Did you know you could be sued if your tenant’s dog bites someone? In this episode, Toby Mathis, Esq. welcomes Shawn Woedl, President and CEO of the National Real Estate Insurance Group. Shawn is an industry-recognized speaker and educator with an emphasis on Commercial Property and Premises Liability, and shares the top four lawsuits his company sees every day. From slip and falls to discrimination and dog bites, tune in to find out how to protect yourself from these common scenarios.
Highlights/Topics:
- Top lawsuits as seen at National Real Estate Insurance Group
- Lawsuit sizes – how much is being paid out?
- The cost of carrying insurance and deductibles
- Submitting claims and potential policy increases
- Umbrella and excess coverage
- Tenant discrimination
- Dog bites and “vicious breed” exclusions
- Renovations and contractors
- Mold
Resources:
Download the PREMISES LIABILITY Policy PDF
Full Episode Transcript:
Toby: Hey, guys, Toby Mathis here. Today, I have Sean Waddell, the CEO of a group that I actually use, the National Real Estate Insurance Group. They work with insurance products for landlords, investors like myself, and probably like you. First off, welcome, Shawn.
Shawn: Toby, thanks for having me, man. Thrilled to be here.
Toby: Today, we’re going to just cut right to the chase. We want the top things that you are seeing people get sued for as landlords. This is unlike if I talk to a lawyer, I’m going to get the things that they want to sue people for. But as an insurer, you’re actually seeing what are the major claims, and that’s what I think is really important here, is what’s the reality? What are people getting sued for? And what are the top four that you see over and over again?
Shawn: It’s a complicated topic because top four, but you go into 150 or 200, there are all kinds of craziness going on right now. In our world, we see slips and falls, we see canine bites, dog bites, we see a lot of wrongful eviction, and then tenant discrimination. Probably, I would tell you those are the four leading that are most common, at least in our program. I think it holds true for really any residential real estate investment properties for liability coverage.
Toby: Slip and falls, tenant discrimination, wrongful eviction, dog bites. Any particular order that you see, this is the number one. Like in your office, you’re always like this is what everybody gets sued for.
Shawn: Flip and falls are by far number one. The accident that may occur on-premise, whether it’s your tenant or someone visiting your tenant, is by far number one. Two, three, and four are just fluctuating by month. We are seeing more canine bites, more dog bite claims that we’ve seen in the past and that just could just be by accident. I don’t know. Sip and fall by far number one.
Toby: Let’s dive into each one of these. Slip and fall, what is a landlord typically liable for? And if you can, give us some helpful hints as to how much coverage you should really get. We’ll get into the umbrella later as to whether we want to add that layer, too, but just give us rules of thumb of what you’re seeing for landlords.
Shawn: I think probably the most common thing we see is landlords that maybe have been made aware of an issue that is on-premises. Maybe a step is loose, the handrail is loose. Before they have an opportunity to go out and actually repair the issue, the incident happens to where they would seem to be a negligent party. That could be your tenant notifying you that or could be somebody there that just happened to be there visiting.
A lot of the interior-type stuff of the house, not so much on the outside—uneven pavement, sidewalks—things of that nature can be tricky as well. But oftentimes it’s on the inside of the house that is maybe just deferred maintenance that maybe hasn’t gotten to yet. Nothing on purpose. Just that the landlord has no time to get there.
Toby: What are the sizes of these claims? Are these more like a nuisance like, oh man, I got this, but it’s going to be $25,000 to get out of it and I move on?
Shawn: Yeah, that’s the advantage of having a premises liability policy with a medical expense sublimit payment attached to it. Typically those are anywhere from $1000 to $10,000 depending on the contractor, the carrier that you’re insured with.
These are really for these types of minor incidents that the tenant basically take that sublimit and pay that injured party to make them whole again, with a waiver signed that they’re not going to come back on you later so that it doesn’t snowball into one of these things that could cost $25,000, $50,000, $75,000, or more for whatever reason. They get an attorney, they decide to sue you, and then medical payments go through the roof. It’s designed just to negotiate your way out of that thing.
Toby: They extend the coverage without even getting sued. You’re just saying a tenant slipped and fell. We’re going to pay the medical bill, et cetera. On these types of policies, are there big deductibles? What should somebody be looking for?
