I imagine a situation where you rent an expensive piece of machinery, and then their employee damages it, and now your left trying to collect from their insurance while being on the hook with the rental company.  

While I agree that the tenant who shot a hole in your floor should be responsible for the damages, if I was the tenant below, I would want to leave, not attend a party with the person who literally could have killed me due to their incredible gross negligence.Pending legal restrictions, this would be the end of my wanting the business of the upstairs tenant.

Indemnity / Damage limitation clause (in some states may not be enforceable  or have limited enforceability)10.

We have had thousands of pets in the homes and have never had a severe damage issue. 

A few tips here to help minimize damages...1.

For example, I would tell them that if they leave in less than 15 days and there's no physical damage to the property, I will hand them their deposit and give them back the entire month of June rent so they have money for a new place.

This, coupled with the fact that the HVAC company didn't run a Heat Load when we purchased 2 new units in 2021, has led to extensive, repeated water damage and remediation on 3 separate occasions in different areas of the home.   

Tenant is claiming that Washington State law says I cannot keep it unless it is for damages.

The contractors work damages the rest of the structure. 

Sometime after the inspection a water leak coming from the neighbors home caused damages to the property.