All Forum Posts by: John Mocker

Matt,

I'm working on a similar situation up in CT.  Our agency is licensed in all 50 States so, if you do not find anyone local that is able to insure you, PM me.  It is likely that you will end up with a policy in the Excess/Surplus Lines (Lloyds of London or similar).  Depending on Loss History, how long the lapses was, use of buildings, age of building and updates, etc. there may be a Standard Market.  On the two buildings with lapse that I am working on now, we may write two policies (one for the property coverage and one for the Liability).  

Havan,

It should be possible to get coverage.  I would recommend the following:

1. Check with the Insurance company that writes the rental first

2. Have an Agent look into Stand alone Umbrella carriers

3. Have an Agent quote Excess Liability.   That coverage is most often written in the Excess/Surplus markets (ie. Lloyds of London or similar).  The Excess Liability only follows the form of the underlying policies listed

You may have difficulty getting the umbrella because it normally covers over the Auto and Homeowners Liability as well.  With you being out of the US, they may not want to cover over a Canadian Home & Auto.   Likely, you will get an umbrella that does not cover over the home and auto or and Excess Liability policy.  

If you have any questions on the above or would like more info on which companies are likely to write you PM me.  

Denzel,

I suspect that the discussion is related to the the Insurance Policy provisions.  Normally, if the policy values the loss on Replacement Cost, they will initially pay the loss at the Depreciated value, once the damaged area is rebuilt, then they pay the additional amount (up to the limit on the policy).   

For example, if your ADU had a Replacement (rebuilding cost) of $100,000 and was 30% depreciated and was totally destroyed. The company would pay up to $70,000 on the loss. Once you rebuilt the ADU, you would be paid the remaining $30,000

Michael,

The three options I see to increase your coverage are as follows:

1.  Current Carrier:   First check to see if the current umbrella can be inceased.  If not and you have different carriers for you home and auto insurance, see if the other carrier can do an Umbrella for you.  You could also shop all your coverage to see who will write the policies with a $5mm umbrella.

2. Stand-alone Umbrella:  There are several companies that will write an umbrella policy without having to write any of the underlying coverage (home, auto, ...).  Some of these will go up to $5mm limits.

3. Excess Liability:  There are non-standard (excess/surplus lines) options to cover after the current $2mm umbrella is exausted.  This would be the most expensive and complicated option and I would not recommend it unless the other options are not possible

If you have any questions on the above or would like to know what carriers we use in NY please PM me.

Jacob,

If you do go ahead with the purchase, be sure to review the ownership interests in the property with your Insurance Agent to make sure that all parties that have an interest in the property are included in the policy.  Depending on how you structure the other parties interest (on title, on mortgage, sepparate agreement, etc.) may determine how they should be listed on the policy or if they should be listed

Nhi,

I would advise quickly quoting and pulling the trigger on the Homeowners Insurance ASAP.  With the results of Beryl being tallied you can bet that some of the companies will be tightening restrictions and some may stop writing.  

Mel,

A short term solution to the Umbrella issue would be to get just Liability coverage for the townhome that was turned down due to the roof. You may be able to extend Liability coverage from your homeowners policy (have to add LLC to the homeowners also). Another avenue would be to add the liability to one of the other rental policies. If none of those is possible, you should be able to get a standalone policy for Liability. It may have to go to the Excess/Surplus market (ie. Lloyds of London, ...). The Umbrella should still be able to cover over those situations. Be sure the Umbrella policy names both you and the LLC as insureds. If not, you may need separate umbrella policies for you and for the LLC.

Long term, shop the unit with the cancellation.  There may be a company willing to accept it as there have been no claims and the roof will be repaired by the association (knowing how long it will take should help).  You may need to move the other coverage or you may be able to just move this one. 

John,

As a private money lender you are acting as the Mortgagee.  You have an economic interest in seeing that the property is correctly insured.  You want to see both Building coverage and Liability coverage.  You want to make sure you are listed as the Mortgagee on the policy.  This is important because you want your name to appear on any claims checks.

The following are some general terms that you can use with your Agent, Attorney and CPA to determine the proper form for the coverage.  Which is proper will depend on the property and on what is going to happen on the property:

1. Fix and Flip with work begining within 30 days

    That will most likely be a Renovation Builders Risk policy

2. Fix and Flip where work will not begin for more than 30 days.  

    That will most likely be started on a vacant dwelling policy and then switched to a

    Renovation builders risk when they are ready to start

3. Buy and hold (unoccupied) 

    The Vacant dwelling policy is most often used unless it will be occupied within 30 days

4. Buy and Hold (occupied)

    most common policy for that situation is a Dwelling Fire policy (some companies call

    them a Landlord policy)  

In terms of how the value of the coverage there will be on the building, the main two types areL:

1. Replacement Cost:  the cost to rebuild the structure from the foundation up with the same kind and quality.  Most Insurance companies have estimating programs that calculate the amount needed.  If the cost to rebuild exceeds the Replacement Cost that is calcutated the Insured is out of pocket for the addtional.  Because of that, some companies offer Guaranteed Replacment Cost or Replacement Cost Plus 25% or 50% if needed.  

2. Actual Cash Value:  The definition is the Replacement Cost minus depreciation.  Again, the coverage is for the structure excluding the foundation and land.   This limit is harder to determine than Replacement cost as it depends on condition, market value, etc.  The big problem on this type of coverage, for you as the Mortgagee, is that depreciation will be applied to any partial loss.  So if they have a $100,000 loss and there is 40% depreciation, the claim check will only be made out for $60,000 (less the deductible).   Many Renovation Builders Risk policies will only write Actual Cash Value for the existing structure.

Lastly, policies differ on what is covered (called Perils in the industy).  The best coverage is generally called "Special Form".  It is sometimes incorrectly called "all risk".  The next best is Named Perils.  Here, only those perils (causes of loss) that are named in the policy are covered.  

The least coverage on a Named perils form is a Fire policy.  This is often refered to as a "DP1" form.  Better Named Perils forms add more coverage and can be refered as DP2 or DP3.  Here you should get your agent to spell out what is covered on one of these forms to see if it is acceptable to you.

Thuan,

You mention that the Tenants are responsible for the Insurance on the Building.  Have you submitted the claim to the Insurance company that they are insuring it with.   

Nathan,

I'm assuming that the rental property is a 1-4 family house. If so, that will be insured normally under a Dwelling Fire policy. Most companies will insure it under an LLC but there are a couple that don't. Check with your agent to see if there is any difference in the cost to insure it under the LLC. Also, if you have an umbrella (which I recommend) see if it will cover over the LLC owned property as well as you home and autos in your name. If not, find out what the additional cost to switch to an umbrella policy that will cover over the NY property as well as your MA property and autos.