All Forum Posts by: BreAnn Stephenson

Hi all, 

I would simply add a couple of thoughts here coming from a loss prevention perspective... (I'm a loss prevention specialist with Affinity Loss Prevention Services (ALPS))

First, Fred, sorry to hear about the damage to your property as any experience like this is never fun to deal with. You are not alone as cooking is one of the leading causes of property fires, especially around the holidays. Ideally the tenant would have renters insurance to cover incidents like this where they are responsible, and really, a good case in point to adding that requirement to the lease. If a tenant balks at the idea because they think it's too expensive, you may reassure them that most policies cost ~$15-20/month. Last year, I was personally quoted $7/mo. for basic limits because of a multi-line discount from my auto insurer. Giving the tenant a rent discount to offset that expense would be well worth it to protect you from having to file a claim on your end... and of course it protects their "stuff" too! Just an idea that may help get the tenant over some objections. Of course, you will want to be named as an additional insured on the policy so that you would be notified if it were to lapse. And of course keep a copy of their proof of coverage in the file with their lease.

I'm also happy to help with any resources that can help you prevent additional losses at your properties. I will send you one of our brochures and it's available on our website too. The goal of the brochure is to educate tenants about ways to be safe in their homes, and thus, keep you from experiencing a loss at your property.

Please let me know if there's anything else I can do to help!

Hi all,

Aon used to offer a product called Rent Protect, but I'm not sure they offer it anymore. Their policy was actually for the purpose of protecting landlords from tenants who simply didn't pay and also had a limit to cover eviction costs as well. I'm guessing that if they don't offer it now it's because it was a product that couldn't support itself... not enough premium dollars going into the bucket to support all the payouts... 

You can get loss of rents coverage for a fairly low cost typically but loss of rents would only come into play as an additional coverage if you have a covered loss. For example, if you have a fire and have to move your tenant out because the property becomes uninhabitable.

Putting my loss prevention hat on, this is really where thorough tenant screening comes into play. I know that you can't catch them all, but working on your screening process and detective skills will net you far more valuable rewards than insurance dollars. Lovely philosophical answer right? Point being, treat the disease not just the symptom... there could be a number of underlying causes behind why consistent tenant placement is an issue, from the area in which one is investing to a missing piece of the tenant placement process. Insurance is great and part of your risk management plan, but it shouldn't be your foundation. My two cents... :)

Hi all, as my role is to help RE investors prevent avoidable losses, I was curious as to the location of the property in question relative to current fires in the area. At Anne's request I have left the specific address out, but just wanted to share with you all my note to Anne as it may help as you look at purchasing locations in California right now.

For some general news in CA/northwest...this weekend, there was some quite intense action with the Valley Fire as it grew from 50 acres to 50,000 in a matter of 24 hours... destroying over 400 homes... The Butte Fire is also very active and has burned over 200 structures. Just such dry conditions and water sources to fight the fires are dried up...resources stretched very thin...the WA national guard is involved and over 200 firefighters from the east coast called in... even 68 fireline management personnel from New Zealand and Australia have been put to work in the northwest... just an overall bad deal.

Here were my comments to Anne before the weekend:

Hope that helps everyone here a bit. If underwriters are skeptical about writing coverage in CA, ID, OR, MT, & WA it is for a very good reason. If you have properties that are currently located in high-risk areas and haven't taken precautions to prevent wildfire, some great tips from the National Fire Protection Association can be found here: 

http://www.nfpa.org/safety-information/for-consume...

Be safe!

 Hi Darish, thanks for your patience here... !

I know you mentioned that you already have a commercial liability policy in place. Typically speaking in order to have coverage for something like this you would want to make sure your CGL includes a limit for "Products/Completed Operations". Limits and structure of the policy can vary (i.e. can be written on a "per occurrence" or "claims made" basis, etc.) so I would suggest reviewing your current coverage with your CGL agent.

As I mentioned previously, the best approach is always going to include getting proof of insurance from any contractor you have work for you and having them list you as an additional insured. Make it a part of the bidding process so that you only consider those who are appropriately insured (and licensed if needed). Get a copy of their current insurance certificate with the bid and as a part of your due diligence make a quick call to their agent to confirm that coverage is active. 

If you hire them, keep the certificate(s) in your files permanently. (If working with them continuously, making sure you always have the most current proof of coverage of course.) Then, if the contractor "disappears"/closes his business/etc. down the road and there is an injury, you still will have all the information needed to submit the loss to his insurance carrier. Especially when it comes to structural work, you put yourself at a huge risk if you don't spend the time to do proper insurance compliance as Derek mentioned... Building a "team" of contractors that you hire regularly will also help you save time too...

Hope that helps!

-BreAnn

Glad to be of help Gautam!

Yes, it is a common feeling about insurance in general I know. I'm pretty sure that there is not one person in this country who has purchased insurance that hasn't experienced some sort of frustration at one time or another... insurance agents included. The thing I discovered about insurance and continue to see is that most people are not very well-informed about their coverages... which is most often what creates the most grief when someone finally does experience a loss. In our busyness we skip through reading things, rush to get coverage in place because, darn it, after all the other parts of the deal, I forgot the dang insurance and can't close without it today... It's only when we need to use what we've purchased that we start educating ourselves about it...and usually very frantically...

