Commercial General Liability Insurance Policy- What to look for

7 Replies

Hi all,

I have three investment properties, single families, in Indiana currently in the process of being transferred into 3 separate LLC's by quit claim deed. As a result I need to redo the homeowners insurance in the LLC's names. The insurance company I use also mentioned that once an owner (whether in your name or not, i.e. even if you control an entity) they require/recommend a commercial general liability insurance policy. The minimum price is $100 for coverage up to 500K, which sounds pretty good, and I would be willing to do that for each property if the policy is actually good.

So my question is, what should an out of state investor look for when evaluating commercial liability policies for their property? I have a general sense, but this will be the first time I purchase (maybe) a policy for this reason, so I hope to draw on your collective wisdom. The insurance agent mentioned that this covers the situation where the tenant invites a guest over who gets hurt, but there are tons of exclusions here. I'm generally biased against insurance, but know it plays an important role. Thanks!

Steve

Stephen Kunen, Attorney

Hi Stephen!

Liability coverage is actually pretty simple in comparison to the property coverage on your locations.  It usually has the following categories:

1. General Aggregate (Total limit for the policy period)

2. Per Occurrence Limit (Limit per incident)

3. Products/Completed Operations (For completed work on the property - usually a contractors GL policy will have this limit to cover their workmanship so it may be excluded from some policies out there for an investor.)

4. Personal/Advertising Injury (For acts of false advertising/slander. That would be if you were harming someone else through your business methods, so can be excluded for properties.)

5. Damage to Premises Rented to You (Doesn't usually apply for investors as this has to do with space rented to you...like if you rented an offsite office and caused fire damage to it.)

6. Medical Payments (A "good faith" payment, not subject to deductible that the ins. co. could make in order to avoid a lawsuit...if you do not have this limit in your coverage, don't fret. Payments for medical expenses would be paid under the per occurrence and general aggregate limits.)

7. Deductible (Your out-of-pocket cost if you are liable for damages to another party's property or for bodily injury.)

Sample limits might be as follows:

1. $2 Million

2. $1 Million

3. Excluded

4. Excluded

5. $50,000 (or Excluded)

6. $2,000

7. $1,000 (or could be $2500 maybe)

Bottom line: You want premises liability coverage for your properties because though liability claims are more rare than property damage, they can be the type of claims that could take you out of business if someone is hurt. And...as you can see, the cost is pretty low.  You can usually get $1 Million per Occurrence/$2 Million Aggregate for $100/year per property or sometimes less if you have a company that is also providing the property coverage too...

One last side note: Premises liability typically will not cover:

-Any contractors working on a property (they should have their own coverage for their workmanship and/or workman's comp)

-Anyone else hired by you to do work on the property (i.e. don't hire your friend's kid to do work on the property as you are opening yourself up to risk)

Cheers, BreAnn

Thanks BreAnn.  This answers things for me!

Best,

Stephen

Stephen Kunen, Attorney

@BreAnn Stephenson  interesting you mention not covering workers on your property. I just called my company and they said I was insured if a handyman gets hurt while working on my property. The idea we can't hire people because we open ourselves to risk is crazy. Properties need maintenance and a landlord can't afford to hire GC's with Workman's Comp for every little piddly repair that is so common with rental properties.

Originally posted by @Jeff S. :

@BreAnn Stephenson interesting you mention not covering workers on your property. I just called my company and they said I was insured if a handyman gets hurt while working on my property. The idea we can't hire people because we open ourselves to risk is crazy. Properties need maintenance and a landlord can't afford to hire GC's with Workman's Comp for every little piddly repair that is so common with rental properties.

 Hi Jeff!

Yes, I would agree that hiring a GC is not appropriate for every repair that needs to be done (that would be crazy, I agree!), and I'm glad you called your company.  Reviewing your policy to see exactly how the policy reads in the section talking about hired workers is also a good idea as well. 

Coverages can differ in this area, but my point is really to give everyone a head's up that one can't just assume that coverage is available.  Whenever a specific coverage is excluded, it usually means that the coverage is picked up under a different type of policy...underneath the contractor's own liability policy, for example.

I'm simply suggesting that it's wise to hire someone who is properly licensed and insured for the type of work they are doing. You don't have to be licensed to perform many kinds of work, but that doesn't mean that still being insured isn't a good idea...