Shawn: Typically there’s not. I can speak in our program. All of our coverage on liability is First Dollar coverage, meaning there’s no deductible. That can range between the carriers. Typically, you’re not going to see more than maybe $2500 or $5000.
Liabilities are looked at very differently than property in terms of deductibles, because they’re more of a nuisance than anything to the carrier. Because if you think about a property loss, the loss is adjusted less whatever the property deductible is. If you’re carrying $10,000 and your loss is $100, they’re going to adjust it if it’s $90 because $10,000 is the amount that you agree to self-insure. That’s oversimplified because there are other factors that go into it, obviously.
On a liability loss, those claims are paid to the injured party. The carrier would pay whatever the total claim is and actually invoice the client for that deductible and they have a hard time collecting it. We do First Dollar coverage. Something you never want to do is try to negotiate your deductible on the liability side.
It’s set by the contract and doing that really is looked at as one negative from a carrier. They’re looking at it going, what are we getting into? Are there minor instances that we see? Maybe a pattern of these things that you’re trying to cover up that it’s only a matter of time until we get hit with the big one. First Dollar is the best to go to, but a thousand is not uncommon to see.
Toby: You said it’s about $1000 a year to cover that type of coverage? Or is that per property? What are we looking at as far as costs?
Shawn: Also on a premise liability, the medical expense payment is just a sublimit that’s included in that form. Depending on where you’re in the United States, because there are some areas of the country that are more difficult than others, litigious states, things like that, that are more likely to pay out on some claims or maybe other states would not.
It also depends on the carrier’s individual history with that given state, but it’s going to range anywhere from $7–$8 dollars per unit per month, and it can go as high as $40 or $50 per unit per month, just depending on where you’re investing.
Toby: That’s not bad. You said per unit per month. If I have 20 units, I have 20 single family residences, I could have this coverage for about $140 on the low end and obviously, whatever that is $1000 a year for all of them on the higher end. Is that accurate?
Shawn: That would be your monthly cost. We’re speaking monthly reporters, monthly cost, that’s what we do. But yes, that’s the advantage to that too as well. Toby, you should know that, you’re a client.
Toby: I was just saying, dang, that seems cheap.
Shawn: Yeah, we’re charging you too much. The advantage to doing this, though, is you’re getting per location limits of coverage. Instead of sharing with that single $1 million limit of coverage with a $2 million aggregate amongst all of your properties, we give you those individual limits per location. Whatever happens at location one doesn’t affect your limits included on location three. That’s the advantage of it.
Toby: That’s fair. If somebody makes a claim, does it adjust the cost of the insurance if they have one or two claims here and there? Or is it something where they should be very, very careful about submitting claims?
Shawn: Yeah, that’s a slippery slope. It depends, really. When you work with a program like us, it’s a little bit different. We have the flexibility just to be able to isolate that one location that maybe has some loss history. If the carrier wants to charge a little bit more money on that location, it doesn’t affect your remaining portfolio, which is a huge advantage.
Not every carrier is like that. Some of them will look at and say, if there’s one instance and boom, we’re going to hit you with this big increase. Some of them don’t. Some of them understand that the medical expense sublimit is not designed to increase your costs. If you have these, settle out now, if there’s a pattern, sure. But every carrier is different. I know it’s a difficult answer, but it just depends on the appetite. That’s my job as your broker, is to control that.
Toby: Yeah, don’t be afraid to make a claim, in other words. I know this because I’ve been there. I’m very reluctant to make large claims on insurance products because it’s more costly on the size of the portfolio we have that we don’t want that little bit of an increase. But if they’re isolating it for property, it makes it a lot easier to make that decision.
Shawn: It does, and when we’re talking about property coverages like a fire, a wind loss, something like that, you’ve got some flexibility there to where if you want to cover it out of pocket, and you can afford to do so, then absolutely do it. Liability is the unknown and I would never tell you to do that.
You actually have an obligation when you enter into the contract with your liability insurance company, to notify them of any potential loss or incident that has occurred on site, whether anything comes out of it or not, part of what you’re paying for is access to their legal teams. Hand that over to them and let the experts do their work.
Toby: You just did something that’s actually really big because it’s like legal insurance. Sometimes it’s not the cost of the claim that’s the costly part. It’s having to defend yourself and that the insurance does that for you.
