Would an insurance company deny a claim if I cannot show that it was installed by a licensed pro?

They don't deny on credit.

So after the first month they won't deny due to "preexisting conditions"?

What are some prerequisites you have experienced when doing this, is there a period that the property needs to be “seasoned”, how much in reserves do banks require, when has a lender denied a cash out refi?

If not, the cost of those materials will not come out of my pocket without the receipts, police report, and his insurance all validating the story, and his insurance denying his claim...even then I'm hesitant that it is my problem, sounds like his problem.

And, you cannot set forth financial qualifications in a lease; it would be the equivalent of saying that he can't get ill, lose his job, change jobs, date/marry/divorce, get hit by a bus, have a bad day, be in a car accident...you know, life happens whether we want it to or not. 

You should check, but chances are excellent that your current 3-family is itself grandfathered in compared to its lot size (legal non-conforming), so I think any proposed addition of a new unit might be automatically denied on that basis alone.Another significant issue is that you would have to bring the rest of the building up to fire code for a 4 family which is more involved/expensive than a 3 family (e.g., has to have a panel).

With your ops manual in place the rule is you must accept the first applicant that meets the criteria even if a later applicant is even more qualified or you like them better.There are usually ways to deny people "if" you write your manual correctly and use it right. 

No one has been able to give us an answer on what happens to a borrower should permits and/or a variance for work required be denied by the zoning board and it's out of your control.

This opens the door for LOTS of abuse not just by unlicensed brokers but also licensed wholesalers.