Can someone name litigious items that insurance won't cover?

Question

Recently I've been listening to Marco's podcast, and he had a guest on that mentioned "toxic mold" is not covered by liability insurance, or umbrella insurance. As someone who's looking into purchasing his first rental property, I got to thinking - what other potentially litigious items won't be covered by insurance?

I was hoping someone on this board might be able to shed some light on potential gaps in insurance coverage that we should be looking out for.

Thanks!

-Chris

I was hoping someone on this board might be able to shed some light on potential gaps in insurance coverage that we should be looking out for.

Thanks!

-Chris

Lynn McGeein · Answer

Termite/pest damage.   And many won't cover sewer back-up, some will add it for extra cost.

Jim Adrian · Answer

Call your ins agent and ask to see and review a policy.   Other items not covered would be lead paint and asbestos I believe.

Any house built before 1978 is assumed to have lead paint and you must disclose this.  See the EPA website for requirements.

https://www.epa.gov/lead/lessors-disclosure-information-lead-based-paint-andor-lead-based-paint-hazards

Chris M. · Answer

Wow! Thanks Michael, that's super detailed info. Very helpful, thank you so much for taking the time to spell it out so clearly.

Michael Norris · Answer

When it comes to what is/ is not covered on property insurance use this rule.

It's not perfect but will help you understand why something would or would not be covered.

Was the damage or incident Sudden & Accidental?

If something happens over a period of time OR it was intentional or negligent on your part then it will probably not be covered by insurance.

Mold does not happen suddenly - it is generally considered a maintenance issue.

Fuel Oil tank listed above - if it leaks over time that is not sudden so... also a maintenance issue.

A tree branch hangs over the roof and over time damages the shingles - not a sudden event so no covered. You could also say this is a maintenance issue.

The same tree with the branch damaging your roof is blown over in a storm and damages the house - this would be covered as it was a sudden event.

Another potential issue is negligence - If there was a condition at the property that you were aware of and did not remedy it gives the insurance company an opportunity to decline to pay like the tree branch above.

Here is two examples with very different results"

Ex 1- If you knew there was an electrical issue and did not make repairs or delayed repairs beyond a reasonable amount of time and later that issue starts a fire...Because you knew about the issue it opens up for the insurance company to decline - they may pay or they may not so don't leave yourself exposed and make repairs when they are needed.

If someone was injured in the fire they could claim negligence and opens up for them to come after you personally and violate the protection of an LLC.

Ex 2- One of my clients furnace went out in his rental property and with below zero temperatures a pipe burst causing a LOT of water damage. Normally with the furnace being off the company will look strongly at denying a claim for burst pipes. If the furnace is out turn off the water!!

However this client had a signed estimate from a repair company to replace the furnace and since the house was occupied he had put space heaters all through the home in an effort to keep it heated. The companies opinion was he took all reasonable measures to protect the property so the company paid in full on his claim.

Ryan K. · Answer

Heating fuel tanks that can be above found or buried underground. If they leak into the soil and groundwater the insurance will not cover the expensive cost to clean it up. surprisingly it's a fairly common issue with the number of aging tanks out there.

Chris M. · Answer

Hi Aaron! What do you mean by fuel oil?

Thanks!

-chris

Ryan Murdock · Answer

Sewer back-ups and resulting damage are generally not covered.