Shawn: Correct, and you want to make sure that those defense costs that they provide are outside of the limits of insurance they provide to you. If I’m giving you a million dollars per occurrence to settle slip and falls, personal injuries, wrongful deaths, wrongful deaths are going to get really expensive. If your defense costs are inside of those limits and your defense costs go to $750,000, you’ve only got $250,000 left to make that injured party whole again or their families.
More likely you’re going to pay some more money out of pocket, which is where umbrella or excess liability policies can come into play, where you look at defense costs outside the limits like what we provide.
Toby: Let’s touch on that real quick. We have three more to go through, but let’s just talk about umbrella real quick and excess coverage. What are these things? They’re misunderstood and a lot of people don’t really understand exactly what they are.
Shawn: One of the things that we always try to caution or tell our clients is that they’re not a magic bullet. The common misconception is that umbrellas cover everything and you don’t need anything but an umbrella policy and it could not be more wrong.
Umbrella policies don’t provide any coverage to your property, so it’s not going to cover fire, wind and hail, and theft losses. It’s simply a way to garner additional liability coverage above and beyond whatever your primary or underlying liability policy provides to you. That can depend on the investor and what they feel is sufficient.
Our program and like for your portfolio, Toby, it’s $1 million per occurrence that we provide with the $2 million annual aggregate limit per location. Think about that as the maximum amount of liability coverage you’re going to have for any number of losses that happened over 12 months. That is going to reset to a new limit at your renewal date.
Some investors look at that and say, that’s per location. I’ve never had an instance that’s anywhere near exceeding that. I’m comfortable with that limit. Now, there are other investors that say, I don’t know if that’s enough. I’ve had some bad stuff happen. Then at that point, they want to look at an umbrella or an excess liability policy that can provide them additional limits above that million dollars per occurrence.
We can go up to $200 million for a portfolio if needed and everywhere in between. The sweet spot that we see a lot of our investors look at is when they start to get around 7–10 locations in their portfolio, they start to entertain umbrellas or excess policies.
Toby: Because you don’t want to put everything at risk and then use your entities to minimize that. Not even an entity is a magic bullet, so it’s always in combination. Alright, let’s get back. We had four of these. We had slip and fall, tenant discrimination, wrongful eviction, and dog bites.
Let’s dive into tenant discrimination. I think that’s one of those scary areas because you don’t even have to do anything wrong. Anybody could allege at any given time that you did things and you discriminated against them for immutable traits, right?
Shawn: Correct. Where we’re seeing more of that is in choosing a tenant. You’ve got an open unit and you’ve got two prospects that come in. If you choose one over the other, that’s where a lot of these are arising. Prospect number two thinks they should have been chosen, but you chose prospect number one for whatever reason and they filed a tenant discrimination lawsuit against you.
What I’d like to point out, too, is that if you’ve got your property management company, there are two things you can do here. You can certainly purchase a tenant discrimination liability policy that’s going to be separate from your premises liability policy, and we offer that for you. We do that for investors that are operating as their own property manager and aren’t utilizing a third party. They can have that coverage for property management operations.
If you’re engaged with a third party property management company, of course, it’s a great idea to make sure that they have liability coverage for their management company. Tenant discrimination coverage should be included on that form. You as the owner, the investor, the LLC of the corporation, or whatever your owning entity is for those properties need to be listed as additional insured on your property manager’s liability policy, so that their liability coverage extends to you if they’re sued and you’re naming that lawsuit for the tenant discrimination.
Toby: Fair enough. What is the typical size of these claims? Are these big ones? Are these small, more nuisance suits? What are these?
Shawn: In our experience, they’ve been more small and nuisance, but that doesn’t mean that holds true for every claim. Just in our experience in our program, it’s been smaller.
Toby: What are the biggest claims that you see? What are the ones that you go, oh my God. This is a big one. Is it always wrongful death, the place burns down, or somebody has serious injury or is it something else?
Shawn: On the liability side, it’s almost always slip and falls that are really really just nasty. Looking at wrongful deaths, particularly if there are children involved, there can be some really nastiness to them. It’s just disappointing to see and it feels like a little bit gets taken out from you each time you see one of those because they’re heart-wrenching. Some of the things that happened. It’s fortunate that liability insurance comes in and tries to make things as right as possible. There are some more stories that I don’t want to share that would make everybody’s heart cringe.
