We do like the house, we do understand we have a GREAT interest rate locked, and we do understand the $1800 is negligible in the long run.

The difference in your heat bill will be negligible. 

In addition, some states allow professionals (or actually require professionals) who incorporate or use a limited partnership to use a special “professional” corp or partnership that allows them to limit their personal liability for the negligent acts of other members but any act of negligence in the pursuit of their profession (MD, DDS, or Attorney) is not protected by the limited liability entity. 

My rental home insurance does not cover tenant negligence.

My rental home insurance does not cover tenant negligence.

A good lease will have terms that require the tenant to notify the landlord immediately when any leaks or hazards are observed, and it will hold the tenant liable for damages that occur as a result of the tenant not notifying the landlord (for instance, if a toilet were leaking and flooding the bathroom, and the tenant didn't notify you for 5 days, and all that water seeped into the subfloor and caused rot and mold, you could potentially hold the tenant liable for their negligence--and have them pay not just to fix the toilet, but also to fix all the damage that could have been prevented if they had notified you quickly).As for your question about renewing their lease...This partly depends on whether you feel like they were negligent...for instance, if the water heater leak was easily observable, and you think they were negligent in not notifying you quickly, then that suggests they'll continue to be negligent and incompetent in the future--which puts you and your property at risk (a tenant who is so negligent that they don't report an obvious water leak is probably also negligent enough to leave the stove on, leave the doors unlocked, ignore fire hazards, etc., not replace smoke alarm batteries, etc.).   

You are liable if you are negligent. 

When you do this, you start to reduce your potential for negligence.  

The tenant only has renters insurance, and thus their policy only protects their personal belongings.Many owners may say, "but the tenant was liable/negligent here", and this is true. 

It would have a negligible impact on me -- and I don't think it is likely.