Also, many are unaware that insurance is a contract between the insured and the carrier and so, the carrier not only has responsibilities to carry out what is written in that contract, but so does the insured. I'm not quite sure where all the insurance myths out there come from, but in order to understand the function and true purpose of insurance, we have to undo what we were either wrongly taught or have wrongly assumed... 

I hope that I can bridge some of those gaps and dispell some of those myths here... 

Have a great weekend!

Lastly...

Though I'm not intimately involved in the claims process in my role, I can say that we do see successful resolutions to these types of claims. In fact, a recent claim involved a contractor whose carelessness resulted in the investor's property burning down. 

As property coverage is 1st party coverage (i.e. directly protecting the insured) and acts as primary here, the investor's carrier paid the claim as Fire was a covered peril under the policy. To Jason's prior point, I am aware that the carrier appropriately paid the limit of the policy and not simply a percentage as it was a total loss. (A "total loss" in insurance constitutes the damage being equal to or greater than the policy limit and is not related to the percentage of the building still standing... or in this case, not standing.)

That stated, if the contractor has his own GL coverage, the property carrier may opt to subrogate against the contractor's GL carrier to recoup part or all of the funds paid out. The contractor's GL coverage is "third party" coverage that protects the contractor's client, in this case the investor, from damages caused by the contractor. Subrogation is a very standard process in the industry and would be appropriate considering that it was in fact, the contractor who was responsible for the loss in this case.

I hope that this helps and have a great afternoon!

-BreAnn

#4...

Yes, negligent acts of the handyman/contractor would be covered under his/her General Liability policy. Another reason to verify their coverage as per #3 above. If they do not have liability coverage, your property coverage may pay for the damages if the type of damage is a covered cause of loss within the policy. For example, the Fire peril is included in any property policy so you could still lean on your coverage even if they did not carry their own liability coverage. In another case, if your handyman breaks a pipe causing water to destroy the kitchen hardwoods, and your policy excluded Water Damage, you would be solely reliant upon his coverage, if any, to pay for the damages. The same is true if their negligence causes an injury on the jobsite. You would want to make sure that they had the appropriate coverage in place, which could include a GL and possibly WC coverage as discussed above.

#3... 

The General Liability will not cover you in this case as again, these are "hired workers" and excluded from coverage. For this very reason, before hiring anyone, it is advisable to request a current copy of both their General Liability and, if applicable, Workman's Comp certificates. A good way to do this is to make it a part of the bidding process on any project. Requiring them to submit a copy of their insurance coverage with the estimate will save both of you time in the long run. In addition to that, I would also advise getting yourself/company named as a certificate holder, or even additional insured so that you would be notified in the event the policy were to lapse or cancel.

#2...

With pools it is important that you abide by any municipal guidelines for safety, which could include signage "No lifeguard on duty - swim at your own risk", and the like. In addition, your coverage may also require that certain precautions be taken, such as fencing the pool with a self-locking gate, providing and maintaining safety equipment on the premises such as life preservers, flotation ropes, etc. If your coverage allows for pools then there should be coverage available as long as you abide by the guidelines stated therein.

Originally posted by @Darish D.:

Thank you BreAnn for doing this: A few questions (all related to fix and flips and assuming no negligence on my end and that everything was done legally and in good faith):

1) Does Affinity offer a builder's coverage as well? I know my general contractors have their own coverage, but suppose I hired a handyman to install some doors and he accidentally hurt himself using his nail gun or something similar. Suppose he is not my employee and is working under $500 which is our limit in California for non-licensed work. Would he be covered?

Hi Darish, these are all great questions and as they all require a substantial answer, I will tackle them one at a time... so, let's start with #1...

NREIG does insure properties that are under renovation. That stated, the above could become a Workmans Comp exposure for you. The most important consideration is to understand that how you compensate your labor may or may not excuse you from carrying WC coverage on them. In effect, just because you pay them on a 1099/independent contractor basis, doesn't mean that the courts or WC commission will agree. Be sure you understand (seek legal advice) on what constitutes an "independent contractor" relationship. You may find that it is different from your expectation and the definition and ramifications vary from state to state. Be wary not to create an unintentional employer-employee relationship, which would create a WC exposure for your business. 

That stated, the ISO form (a standardized format that many/most policies are written on in the industry) excludes "hired workers" so anyone hired by you, whether it be a GC or a handyman needs to be properly insured on their end. The worker hired for under $500, though he may be an independent contractor, is still being compensated by you for the work being done, and though not your employee, is a "hired worker". Coverage for his injures on the job or his faulty workmanship would be excluded under ANY premises liability policy.

Understanding that the relationship between you/your business and those that provide labor and services is not simply a by-product of how you compensate them is the first step in making sure your real estate (and any other business) is protected appropriately from WC and GL exposures. Securing and confirming coverages is a must when dealing with any and all contractors and service providers. Unfortunately, in today's litigious society, the risk of using uninsured "spot labor" far outweighs any short-time or financial benefit. If you are currently using and satisfied with such labor, review with your legal and accounting advisors and consider securing coverage for them, in the most appropriate and efficient manner they/you decide. Liability exposures of these kinds can easily put you out of business.