Toby: Sometimes it’s not even something that the landlord did intentionally. Sometimes they do some self-help and they just don’t follow a code or something like that and the result, especially when there are infants and things like that, it’s just heart-wrenching. Massive amounts of liability. That’s why you stack everything. You get good coverage. Make sure you extend that liability coverage with an umbrella and hopefully you can make those parties whole because accidents do happen as much as we like to pretend they don’t.
We have tenant discrimination, slip and fall, let’s go to the third one. Wrongful eviction. What happens there? How big are these claims too?
Shawn: These are typically drawn out for a long period of time. These can get pretty expensive. It’s just important that each state could be a little bit different on what the eviction process is. We always recommend that our investors get legal advice before they start that eviction process. Regardless of how ironclad you think your lease agreement is, somebody will poke a hole in it and it can get expensive.
Wrongful eviction is a coverage you need to purchase separately. It’s not going to be included on premises liability or general liability form for that matter. You can buy it depending on where you’re at in the country, it will greatly determine costs. It’s all driven off history on how these cases are typically favored, but you can buy it.
The other thing that’s important to note—it’s a little bit off liability coverage but something that we offer in our program—is our tenant protector plan, which is our version of renters insurance that is available to all of our investors, that has a sublimit for skip rent where eviction is one of those caveats or coverages that would be included in that skip rent.
It’s a sublimit that would pay our investors a one-time payment of $1000 when the eviction process is completed while you’re looking to find another tenant. It tries to minimize the financial hardship. Eviction is one of the four things that would trigger that skip rent payment. If that’s something that you choose to engage in or want to talk more about, you can obviously contact us, but just try to minimize the financial hardship to the investors.
Toby: Before we get to the last one, you’ve mentioned a few different types of coverage that’s not included in a typical landlord policy. I’m sure a bunch of people are going, do I have that? How do you find out? You have to contact your insurance company or should they contact you? Should somebody review that policy? What should they do?
Shawn: Always contact your agent. Your agent should be able to tell you that from the get go. By the way, it should have been discussed with you when you went into the original contract with that agent and with that insurance company.
Investors and myself alike, I’ve got several liability policies. You’re going to retain 10% of that. You need to make sure that you go back and you’re adequately covered. Make your agent earn their money and that includes my team. Call him and make them walk you through those coverages and make sure that you’re adequately covered. Make them make recommendations to you on where you think maybe you’re exposed.
We don’t want anybody to get insurance-poor. That’s not the case here. What it is is to make sure that you have enough liability coverage to help you sleep at night and that’s a different answer for every investor on the planet.
Toby: I’ll put a link to you guys, by the way, in the show notes and then you also have a PDF that you shared with me on the different types of coverages you might want to have. Can I share that with my folks, too?
Shawn: Absolutely.
Toby: I’ll post both of those down in the show notes. Guys, there’ll be a link if you want to talk to Shawn and his team, and also a handy dandy PDF that goes over the different types of coverage.
All right, last one. Dog bites. I noticed that you didn’t get cat scratches or cat bites. Dog bites. I have cats. I have a difficult time relating. No, I’m just kidding. What are we seeing on dog bites? How are you liable as the landlord there?
Shawn: One of the biggest things is not enforcing your lease agreement because obviously most of these lease agreements are going to have no vicious breeds. If your tenants listened to you and kept the Yorkies when they moved in, probably this doesn’t happen.
But unless you’re boots on the ground and you’re in there looking at your investment properties weekly, these things change over time and tenants aren’t always listening to you or abiding by every bit of the lease agreement. Six months later, you go by and there are pitbulls in the front yard.
The landlord would be deemed a negligent party because it’s their premises that they own. Even if the kid’s running across the property doesn’t live there, out for a walk with his parents, and the dog that is residing at your property with the family bites that kid, then the investor is going to get dragged into that.
Toby: I’m certain most landlords have no idea they even have exposure for that. They’re like, what? I could be sued? All I did was rent and it says no dogs, then they bring in, I guess you say vicious breed, that is the typically what the states look at is they say different types of breeds are treated differently.
Shawn: More like how the insurance policies look at it. Most insurance policies out there are going to have vicious breed exclusions. If you rewind three or four years ago, there were probably 10 or 12 breeds on there, and now there are upwards of 20. Some of which, I’ve never heard of the breed, Toby, but they’re apparently vicious and there’s a history of them biting people.
