All Forum Posts by: Bo Bond

Lawrence,

Great advice above.  I spent over a decade specializing in condo/townhome association insurance prior to my current position, so I hope I can add some more direction for your here as these claims can be very difficult to deal with at times.  Per your description of this loss, it seems to have been an unfortunate accident from what I can tell.  I wouldn't worry about the tenant/owner below you suing you because the burden to prove that you (or your tenant) were somehow negligent would be 100% on them to prove.  This would most likely be a fruitless and costly endeavor.  Just because you have water in your unit twice doesn't prove that the owner/tenant above you was negligent.  

It's about the same as an electrical spark taking place inside the wall of your unit which causes your entire building to burn to the ground, and then all unit owners suing you for negligence.  No one (even the most prudent individual) is scanning the interior of their walls for potential electrical issues, and thus you would not be found negligent.  The same holds true for water lines.  How many owners check the hoses to their washing machines, ice makers, refrigerators, under their sinks, etc. on a very consistent basis (if much at all)?  Those who are very proactive do, and while this is certainly advisable, the typical owner (and even homeowner) isn't doing this that often.  Just because they aren't doesn't mean they're negligent.  While some condo associations have implemented mandatory annual checks on these systems to try and help prevent fires and leaks, that doesn't mean things can't happen at any time, and it doesn't mean they're negligent if they don't. 

In this situation, each party (both owners involved and the condo association) is responsible for insuring certain items within the building & unit.  So technically, both owners that suffered damage and the condo association should file claims.  Both of the owner's carriers will likely require the condo association to file a claim even if the cost of clean-up and repair work is under the condo policy deductible.  The owner's carriers usually want a written declination from the condo carrier before they pay anything on behalf of their owner-client.  

Per the "insurance section" only within your governing documents, you will find what you and the owner below you are responsible for, versus what the condo association is responsible for.  Yes they can be difficult to read when the docs are old, but most (even old ones) first spell out what the condo association is responsible, and then toward the end of that insurance section state what the unit owners are responsible for insuring.  At this point, you have to forget about where the damage came from and focus on which party's policy responds to the items damaged.  Do "not" just take the word of your community manager / board members.  Nothing against them, but many of them tend to shy away from insurance related issues because it can be difficult to understand at times, and most don't have a good amount of condo claims experience either.  Unfortunately, many of them tend to mix the maintenance section of the governing docs with the insurance section, and this is a big error that only causes confusion.  

For example, as a "condo" unit owner, you may be responsible for maintaining the hot water heater or the carpet in your unit if it wears out or just needs to be replaced, but "not" responsible for insuring it if it burns up in a fire.  It just depends on the type of condo insurance your community has in place and is required to carry.  When it comes to condos, you have to solely focus on the insurance section of the governing docs, as well as any "insurance related" amendments or resolutions made to those docs.  Then you would look to the condo's policy for more direction.  The condo policy should always follow the insurance section of the governing docs, and certainly never provide "less" coverage than what's required by those docs.  

Hope this helps.

Brandon,

As Cameron mentioned above, it's tough to state an average, especially in Texas.  Texas experiences just about every peril under the sun and more specifically over 600 separate wind/hail storms annually.  If you're specifically looking in the Lubbock (or West Texas) area, I think you'll see those rates out there inching upward if they haven't already.  Just within the last few months they've had some significant wind/hail storms.  Most of Texas is prone to significant wind/hail, but that area has been hit pretty hard in recent months and certainly in years past.  Mix that with a tough economy and a hardening insurance market, and rates will likely take a more significant increase in your area.  

Please understand that rates change every year, and vary from carrier to carrier.  That said, based on what I've seen across the state (at this current moment), I think you could safely use .60 cents for property in the "non-tier" counties, and $80 per dwelling for liability.  If you're looking in the Austin and San Antonio areas, those rates may be a little less due to that area being much less prone to major wind/hail events.  However, if you're looking down along the Gulf Coast, then I'd suggest using much higher rates (in the .75 to 1.10 range).  If you're looking at a rental within 40 miles of the coast, you should probably assume the higher rate.  If you're 41-70 miles from the coast, you should probably assume the lower rate.  Anything further than 70 miles from the coast will have lower rates.

