negligence is very great negligence, or the absence of slight diligence, or the want of even scant care. It amounts to indifference to present legal duty and to utter forgetfulness of legal obligations so far as other persons may be affected. It is a heedless and palpable violation of legal duty respecting the rights of others.”

  -Corrigan v. Clark, 36 A.2d 631, 632 (N.H. 1944)

So based on those quotes, your scenario @Collin Hays wouldn't constitute gross negligence. Frankly, if we changed it to a step breaking due to rot might not be considered gross. If the step looked good on a cursory inspection and was reported as such, gross might not work.

Of course if there are obviously rotten deck boards, steps and railings, then any kind of injury could be classified as gross negligence. The whole system was neglected leading to the injury.

Another point, these laws vary by state. There are different levels. It was an interesting read.