5 Coverage Gaps That Leave Apartment Owners Exposed on General Liability

There are some lesser-known facts about general liability that are changing the multi-family insurance discussion. Issues such as slips and falls, contractors' errors, and amenity injuries can arise years after policies are purchased, leaving owners with expenses they have not been covered for. 

Multi-family operators think that they have enough general liability insurance for apartments to cover all the potential risks on the property; however, this is where problems arise. There are five gaps in general liability coverage at multi-family properties, which include the following: slip-and-fall exclusion, amenity coverage gaps, vendor liability, assault or abuse exclusion, and habitability-related claims.

Why Do Slip-and-Fall Claims Slip Through Standard Policies?

Slip and fall accidents continue to be the top source of liability claims at apartment complexes. Unfortunately, too many insurance policies fail to consider the use of walkways, staircases, and parking areas. Typically, limit requirements are determined in the absence of any consideration for traffic patterns, the season of the year, or even particular property characteristics.

In the event that one of your residents or visitors becomes injured from uneven pavement or icy walkways, there is a good chance that such a claim will exceed a standard per-occurrence limit very fast. Typically, such claims occur at properties where the coverage was not reviewed for years following renovation or construction of additional areas.

What Are the Risks of Not Including Amenity Areas in a Policy?

It has become increasingly common to have swimming pools, gyms, dog parks, and rooftop spaces as part of a property offering to attract renters. However, each amenity carries its own risk exposure, and the policies created without consideration of these facilities do not automatically change to reflect new risks once the facility becomes a part of the portfolio.

The list of common oversight includes:

• Pools and spas not properly documented in terms of required lifeguards or signs.

• Gyms without waivers for liability on exercise equipment and maintenance records.

• Dog parks and playgrounds with no exclusion clauses for certain ages or dog breeds.

• Events on rooftops or in clubhouses without additional insurance coverages.

• Package delivery and pick-up stations increasing foot traffic at entrance.

All of these amenities may increase the risk exposure of a property owner above what was initially expected.

Do Vendor and Contractor Risks Remain Unconsidered?

Maintenance workers, pest exterminators, snow plow operators, and other contractors come into apartment complexes all the time. When they make a mistake, that mistake can become the responsibility of the property owner. In the absence of certificates of insurance and additional insured endorsements being kept up-to-date, that risk can be able to trace straight back to the entity owning the property.

This is one of the least considered aspects of apartment complex insurance, because it doesn’t really rely as much on the insurance policy, but on the business practices of the owners in managing contracts. Those owners who fail to verify the insurance coverage of vendors on an annual basis may find out about it when a claim turns up.

Claims Related to Assault, Abuse, Or Molestations

Claims involving assault, abuse, or molestation can be some of the largest exposure liabilities for multifamily properties. Yet, they may be one of the most common exclusions or sublimits found in general liability insurance policies. This may not become apparent until you have to deal with a claim.

In that claims arising out of third-party criminal acts are usually not due to negligence but rather the acts of a third party, insurers may have different treatment methods, sometimes limiting payments to just a percentage of the primary limit. Sublimit review for assaults, abuses, and other third-party criminal acts is one of the quickest ways to detect a potential problem.

How Do Habitability and Mold-Related Claims Create Blind Spots?

Habitability issues, including delays in response or complaints about persistent moisture, are increasingly becoming a major source of legal action against apartment owners. Often, these claims may overlap with bodily injury claims, and thus make standard policies less effective.

Some of the blind spots that owners face in this regard include:

• Exclusions or limits to coverage for mold and fungi claims.

• Delays in maintenance claims that lead to a claim of negligence.

• Claims relating to failure of HVAC or plumbing due to deferred capital expenditures.

• Multi-claim actions based on the same event that impacts the entire property.

• Lack of documentation that reduces the ability to defend the case.

Among the most common and practical methods of dealing with this problem is tracking maintenance claims and their resolutions. Insurers and the court take this into consideration when handling the insurance claims for multifamily properties.

Is the Umbrella Actually Supporting Your Primary Limits?

Many property owners view the purchase of an umbrella insurance policy as merely a technicality and not as a real coverage layer. However, an umbrella policy can be effective only if it matches the wording of the general liability insurance, and any inconsistencies may create a layer of exposure in the event of losses that occur between the end of the primary insurance coverage and the start of the umbrella layer.

It is especially problematic for owners when it comes to high-risk situations, like claims due to catastrophic injuries or a suit against many residents. If the interpretation of exclusions in the umbrella policy differs from that of the primary policy, the owners may have to pay out of their own pockets, a layer that neither of the coverage layers was intended to cover.

Are Lease Terms and Background Check Practices Creating a Potential Liability Problem?

Leases may be seen as a leasing or legal issue, distinct from an insurance concern, but flawed leases could destroy the defense in a liability claim. Failure to include indemnification terms, vague policy on pets and guests, and unequal implementation across units all create opportunities for plaintiff's attorneys to assert negligence by the ownership.

Background checks pose a related problem. Any inconsistency with regard to background check requirements, and in their implementation across units and/or throughout a portfolio of properties, could turn a problem with a resident into a liability problem if it leads to litigation. 

Filling the Coverage Gaps Through a Proper Risk Partner

There's nothing unique about any of these five gaps, and there is no need for strange conditions to trigger them. The gaps usually develop gradually when a property acquires new amenities, shifts vendors, or gets old while the existing coverage remains unchanged. Checking your coverage against your specific property risk profile is the most straightforward way to deal with them. That's where using an insurance agency specializing only in multifamily housing insurance can bring tangible benefits. 

Moore Multifamily partners with real estate asset managers, apartment owners, and property management executives in order to offer tailor-made coverage that fits your exact needs. Our specialists take into consideration every aspect from amenity risk to habitability history, so you won't have to wonder where exactly your coverage ends and liability starts. If you haven't evaluated your general liability coverage lately, it might be a good time to talk to a specialist well-versed in multifamily insurance.

Curious to know where you are exposed to risks? Contact us to get a coverage review tailored specifically to your property.

FAQs:

What is the frequency of reviewing the general liability coverage?

It makes sense to do a proper assessment at least once a year, and when new amenities are installed or vendors change. There will always be a problem with static policies, which simply won't be able to cover new risks and vulnerabilities.

Will the insurance cover injury caused not within the rental premises but within the property?

In most cases, parking lots, walkways, and other common property areas are included in the general liability coverage, although with different limitations and exclusions.

Why do insurers differentiate between assault and abuse claims and any other types of liability claims?

This is due to the fact that such claims typically originate from third-party criminal acts, and not from a property owner's negligence. If owners don't check for this difference, they may be unpleasantly surprised by how little the policy will pay them.

How could outdated certificates from vendors impact one’s liability?

Very easily, as a matter of fact. When insurance coverage is either expired or not properly endorsed, the negligence of the contractor will fall back on the owner of the property. It is a very easy thing to do that will help avoid big trouble ahead of time.

How important is it to maintain proper records when dealing with habitability claims?

Keeping up with the documentation of the maintenance requests and response time becomes very important because it indicates whether or not an owner did their part to keep things in check.