Frequently Asked Questions
Our association seems to endure more than its share of losses as the result of leaks or backups. Management already has enough work to do. And, we know that handling losses or the resulting claim is beyond the scope of their contract. If we hired your company to handle these losses would insurance cover your fee?
In general, if the loss is covered by insurance so are our fees...
NOTE: A loss is covered up to the policy limit.
Are you insured to work for associations and multi-family residential buildings?
Yes. Not only do we carry General Liability coverage we are also insured...
I have heard the term “additional insured”. What does this refer to?
An additional insured is the party an insured adds to their policy...
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?
The vast majority of Covenants, Conditions and Restrictions...
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, whoever 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.
Recently management informed us that our insurance premium and deductible were increased by the insurer of the association. We had a $10,000 deductible that is now $25,000. When I asked the Board why such increases, they said the “association had filed too many claims”.
Upon further questioning I learned that management had advised the board to file all claims against the associations policy no matter who was at fault. This guidance struck me odd because one loss occurred when a resident left their bathtub filling unattended for two hours after being distracted by call. Another loss was the result of a supply line to the toilet split open in another condo. Because it was a major holiday most residents were away. That leak was not discovered until the security person stationed in the lobby noticed was dripping from the ceiling. By then, nearly two-dozen units were impacted! The third incident was a backup in the shared drain line. To me is seems that the association was only responsible for one of these three losses. And, had they not filed all three against our insurance we would likely not see the steep increase in premium and deductible. I fear that continuing to make the associations policy liable for the errors of others is going to drive up our assessments and require special assessments in the future.
Was management correct in advising the board that all claims should be covered by the association no matter the cause?
Without more, it would appear that management was guiding...
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 respective insurers would have been 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 maintain. We can make this assertion because a supply line to sinks, bidets, toilets, 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 resulted in the association and its members being harmed financially for years to come. Continuing to be misguided by management sets the association and its members up for further significant increases in their premiums, having to carry even greater deductibles like $50,000 per loss or losing coverage altogether. This is because the more claims an insured has the more money the insurer losses. And, insurers are not in the business to lose money.
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 their advice. Moreover, every policy covering home owner, condo owner and tenant automatically includes coverage for Personal Liability. The basic amount is $100,000 however we advise parties carry at least $500,000 as the cost of a loss affecting multiple units can easily hit $500,000 or more. That personal liability is there to protect that insured from claims by Third Parties (association or affected neighbors) when they forget and leave the bathtub filling or forgot to have the plumber perform a regular inspection of all things plumbing. Given this policy provision there is absolutely no reason to have the association cover the mistakes or failures of others. Let their insurance pay and their rates or deductible rise. After all, they caused the loss.
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. If your association continues to follow the advice of management, they will ultimately lose their coverage. Once that happens, they will be forced to purchase higher risk coverage at an even higher premium and accept a substantial deductible. This means members will see notable increased in regular assessments and the levying of special assessments.
What the board should do is turn to their insurer directly and engage the services of a very savvy Construction & Project Management company like Pinnacle Reconstruction. At Pinnacle we are quick to 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 more than $1,000,000 in 2019.
At Pinnacle Reconstruction 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?
Absolutely! A tenant is just as likely to leave a bathtub overflowing...
The reason that a tenant should carry $100,000 of coverage on their personal property is not because their possessions are worth that much. 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 insufficient. However, $500,000 should cover the vast majority of losses.
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. Aditionally, since carrying insurance was a condition of the lease or rental agreement, it would be breach of the lease or rental agreement if they canceled the policy or let it lapse.