Examples using a $150,000 replacement cost value:  

Heavy wind/hail areas of Texas (Dallas, Ft. Worth, and West Texas Counties) - $150,000 x .0060 = $900 + $80 = $980 (+ $100 for taxes & fees) = $1,080

Austin & San Antonio counties/area - $150,000 x .0050 = $750 + $80 = $830 (+ $100 for taxes & fees) = $930

Tier 2 - $150,000 x .0075 = $1,125 (+ $100 for taxes & fees) =$1,225

Tier 1 - $150,000 x .0110 = $1,650 (+ $100 for taxes & fees) = $1,750

Hope this helps!  Good Luck!

Jeromy,

Noah Bank provided some great details above.  Hopefully the items below are even more specific to your question.

* Building Ordinance & Law - This is a vital coverage when you invest in older buildings (say 15+ years old).  Building laws and ordinances change all the time, and now more than ever before given how we're trying as a country to be lest wasteful and more conscious of our environment.  As these things change, so do the requirements when you rebuild a building that's been significantly damaged due to a covered cause of loss.  Visit with your agent about what level of coverage / protection is available, and what they might suggest as being adequate for the size of building you're referring to above.  Understanding what might need to be brought up to code within your specific dwelling after a significant loss, and what the cost might be to fully upgrade or replace will be very helpful in searching out the correct limit.  I'd start with HVAC, electrical, plumbing, and any fire prevention requirements.  While this isn't really necessary in most states when it comes to single-family homes or duplexes, once you start to add more units (multi-family), this would certainly need to be strongly considered.

* Roof Language - It's always best to find out how a specific carrier responds in the event there's wind/hail damage to your roof.  You would need to know what the language of the policy states, and consider any endorsements / exclusions that add to or remove coverage.  Many companies pay ACV (actual cash value) if a roof is more than 10 years old, with others it may be roofs more than 15 years old.  This is especially important if your dwellings are in more wind prone areas.  You'd also want to look into any language about cosmetic damage.  

* Water & Sewer backup - This is a very important coverage item for any investor.  Depending on the type of rental and/or number of units in a single building, you may need to review this language/limit within your policy or with your agent.  Some carriers completely exclude damage to the dwelling that originates from the backup of water or sewer, while others may provide lower than normal limits.  Please understand that water and sewer backup is "not" the same thing as water damage after a pipe bursts within the walls / confines of your home.  These are completely different losses.

 * Theft, Vandalism, Malicious Mischief - This is one of the most common claims to many homes in the U.S., but especially rental homes / dwellings.  Make sure you visit with your agent or review your policy for the extent of coverage on this topic.  Also, some carriers will provide coverage for this "only" if and when the unit is occupied, and then may eliminate coverage at some point if the dwelling is vacant at all, or for a certain amount of time.  Again, some carriers may exclude this coverage altogether, or limit the amount of coverage they provide for such a loss.

* Vacancy Language - It's always important to visit with the agent or review your policy when it comes to vacancy language.  You need to know what coverage will remain in place just in case your unit or dwelling is vacant for 30, 60, 90 days.  While you may rent in an area that has a great footprint for rentals, you do need to consider what can and will happen if things tighten up significantly and you loose a renter during that time and struggle to find another one.

* Sump Pump Coverage - If you're in an area of the country where sump pumps are common, then you do need to know what coverage is in place

* Outdoor / Other Property - If you have a detached garage, shed, retaining wall, costly wall or fence, etc., then you should certainly bring these items to your agents attention.  They may or may not be covered under the policy.  Most special form policies allot for this type of exposure, but if you're not on a special form type policy, you could be without coverage completely.  Take note of what you have and what you want/need protection for, review your policy, and visit with your agent. 

* General Liability - It's my personal take, but I think anyone and everyone with rental properties should look for $1M/$2M in liability protection "per dwelling".  If you're in a more litigious area of the country, then you may elect $2M/$4M liability limits, or an umbrella policy if those limits aren't available with your current carrier.  In most cases, the liability policy has a $0 deductible, and pays the first dollar of defense.

Standard Policy Exclusions

While policies can have many exclusions, knowing the most common exclusions under just about any property policy is helpful.  While some of these can be added to your policy for coverage, some can't be, and some must be obtained through another carrier (stand-alone policy).  Just remember that there may be more exclusions under your policy depending on the carrier and their policy form.

* Mold, Fungus, & Rot Exclusion - After the mold scare of the late 90's, many carriers across the U.S. responded (and still do) with a complete exclusion for mold and fungus related issues/losses.  "Some" carriers may give you a few thousand dollars of coverage as long as the mold / fungus is produced due to a recent water damage claim, but for the most part, its commonly completely excluded.

