(b) If after a casualty loss the rental premises are as a practical matter totally unusable for residential purposes and if the casualty loss is not caused by the negligence or fault of the tenant, a member of the tenant's family, or a guest or invitee of the tenant, either the landlord or the tenant may terminate the lease by giving written notice to the other any time before repairs are completed.

It adds some extra protection for you the owner due to tenant negligence or stupidity.   

I understand that the Landlord could potentially lose his investment, but would the lender also be penalized for the landlord's negligence?

In your lease, does it clearly delineate what things you are responsible for (examples: major systems/issues such as plumbing...unless issue is determined to be caused by tenant negligence, electrical, etc)?

Do you make the renters pay for it since it was complete negligence? 

You seem to gain negligible benefit from doing so unless you file that out of state LLC in FL (in my simplistic view of things this makes your WY LLC also a FL LLC).What I intend to do is have in state (single member) LLC hold the title with that member being the WY (holding) LLC.

And what does it say about tenant caused damage or negligence?

Sure, they can NJP them for 134, but and this is a big but: only if "More than negligence in nonpayment is necessary.

However, insurance is limited because it only protects you from one type of liability: accidents/negligence.

I don't want to discriminate against college students but, in the past when we rented this unit to college students, they were fairly negligent in their treatment of our property.