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Our association seems to endure more than its share of losses as the result of supply line leaks or drain backups. Is our management company responsible for handling such events?
Are you insured to work for associations and multi-family residential buildings?
I have heard the term “additional insured”. What does this term refer to?
This provision provides the first line of defense to the property owner from claims against them when their vendor causes damage to the property of another. For example, if the plumber for the association was working on the water supply line and accidentally caused a leak which damaged the home of another, the owner of that home (condo/apartment) could pursue the plumber AND the association since the association hired the plumber. It does not matter that management called the plumber in as they are an agent of the association or landlord. When listed as an additional insured the association/landlord could tender the defense of the claim of the condo owner to the insurer of the plumber. That insurer would then settle or defend the claim up to the policy limit; usually $1,000,000.00. The benefit to the association is that their claims history is not negatively impacted since the insurer of the plumber will be the one paying up to the policy limit.
It is in the best interest of associations and landlords that they always be listed as additional insured on the policy of any trade person working anywhere on their property.
This is true even when the work is within an individual condo by someone hired by the unit owner, their agent or tenant. That is because the plumber hired by the condo owner, agent or their tenant could just as easily cause a leak that damages the common area. In such situations most want the insurer of the plumber to pay for everything be it dry out, abatement or restoration.
There is no additional cost to the association/landlord to be named as an additional insured. It is simply a best business practice.
Should our association be responsible for the expense and damage of a leak emanating from within a condo?
If the component that failed serves the common area then the maintenance of it falls to the association. The associations policy would cover damage to the common area, whether in shared areas or within the units. And, the policy for the owner of the unit or tenant would cover damage to personal property. For the unit owner that might include paint, flooring and cabinetry. For a tenant, that would mean things like their sofa, area rug or mattress.
An exception to the association being liable would be if an owner or their guest caused the damage. For example, one of those parties flushed paper towels down the toilet. The resulting backup caused damage to the common area within that condo as well as between floors and of the common area within the unit below. That owner and their insurer would be responsible to the association for its cost of remediation (dry out), abatement (removal of any lead or asbestos that was disturbed), restoration and project management (oversight of it all). This exception presumes the owner or their tenant admitted their error or the associations plumber extracted the blockage from the toilet or by pulling the toilet up.
As an aside, please know the owner is liable to the association for the actions of their family members, guests, tenants and invitees.
If the failing or failed component is within an individual condo or serves that unit exclusively (shower valve in the wall), it is the owner of that condo who is responsible to maintain it. Failure by either party to be proactive in their maintenance obligations leaves that party negligent and therefore liable for the damage to the common area*.
The same analysis may be applied to every component that leaks or allows seepage such as failed angle stop, shutoff valve, garbage disposal, toilet, sink, bathtub, dishwasher, washing machine, ice maker, shower valve, waste overflow or seepage through the grout of the shower walls or floor.
* Absent some intervening act, whomever has a duty to maintain may be considered negligent if they were not proactive. A duty to maintain does not mean “wait until it leaks or breaks” as that is no maintenance at all. To help hone in on this point, most of us would not wait until the motor of our car burned up before having the oil changed. We would proactively schedule oil changes to avoid the ramifications. Those who fail to maintain their car soon learn a very expensive lesson about the importance of understanding how to maintain that which they own. The same principle applies to whatever we own. And, with the many search engines of the internet available to most of us today, finding answers to our questions is fairly easy. In the alternative, turn to experts such as the plumber who services the building.
We recently learned that the associations insurance premium and deductible were increased by the insurer of the association. We had a $10,000 deductible that is now $25,000. When asked, a board member said the “association had filed too many claims”...
An excellent question and astute observation. It seems that either the management company is misguided or wanted to make their job easier.
Based on the information that you shared, one of those losses arose from the action of a resident and the other because an owner failed to proactively maintain that which they were to responsible for. Typically, this is defined by what is located within the airspace of the condo or that serve it exclusively (shower valve, fireplace, furnace). For the very concerns that you raised insurance policies include Personal Liability coverage. Such coverage is there to protect third-parties such as your association from the actions or inactions of the other owners. Submitting those type of losses against the associations insurer likely prevented the association and its carrier from pursuing reimbursement from the other owner or their insurer. This is because many C.C & R’s contain a Waiver of Subrogation clause. This means the association and member may not pursue claims against the other. HOWEVER, it is important to note that the defense of Waiver of Subrogation is ONLY triggered when the association elects to collects from its insurer. Had the Board been properly advised they should have pursued coverage under the Liability portion of the policy held by the owner, their tenant or vendor.
In your first example, the owner left a filling tub unattended. But for his leaving the tub unattended the loss would not have occurred. That is the purest form of negligence from which no one may defend.
