Welcome to our “Is It Covered?” series. For a fuller introduction of the series, read HERE. We hope these quick reads will help you increase your understanding of your insurance coverage, clear up confusion and help you avoid preventable losses! Please bear in mind that insurance policies may vary, so always check your own policy for language specific to your covered property. If you have coverage questions, don’t hesitate to call your agent who will be happy to assist you!
So, what’s the confusion?
For the most part, if an item is excluded from the Property Coverage on your property, it is likely not covered in the Liability Coverage on your property either. Bear in mind while your Property Coverage protects damage that happens to your investment property itself, (i.e. the physical building), your Liability Coverage protects your financial well-being associated with that property (i.e. if your negligence at that property were to harm someone else).
What type of damage is excluded?
As an example, mold, though it may damage the building itself, may also cause health issues for your tenants. If excluded in your Property Coverage, any repairs to the physical structure would not be covered – replacing sheetrock, etc. In addition, the “bodily injury” resulting from mold may also be excluded from your Liability Coverage. For example, if your tenant becomes sick from toxic mold, your Liability Coverage may not pay for the doctor bills from that tenant’s illness whether – or not – you are “negligent” in having allowed them to live in that toxic environment or made attempts to correct a hazardous living condition.
Are there any exceptions?
Yes, bring on some more confusion, right? For example, standard U.S. Property Coverage doesn’t pay for items that would be considered routine maintenance because those items are excluded under “Wear-and-Tear”. (The purpose of insurance isn’t to replace items that wear out under normal circumstances over time. Insurance is meant to step in to help with unforeseen, unexpected, sudden events.) That stated, if you are negligent in maintaining items around the property, a set of stairs for example, and someone is injured due to that negligence, there may be coverage available for the event through your Liability Coverage.
What does the technical lingo for this exclusion look like in my policy?
It is possible for the language to be the exact same for both the Property and Liability Coverage sections. While the exclusion below deals specifically with mold, it is just one of several examples that could be used.
Sample policy language may look like this:
“Microorganism Exclusion (Absolute)
…this Policy does not insure any loss, damage, claim, cost, expense or other sum directly or indirectly arising out of or relating to:
Mold, mildew, fungus, spores or other microorganism of any type, nature, or description including but not limited to any substance whose presence poses an actual or potential threat to human health.”
*As insurance policies may vary, please check your own policy for language specific to your covered property.
What can this type of damage cost me?
Injuries from slip and fall accidents are both the most common type of liability claim and also the most common basis for accusations in lawsuits in terms of “bodily injury”. Depending upon the severity, a slip and fall could equate to a sprained ankle, to a complex back injury that increases in severity over time, to death. There is a reason that the lowest limit for Liability Coverage is generally $100,000, while most investors should keep a limit of at least $1 Million per Occurrence. If an injury or property damage you cause isn’t covered by insurance, it could easily cost you your business, not to mention the impact that it could also have on your personal financial or emotional well-being.
What can I do to protect myself from liability issues?
Being proactive when it comes to routine maintenance and documenting those tasks are two of the most important things you can do to protect yourself from liability issues. You will want to stay on top of repairs before they become a hazard to your tenant or any passersby. A couple of very easy tasks to keep up with are the changing of furnace filters and testing of smoke and Carbon Monoxide alarm batteries, for example. If you check on your properties regularly, you will be less likely to be surprised by emergency repair requests and may help your tenants and their guests avoid an injury.