How Much Liability Coverage Do You Need?

Landlords with fewer than four rental units have liability insurance in their homeowner's policy or landlord protector policy, as discussed in Chapter 7. But some landlords prefer to have more protection from potential lawsuits.

Is More Necessary?

You can be assured there's no consensus on how much is enough liability coverage. Most experts say you should be insured for as much as you can afford. Others say if you carry too much, you're a sitting duck waiting for a tenant with an aggressive lawyer — they believe having insurance encourages lawyers to go after “deep pockets.” That refers to persons or entities even remotely connected to an accident or claim. The expectation is that they will be willing to settle out of court to avoid a costly court case and unpredictable outcome. If a number of people settle and pay several thousand dollars each, it can add up to a lot of money for the “injured party” — and, of course, the lawyer, too.

What Does It Cover?

Liability insurance covers tenants and their guests when they are injured on the landlord's property. It pays for the cost of your defense and the damages awarded. It does not, however, include problems and criminal acts created by tenants or their guests.

Your liability policy does not cover business associates or clients of tenants if they have leases stating that they are not supposed to use the apartment for business purposes. If they do and a client is injured, medical expenses would have to be recovered from the tenant's rental insurance.

Conditions of the rental property are taken into consideration in liability lawsuits. If a landlord fails to maintain and repair the property and, as a result, a tenant or guest is injured, the landlord can be judged guilty of negligence. The court has to decide whether the landlord acted reasonably and prudently in caring for the property or did not act as the law expects and was unreasonably careless. Liability claims can also arise from:

  • Violations of health and safety laws, including environmental hazards

  • Failure to keep premises habitable

  • Reckless or intentional acts

  • Sexual harassment

  • Assault

  • Trespassing or repeatedly invading a tenant's privacy

  • Libel, slander, or falsely accusing a tenant of crime

  • Discrimination

  • Wrongful eviction

  • Choosing Liability Limits That Are Right for You

    You don't want to pay high premiums for more coverage than you need, but at the same time, you do not want to go too far in the other direction by not carrying enough. The insurance industry standard is to write homeowner's and landlord protector policies that have $100,000 to $300,000 for liability coverage. If you think that's not quite enough, you can increase your liability protection to a maximum of $1 million within those same policies.

    Take Steps to Reduce Risk

    Inspect your property regularly and be constantly on the lookout for hazards. If you see something that might cause harm, fix it promptly. Maintaining your property will reduce the potential for accidents to happen.

    Keep your property safe and secure. You can't stop crime, but if you did everything you reasonably could to prevent it, the court most likely will decide that you are not at fault if a crime does occur.

    Track changes or new rules in state and local health, safety, and building codes. Read legal advertisements after city, planning, and zoning commission meetings. (By law they must be published in a local newspaper.) Then you'll know what's being considered and how it was resolved.

    If you know of anything on your property, such as steep stairs that might contribute to an accident, tell your tenant about it. You might not be able to do anything about the stairs that are too deep or too steep, but if your tenant is warned, then she can be extra cautious when using them. Check the handrail on those steps regularly to make sure it doesn't come loose.

    Ask your tenant to inform you about any potential trouble spots that might cause an accident. Tell your tenant you want to maintain a safe environment and, without help, you might not spot a problem until you do the next maintenance inspection. If you get a report, fix the problem right away.

    One essential safety measure for you is never to have an uninsured contractor work on your dwelling. If you hire someone to do work, supervise it. Be sure the worker locks up tools and cleans up afterward to eliminate hazards that might lead to accidents.

    Put deadbolt locks on exterior doors and good locks on windows; in most states this is mandatory. Ask your tenants to let you know immediately if the locks don't work properly. Install smoke detectors and fire extinguishers as well.

    Watch for hazards to children, a category of dangers known as attractive nuisances. If you're throwing out a refrigerator or other large appliance, remove the door or tape it shut with several rows of strapping tape. Get rid of frayed or exposed wires and standing water on your property. They can be a threat to a child and your tenant's safety and security. Don't let tenants put up a trampoline or swimming pool if your yard doesn't have a fence.

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