Read the Fine Print: Not All Apartment Renter’s Insurance Policies are Created Equal
I was reminded recently of the story (probably an urban legend) about a Charlotte-based lawyer who bought an expensive box of 24 cigars and insured them against some standard perils – water, explosion, and fire. After about a month, the lawyer filed a claim to the insurance company because the cigars were lost in “a series of small fires.” The claims adjuster denied the claim after correctly determining that the man smoked all the cigars himself. After a court battle, the judge awarded $15,000 to the man because the insurance provider never clearly defined the fire peril. The insurance company got even in the end. The lawyer was arrested and sentenced to 24 months in jail and a $24,000 fine for 24 counts of arson and insurance fraud.
While not quite as entertaining, the multifamily industry is replete with odd but true apartment renters’ insurance claims.
- I could tell you the one about the guy planning a luau. It rained that day fouling up plans for pig roast. But the apartment bathtub is the perfect size for an indoor pig roast, right?
- How about the one where the guy hears a clamor in the parking lot. Looking out his window he sees a unit across the parking lot engulfed in smoke and flames. He takes a lawn chair to the parking lot to get an up close view of the firemen at work. After an hour or so another fire truck races through the parking lot. The man notices that this time it’s his apartment engulfed in smoke. In all the excitement he forgot to take his bacon off the flame causing an apartment fire while he was watching an apartment fire.
These are stories of bad luck, misfortune, and – well – stupidity. But there are a couple of important lessons.
The first lesson is that insurance for apartment renters is every bit as important as insurance for drivers and homeowners. Given some of the claims that I see every day, I would argue that renter’s insurance is probably more important. Most apartment owners already understand the need for mandatory renter’s insurance programs. The last NMHC survey showed that more than two thirds of respondents require their renters to carry liability insurance. That number has more than doubled in just a few years.
The second lesson is reinforced in the “series of small fires” story. Insurance companies don’t like to lose money and pay claims based on what’s written in their policies – period. If you closely read through the policies offered by various insurance providers you quickly realize that all policies are not created equally. A few other true stories help make the point:
- A renter had a friend over. The friend flicked a cigarette butt off the balcony landing in some dried brush. Four units are damaged by a combination of fire, smoke and the water damage caused by the fire department’s efforts to extinguish the flames. The renter had insurance but it did not cover negligence caused by guests. The owner paid for the damages.
- Three roommates share a unit. One of the roommates provided proof of insurance prior to move in. One of the other roommates forgot to turn off the gas after cooking something on the stove. The small fire caused $8,000 in smoke damage to the kitchen. The policy only covered the person who took out the policy and did not cover the damage for the other roommates. The apartment owner paid for the damages.
I admit, these stories aren’t funny and we’ve heard similar versions all too often. The only common thread is that the apartment owner ends up paying for the damage caused by the renter.
To avoid falling victim to somebody’s negligence (in both action and insurance policy), make sure a renter’s insurance policy covers the following:
- Ensure each unrelated renter has an individual policy because not all renters’ insurance policies provide liability coverage for all renters on the lease
- Make sure the policy meets your minimal liability coverage requirements (usually $100,000)
- Ensure that the policy covers negligent acts caused by guests of the policyholder
- Make sure the policy covers all the required perils such as smoke, fire, explosion, and water
It’s no fun reading the fine print of apartment renter’s insurance policies but knowing the caveats are important. Some renter’s insurance policies were truly designed to protect renters and apartment owners and managers, while others are just an offshoot of a standard homeowner’s policy. In other cases, renters try to save money by purchasing policies that don’t have enough coverage. The differences are significant and can end up costing you a great deal of money.