* Subsidence Exclusion - Simply put, this is an exclusion that applies to any damage (big or small) caused by the shifting of soils and clays under your dwelling, along with earthquakes, landslides, sinkholes, etc.  Unfortunately, just about every house in America moves and shifts to some degree, and thus shows signs of this movement through cracks in the slab or walls.  If insurance companies covered this everyday movement, tens-of-millions across the country would have claims to file.   While the everyday shifting of your foundation will likely never be added back to your policy for coverage, you can find carriers that will insure earthquake and sinkhole exposures.  Sometimes the property carrier you're currently with will add it to your existing policy, while some won't.  If they won't, then you can approach other carriers who specialize in writing this coverage specifically.   

* Flood - This is also a very common exclusion and is typically well defined within your policy.  In most cases it's defined as rising water originating outside your dwelling due to heavy rains or the overflow of natural and manmade boundaries that rises on the outside of your dwelling and seep inside.  Some carriers may be able to add this protection to your policy for additional premium, but most will require you to go secure a stand-alone policy for earthquake with another carrier that more commonly writes this type of peril.

* Normal wear & tear / Neglect - As an owner you have the responsibility to maintain your dwelling.  Most carriers exclude coverage when losses occur due to typical aging or normal wear and tear or complete neglect by the owner.  This is a common exclusion that likely won't be removed by most carriers.

* Construction Defect / Faulty Workmanship - This exclusion especially holds true for your newer dwellings, and certainly those that still have a 2/10 builder's warranty tied to them.  This would primarily exclude anything that could be damaged due to construction errors or poor workmanship.  This is a common exclusion that likely won't be removed by most carriers.

* Bacteria and Virus - This exclusion especially came to lite as we hit the COVID pandemic.  This is a common exclusion that likely won't be removed by most carriers.

* Damaged caused by insects and animals - A common exclusion that likely won't be removed by most carriers. 

Jennifer,

If you haven't already done so, visit with your agent and review your policy for water and sewer backup coverage.  This coverage is common in most policies, but there are carriers that exclude this protection completely, while others may limit the amount they'll pay out for such events.  If your deductible is $1k to $2,500, then it's probably worth filing a claim with your carrier.  If your deductible is $5k, then I wouldn't suggest filing a claim for just $1k in reimbursement.  

Also keep in mind that any damage to the renters contents is on them.  If they have renters insurance, that should take care of them.  If they don't have renters insurance, unfortunately now the damage to their personal items is up to them to take care (fix/replace).  

As for the renter staying elsewhere while the clean up takes place, that's either going to be picked up by their renters insurance or out of their own pocket if they neglected to purchase this coverage.  Hope this helps!

Nicholas,

Most condo associations have coverage typically referred to as "bare-walls", "walls-in / original design", or "all-inclusive" style coverage per the governing docs of the association.  These are insurance terms that may (or may not) be found in your governing docs depending on how old the documents are.  These insurance types have nothing to do with anything between you and your neighbor, but what you (and your neighbor) are responsible for insuring versus what the condo association is responsible for insuring.  

For simplicity, "walls-in" is the least amount of protection from the condo association.  This insurance type simply means that the condo association doesn't insure anything on the "inside" of your unit.  Thus you must insure the entire finish-out of your unit, along with all your contents (flooring, cabinets, appliances, wall coverings, fixtures, etc.).  

The second type of condo insurance is called "walls-in / original design".  This typically means that the condo insures the outside and inside of your unit back to it's "original" finish out by the developer (or at first conveyance).  In this insurance type, the condo association would be required to insure your flooring, cabinets, fixtures, and certain appliances that were original to the unit.  

The last type of condo insurance is known as "all-inclusive" insurance.  The only difference between "walls-in / original design" and "all-inclusive" type insurance is that the condo association's policy would actually pick up coverage for any upgrades to your unit when they provide an "all-inclusive" style insurance to unit owners.  This type of condo insurance obviously provides the "most" coverage to a unit owner, but is the least likely insurance in most areas of the country.  You usually see this style of condo insurance more up in the northeastern and mid-western states.

Unfortunately for your neighbor, they'll need to take care of their own items damaged and/or file their own claim.  That's why they have their own insurance policy in place (which is likely required by the condo governing docs as well).  Just because his/her water heater goes out doesn't mean that you were negligent and should pay for his/her damages.  I would not pay for their damages until you know much more about who's actually responsible for what. 

