Insurance coverage - worst case scenario - Proper Insurance

[N/A N/A]

This is not just another insurance question as the many that have been posted that I have already read through.

My question is about liability and protecting yourself with insurance coverage on personal bases and not through any type of corp or LLC.

My wife and I are ready to start seriously looking for a REI's that will be flip properties, that are never going to be occupied in the number of months it takes to rehab and sell. However, since my wife is a personal injury attorney, she knows how claims can venture across multiple individuals and multiple insurances.

So our main concern is getting the proper and enough insurance coverage to head off worst case scenario. First off, I know that it is always up for grab when it comes to insurance claims, and you can't predict to a certainty the way a claim might go. I also know that setting up LLC's would help to add another protection to the castle. But currently, we don't have an LLC and will not be putting one together until at least one flip has taken place.

If we were to have a $200,000 in liability on the rehab property, but an extreme case was to occur such as a someone working on the job was to get killed on the job, that $200,000 wouldn’t cover enough, and it could easily got to a jury that could award a lien against our personal property. Furthermore, we are having GC do the work, and yes, we will be making sure they are insured, along with making sure that all subs are insured as well (if possible). However, again as I mentioned my wife is a personal injury attorney, and she knows first hand, how there might be insurance in place from one entity, but it is a normal activity to file claim against another entity’s insurance just because they were associated. What I mean by that is, if an employee was to get killed on the job, and it was the fault of a subcontractor’s negligence, the attorney for that family could easily put claim against the GC that employed the deceased (who had insurance coverage/work comp), the subcontractor who was negligent and the owner of the property.

So, can anyone give us advice as how we should go about insuring a property correctly, for enough, and any run down’s of how they insure their property? Or do most people assume that the above worst case scenario won’t occur and they just don’t insure for that type of situation, more or less getting coverage just to have it??

Thanks in advance for reading this long post.

NOTE: We have checked with our current personal property insurance company, and they don't write umbrella policies if "vacant" properties will be involved. I don't lie and say a tenent will be there when they won't. So it appears that either we will have to take an individual policy on the property, or find a company that will write umbrella policy that allows vacant properties (I don't think this is an option).

[Donald Stevens]

I would to start by saying anyone can sue anyone for anything. That doesn't mean they will win, but even the person getting sued loses because of the cost of legal defense.

If your wife is a personal injury attorney than I am sure she can tell you several things I will mention here. I am not an attorney, only an insurance agent, so keep that in mind.

Attorneys sue for what they can get. It doesn't make sense to sue someone for ten million dollars when they are a factory worker and only earn $30,000 a year. They will file bankruptcy and become very hard to collect very fast. With that in mind, think about how much you are worth including future earnings and get a liability policy for that amount. Maybe it is ten million, better too much than too little. The policy will usually also cover legal defense expense coverage in addition to the liability amount. When the insurance company has ten million on the hook, they hire some pretty fancy lawyers.

An LLC is another great idea. An LLC is a separate entity from yourself. This can add another layer making it at least a little more difficult for someone to collect against you personally.

The last advice I would give you is that if you hire anyone, have them list you as an additional insured especially if they hire subcontractors. As an additional insured it gives your insurance company the opportunity to subrogate the claim against the at fault party. That means the contractors policy will defend you also. Have the contractor give you a certificate signed by the agent listing you as the additional insured.

Hope that helps.