Landlord insurance to protect from lawsuits

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Dear Insurance Adviser,
What types of landlord insurance do you recommend to protect against lawsuits from tenants? There are always possibilities that tenants will complain and sue the landlord in small claims court. What are the best ways to protect a landlord in that situation?
— Charmaine

Dear Charmaine,
There are three types of tenant lawsuits that can be covered by landlord liability insurance. If the lawsuit is covered, the policy will pay all your defense costs, in addition to any judgment or settlement, up until the policy’s limit.

The first type of lawsuit that’s covered is for any injuries to the tenant allegedly caused by your negligence as a landlord. Usually, these suits stem from unsafe conditions at the rental premises (for example, loose carpeting, broken stairs, icy parking lots and driveways).

The second type of covered loss is for damage to the tenant’s personal property, such as when old, defective wiring causes a fire.

All landlord insurance liability policies cover liability for injuries and property damage.

There is a third, optional liability coverage that can be part of a landlord policy: personal injury liability. This covers your liability for character defamation-type lawsuits: libel, slander, invasion of privacy, false arrest, wrongful eviction, discrimination, etc. However, note that many policies do not cover wrongful eviction or discrimination — both huge exposures for a landlord.

A fourth liability risk for landlords that involves injuries to tenants is not covered by landlord liability insurance, though it can be covered on a separate policy. It covers the risk of state-mandated benefits for medical bills and lost wages to your employees: in other words, workers’ compensation insurance. You might protest, “I don’t have any employees!” Yes, you do — if you give rent breaks to any tenant for helping maintain the property.

If the tenant receiving a break on rent is hurt shoveling snow, cutting the lawn, painting or doing any other type of maintenance, all he or she has to prove is that the injury happened working for you and the tenant would then be entitled to full workers’ compensation benefits. If you have a workers’ comp policy, it will pay 100 percent of the mandated medical and disability benefits for you. If you don’t have such a policy, the state will make you pay those costs yourself, out of pocket! Plus, there are fines and penalties for not having the insurance. Remember, this is true no-fault coverage. It is not necessary at all for the tenant to prove any negligence on your part as a landlord.

There is no landlord insurance available for typical small claims court disputes, such as disagreements over tenant security deposits not returned due to damage. Consider spending the money up front for a good lawyer who can help you draw up a good lease agreement to deal with these types of disputes.

I hope this helps.

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