Make sure neither you or your condo association is reviewing maintenance responsibilities in the governing docs.  This is a common mistake by many owners and even community managers.  Maintenance responsibilities are completely different from insurance responsibilities and should always be kept completely separate.  You should only refer to your own policy, the condo's current policy, and only the insurance section of your governing docs.  If your condo docs have any insurance related amendments or resolutions, then you must also take those specific details into account as well.  

ALL PARTIES should make a claim with their insurance carriers.  Your own personal lines carrier/agent will require this anyway (whether the damages are below the condo's deductible or not).  Personal lines carriers will typically require this before the pay a dime in damages.  They want written confirmation from the condo carrier that the claim is too small and thus won't respond, or details about how the condo carrier will respond.

Hope this helps!  Sorry for the issues, but you'll get through it.  Good luck!

@Matt Swope - As an agent, we see most investors taking $1M/$2M per dwelling/rental in GL coverage, and that's it.  If they're in a more litigious area / state (CA, NY, NJ, etc.), then they may seek higher limits of liability ($2M/$4M), or opt for a $1M-$5M umbrella that sits over the top of their underlying limits of $1M/$2M.  We write insurance for over 1,000 investors across the country and the large majority seem to be pretty comfortable with $1M/$2M per dwelling/rental.  This especially holds true if the investor has less than 15 properties.  Obviously, the more that number increases above 15 dwellings/rentals, the more likely that investor is to secure an umbrella policy for the added protection and peace of mind.  Also, most investors seem to look for the umbrella policy as opposed to increased limits of liability to $2M/$4M.  This is likely due to the fact that some carriers don't wish to offer a $2M/$4M limit option.  Hope this helps.  

@ Maria Teo - Here are just a few questions I'd probably start with:

How long have you been in insurance (an agent)?

How long have you been specifically insuring residential real estate investors / landlords?

What carriers do you have access to that are geared towards insuring landlords/investors?

Do you insure investors just in CA or multi-state?

Do you have any references / clients I could reach out to?

How does your agency manage claims, what does that process look like?

How does your agency's billing work?

How does your certificate process work and what is the typical turnaround time if myself or my lender requests a COI?

Who would be my main contact for additions, deletions, policy changes, billing issues/questions, etc. if I were to bind coverage with you?

How does your agency set itself apart from other agents in this niche?

Bob Anthes - You may need another policy if you're moving to STR, but that just depends on your current carrier. Many carriers don't like STRs simply due to the volume of people who come and go from the unit within a certain period of time. Most carriers see this as an increase in exposure (both from a physical property damage and liability point of view). Many carriers believe that the STRs don't take care of the property as well as LTRs do, and they present more exposures for situations of liability (bodily injury or property damage to a third party). This added exposure sends some carriers packing, while others don't mind as much. Just depends on the carrier you're with, or the carrier you've approached with your STR portfolio.

This is similar to the difference between someone who owns and lives in their home, versus someone who rents. Renters in general don't tend to take care of the property or worry as much about liability when compared to the person who actually owns the property and lives there. Most people who own and live in their homes "statistically" tend to take better care of the property and worry more about liability exposures than a renter does. Since this is the case, some carriers won't write STR exposures, some will write it and just increase their rates a bit, and some will write it with little-or-no rate increase at all. Hope this helps. Good luck!

@JonPaul Kessinger - Many carriers offer a general liability limit of $200,000 to $500,000 per dwelling, but in my opinion it's not worth the minimal savings and don't personally quote those limits for any of my clients.  You should be able to easily find a competitive carrier that will write you $1M/$2M limits per dwelling.  If you feel you need more than that, then do what Joe suggests above and get yourself an umbrella policy that provides extra limits of protection over your standard general liability policy.  

@Steven Wang - It's one thing to have someone spout off and say that they're going to sue you because they tripped outside your house, or verbally threaten a lawsuit.  It's very different once you've actually received a letter from an attorney (legal demand).  Insurance companies have gotten very good at uncovering deceitful and fraudulent claims, however they still have a long way to go and can't uncover them all.  You would be best filing a claim under your GL policy.  This is why you carry liability insurance.  Hopefully you have a $0 deductible, and first dollar defense.  If not, then you may have to pay a small deductible, but at least you have $500,000 in liability limits.  I agree with the comments above from Greg and Nathan that you should strongly consider a larger limit of liability (at least $1M).  I'm honestly shocked that your agent didn't provide you with a $1M GL limit from the start.  I wouldn't offer $500k to any of my clients because the cost difference is nothing (most of the time, and with most carriers).  If you have a lot of rental properties, then you may consider an umbrella for excess limits of liability.