 In addition, for independent contractors who aren't doing work with load-bearing structures, the cost of insurance is really very minimal....~$60/mo. when my husband was doing his own independent contracting a couple years ago, for example... in my opinion, there just isn't really any good reason for a reputable contractor to not have it... it protects them and their clients, and shouldn't significantly increase the cost of hiring them.

The pitfall is that many investors just assume that their policy will cover faulty workmanship of those they hire or injuries on the job-site when the coverage actually may not be there... just wanting to make sure that everyone reviews what they are sold so that there aren't any wicked surprises in the event of a claim. There is nothing worse than thinking you are covered for something and then having to bear the full weight of the expense when you find out you are not...!

Originally posted by @Jeff S. :

@BreAnn Stephenson  interesting you mention not covering workers on your property. I just called my company and they said I was insured if a handyman gets hurt while working on my property. The idea we can't hire people because we open ourselves to risk is crazy. Properties need maintenance and a landlord can't afford to hire GC's with Workman's Comp for every little piddly repair that is so common with rental properties.

 I would certainly look to see what the limit of insurance is for a "handy man" performing "incidental" workers comp related activities.  In most cases, the limits are pretty low, $100k, $300k or $500k on the better ones, versus the $1MM a worker/business owner would have on a GL policy.

I also have high doubts on any coverage for a worker injury.  I would love to see who is offering that policy, love to sell a policy worth $1500 (cost of work comp) for $100 (cost of one family dwelling on liability).  Now, quite possibly you might have coverage for worker caused damage (think they burn down your neighbors house), but there are many reasons a handyman contactor is cheaper than a licensed GC.  One of which is you are retaining the risk of worker injury fully (I'm absolutely confident unless you are paying $1,500 for liability there is a worker injury exclusion) and partial risk of faulty workmanship and injury to third party. 

Again, Worker Related Injury is a standard exclusion on any CGL policy.

And yes, if you wish to not retain the risk of such, you should not just hire some uninsured guy for "piddly repairs," if a landlord cannot afford to pay a little more for a contractor that can be in compliance with state statute, then the landlord certainly cannot afford the actual injury and is risking the full business on said contractor.  

With the above being said, I am not an Oregon lawyer, but I did look up the Oregon Work Comp statute and the exact information you give, if the unlicensed handyman was injured at the home, he would have a great case to the work comp board and petition that he was your subject worker and thus is deserving of work comp benefits.  I would see an administrative hearing in the near future with the contractor gaining benefits and you paying for the worker injury.  Now that's the letter of the law and how it would go here in Indiana, maybe the Oregon Work Comp board is more forgiving. 

If you can read legalese

https://www.oregonlegislature.gov/bills_laws/lawsstatutes/2013ors656.html

On the previous advice that it is okay to get excluded Personal/Advertising Injury, I also disagree.  How do you plan on Wrongful Eviction and Wrongful Entry torts to have coverage?  I'm not saying any BP investor would wrongfully evict or enter a property, but the accusation of such could be costly if you have no P/A Injury coverage as you would be fully out of pocket for defense, not to mention the actual injury.

A CGL policy is a very misunderstood policy.  That's why it is the biggest burn out class or any advanced education insurance designation.  Highest fail rates for the AINS, CIC, CPCU, CISR, etc (for those not in the insurance world these are designations that show you are proficient in insurance, not just pass a state exam) are in the commercial casualty (which includes Commercial General Liability, Business Auto Policy, Work Comp and Commercial Umbrella).

Originally posted by @Derek Lacy : On the previous advice that it is okay to get excluded Personal/Advertising Injury, I also disagree.  How do you plan on Wrongful Eviction and Wrongful Entry torts to have coverage?  I'm not saying any BP investor would wrongfully evict or enter a property, but the accusation of such could be costly if you have no P/A Injury coverage as you would be fully out of pocket for defense, not to mention the actual injury.

Completely agree with the rest of your post and thanks for giving clarity to the above detail Derek.  I would also agree that a landlord should have protection against wrongful eviction (or accusation of such)... what I was speaking to was simply pertaining to premises liability coverage only... in our Program, an investor would have premises liability and then would obtain a separate CGL for any risks associated with his/her business practices.  Hopefully that makes a little more sense.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.