It's virtually impossible that I would ever do anything to bring my level of negligence in a court of law to something that would exceed my insurance limits. 

The stock market crash is putting pressure on pensions and retirements, which is a non-negligible driver.

I'll have to do framing & drywall work anyway to separate the laundry from the bedroom and create a hallway, so the cost is negligible either way. 

Also does the motivated sellers very own negligence of terms & agreement means I keep the earnest money of the cash buyer or not ?

He also recommended her to hire someone to take a look at her toilet and possibly replace it if there were other issues that were not immediately apparent to prevent future damages.When we called our property management, they determined that they would not be responsible for any damages since the issue stemmed from our neighbor's toilet valve and her negligence to address the issue.Our upstairs neighbor told me that she didn't have insurance, stating that she had paid off her place decades ago and didn't see the need for home-owners insurance anymore.

I am hoping that her negligence to notify me and therefore violating our lease agreement is sufficient to make her liable.

Then worry about what the tenant potentially owes.I would definitely charge the tenants for the plumbing issue but it would depend on how your lease spells out these types of negligence or damage. 

This is a clear breach of fiduciary duty and blatant negligence. 

Do you recommend supplemental insurances policy (caused by tenant negligence) and preventive maintenance (HVAC and termite)?

Rental income doesn't cause self employment taxes, Good insurance beats an llc unless you have a lot of free and clear assets that insurance wont be enough(That is if you are negligent).