Insurance companies are doing everything they can to protect themselves as they should. But you want to look at two things. You want to make sure there’s no vicious breed exclusion like what ours does. Ours has no vicious breed exclusion on the policy.
Then you also want to look at what the limit of coverage is. They’re typically not going to go up to the full limits of $1 million per occurrence. It’s going to be sublimited like what ours is, at either $25,000 or $50,000 depending on the contract.
Toby: Wow, you have some serious exposure there.
Shawn: Exactly. The other thing you can do, Toby, is we also have a product called K9 Guard that you can, as the investor, require your tenants to buy. If they’re going to have a dog, then they can log in to our platform and actually buy liability coverage for their dog. The cost is all dependent on the breed and the weight and if there’s a history of bites.
Then you as the investor or owner of the property would be named as additional insurer so that God forbid that were to happen, the first line of defense would be that liability policy that the investor purchases that you’d be covered for and then yours would work in excess if the settlement went above, whatever that would be.
Toby: These must be decent-sized claims because if it’s a dog bite, generally speaking, it’s face and some pretty serious injury, right?
Shawn: They can be. Some are fortunate enough to pay out in the med pay limit. Those are minor instances, but more often than not, they get a little pricey.
Toby: Dang, oh my gosh. More stuff to consider. All right, that’s the four—slip and fall, tenant discrimination, wrongful eviction, and dog bites. Are there any other considerations we should be thinking of right now in this day and age?
Shawn: Where do we start? I think another one that we always try to focus on is if you’re doing renovations on your property, before you occupy it with a tenant. The one other thing that we always push our investors to do is if you’re working through a GC, to make sure that they provide you with proof of their liability coverage that covers their company. You should be listed as additional insured on their policy for the duration of time that they’re on site working for you, and that they have employees they need to provide you proof of workers comp coverage.
All you’re trying to do there is just make sure that if they do something negligent on your property, their liability extends to you. They leave a ladder in the front yard, a kid runs across the front yard, trips on the ladder, breaks his leg, everybody involved is going to get sued. You don’t want your liability policy having to respond to that. That could affect your rates for up to five years for that payout when you really didn’t do anything wrong, other than making sure the contractor had adequate liability covers to cover that loss.
There are some really crazy ones that I can go into here as well, where our investors have been able to subrogate against that contractor’s policy because they had coverage and the contractor was the negligent party.
Toby: What about mold? We hear about mold all the time, especially in California and some states that seem like it’s a cornucopia bonanza for the lawyers there. How serious of an issue is that? And what can landlords do?
Toby: Mold is a difficult one on the liability side. On the property side, you can buy coverage for mold. Our policies come with the majority of our property policy, that’s not all of them now. If you look, we have so many of them, but they come with limited mold coverage, typically sublimited to $15,000 or $25,000. On the liability side, you can buy pollution coverage. It’s expensive. It’s very expensive to do that.
Now most liability policies have a total pollution exclusion in them, which would not cover any pollutants. We do have pollution coverage up to the policy limits, so $1 million per occurrence, but that’s for pollutants that emanate from a heating source inside the home.
Think if you have a tenant that gets sick or God forbid they pass away from carbon monoxide poisoning that was coming from the fireplace in the house, that’s a wrongful death claim that’s going to get really expensive really quickly. If you don’t have coverage for that, you’re on your own to defend that and to settle that as the investor. That’s why we put that back in there.
Mold is a tough one, though. It’s typically excluded everywhere on the liability side that you need to buy separately for instances like that.
Toby: All right. I think you’ve been very helpful here and that hopefully folks took away a couple of lessons. Maybe there are a few oh my gosh moments where someone’s going to run and check their policy. Good. Go check it out. Make sure it’s better to have that little bit of anxiety and go figure it out ahead of time rather than find out when you actually need to use the coverage and you have an exclusion or you don’t have coverage.
I’ll put Shawn’s contact information again in a link so you can talk to his organization and also the PDF. I’ll put that down in show notes, but I just want to say, thank you for coming in and sharing your knowledge with us, buddy.
Shawn: Thank you for having me, Toby. Anytime. I’m always happy to join and help.
Toby: Fantastic. Thank you.