Your second example involves a supply line and its end that cracked thereby allowing water to affect 20 plus condos. This would require a bit more analysis. If a plumber was working on the supply line at the time and cracked it, they and their insurer would be 100% liable to your association (all the more reason the association should be certain the plumber is insured to work in associations or multi-residential buildings).
If the crack occurred without anyone touching it, one has to inquire as to the age of the supply line. Was it new? If so, the manufacturer might be liable unless they can show that excessive force was used during installation. If the manufacture established that the hose was new but excessive force was used, the owner of the supply line, the installer and their respective insurers would be liable to the association. Finally, if the crack occurred due to the part aging out (usually between one and five-years), we are back to the owner of that supply line being liable for the loss because they failed to proactively maintain what they were obligated to. We can make this assertion because a supply line to sink, bidet, toilet, dishwasher, washing machine and refrigerator are clearly located within a unit. Further, they serve that unit exclusively.
Based on the above we strongly believe management erred when they advised the board to file all claims against the associations policy. Their error has resulted in the association and its members likely being harmed financially for years to come. Continuing to follow this bad advice sets the association and its members up for further significant increases in their premiums, subject to higher deductibles, or losing coverage altogether.
It was good of you to question the board. Perhaps the board should ask the management company to open a claim against their own Errors & Admissions policy on behalf of your association. We believe the management company and their insurer will be hard pressed to defend such advice. We would be happy to discuss this further with your board and members or testify if called as an expert witness.
We advise all owners to carry at least $500,000 of Personal Liability coverage as the cost of a loss affecting multiple units can easily hit $500,000 or more.
Waiver of Subrogation
Because too many associations have this clause in their C.C. & Rs we feel it necessary for all to understand that this is not an absolute defense by an errant owner. It is ONLY a defense when the association decides to collect on the loss against its own policy. There is NO RULE or LAW that requires an association collect from their own insurance. They must timely report the loss. However, they are not obligated to pursue the claim and are permitted to return proceeds if their carrier advanced funds. Because the associations carrier could not pursue the rightful third-parties they were ultimately forced to increase the associations premium and deductible.
What the board should do is turn to a much savvier management firm such as Ascendant. Through our construction project management firm, Pinnacle Reconstruction, we are able to quickly determine causation, identify who owned that which resulted in the loss, ascertain what duty was owed and by whom and whether an owner, guest, tenant or invitee was in any way negligent. Pursuing third party claims against the liability coverage of others helped us recover, on behalf of association, more than $1,000,000 in 2019.
At Ascendant we do not feel that your association or other owners should pay because a neighbor left their filling bathtub unattended or failed to proactively maintain what they are required to. Why should the association and the other owners subsidize errant behavior? Why should that owner and their insurer escape their responsibility to make your association and its members whole? What would motivate that errant member to change their ways? Being held financially responsible!
Ask us how we can save your association from seeing increased premiums and substantial deductibles that are then passed on to the owners.
As a landlord, should I require of my tenants that they carry renter insurance?
If the latter, just how many years will it take for you to collect that $100,000? Rather than go through any of that additional stress, we urge that you make it a condition of every lease and rental agreement. Moreover, the minimum they should carry is $100,000 for personal property (we will explain below) and $500,000 of personal liability. Owners of higher end properties should require a minimum of $1,000,000 of personal liability.
The reason that a tenant should carry $100,000 of coverage on their personal property is not because their possessions are worth that much; though exceptions exist. It is because other coverages that make up the policy have limits which are based on a percentage of that $100,000. For example, loss of use would be covered up to 20% of the $100,000 or $20,000. Here, that would mean the tenant could collect up to $20,000 for temporary housing that is the result of a covered loss. With the rents in San Francisco being what they are, $20,000 only represents the cost of temporary housing for about four to six months. If there was a fire in the building that displaced your tenant, it might be six-months to a year before the building or unit is again ready for occupancy. Therefore, having $20,000 in protection is worth the added cost of carrying $100,000 of coverage on their personal property.
The reason for requiring that a tenant carry $500,000 in personal liability is to protect you and your policy from clams on that first $500,000. If the tenant or their guest caused the underlying loss you want their insurance, not yours, to pay for the damage. As with the answer to the question above, you do not want to risk higher premiums, deductible or loss of coverage as the result of the actions or inaction of your tenant. And, since the cost to increase personal liability is so very minimal this requirement is a must for any landlord who wishes to protect their bottom line.
Be certain that your tenant lists you on their policy as an Additional Insured. This means that the tenants insurance provides the first line of defense of you for claims by another tenant or neighbor. At least up to the $500,000 limit. If a loss is extensive or involves loss of life, that $500,000 will not likely be enough. However, $500,000 should cover the vast majority of losses. And, by listing you as an Additional Insured, the carrier must notify you in writing if the policy cancels for any reasons. This will protect you from that tenant who purchases the policy to appease you then promptly cancels it after they have the keys or moves in.