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A new approach to renters' insurance.

Traditionally, apartment renter's insurance has not ranked high among the concern of property managers. Instead, prevailing wisdom held that it was the responsibility of each tenant to purchase insurance to protect his or her own property and personal liability.

Unfortunately, however, the current methods of distributing renter's insurance did not make that only 10 to 30 percent of all apartment tenants have contents or personal liability insurance.

This situation can be traced to a number of factors. Unlike home or car buyers, apartment renters are not besieged by lenders insisting that they purchase insurance. In addition, many renters mistakenly believe that their landlord's commercial insurance will cover their own personal losses.

Unfortunately, property managers are learning that uninsured residents can pose a direct to their business, most visibly through litigation.

Indeed, if an uninsured tenant's property is destroyed by fire or other catastrophe, he or she is more likely to bring suit against the landlord than is the tenant with insurance coverage. Such cases can increase the cost of doing business for property managers in the form of higher insurance premiums and valuable time wasted on litigation. In addition, uninsured losses cause the less tangible deterioration in landlord-tenant relations, which in turn can result in fewer rentals or renewals.

"In many states, residential landlords do not have the ability to exempt themselves from liability to tenants," says San Francisco real estate attorney Joe Joiner. "Both by statute and common law, exculpatory clauses in residential rental agreements are void as being against public policy." In fact, he adds, even in states where landlords can exempt themselves from liability, judges will often construe the rental agreement provision so narrowly that it is rendered ineffective.

For years, property managers in California have been aware of the problems of uninsured tenants. Most have witnessed a good deal of litigation between tenants and landlords that almost always penalized the landlord. To this end, many have developed rental agreement explaining the importance of personal property and liability insurance coverage. Unfortunately, however, the traditional market did not offer tenants a convenient way to purchase the insurance they needed.

In response, IPS Management Company, a major Southern California property management company, and Deans and Homer, one of San Francisco's oldest insurance underwriting firms, have created a simple method for apartment residents to purchase renter's insurance coverage.

The program, called RenterPlan, is offered in a joint agreement by the management agency and the insurer and allows tenants to purchase insurance when they rent their apartment. It employs only one form, a "rental agreement addendum."

The addendum clearly explains that the landlord is not responsible for loss or damage to a tenant's personal property and that insurance is the best method of obtaining needed protection. It also creates a permanent record of each tenant's buying decision.

If a tenant accepts the plan's insurance coverage, a policy is created on the spot; he or she does not have to wait weeks before the policy is mailed from a central processing center. The program allows tenants to pay the insurance premiums monthly, right along with the rent. Coverage is in effect from move-in through move-out, and require no annual renewals.

(This idea may sound familiar. The concept is similar to the method automobile rental companies have used for years to market the collision damage waiver and other insurance products to their customers.)

The insurance plan works like a true homeowner's policy, providing both personal property and comprehensive personal liability coverage. The limits are tailored to the needs of each apartment complex. Typical limits are $20,000 in personal property coverage and $100,000 in comprehensive personal liability for $20.00 per month. Uniform coverage limits and monthly premiums are available to all tenants.

The popularity of the concept is growing, as at least on other company has launched a similar program. Frank B. Hall, a national insurance broker, recently introduced the Apartment Renters' Contents Protection Plan (ARC). ARC provides named peril contents coverage. For $10 a month a tenant gets $5,000 of coverage; for $10 more each month he or she can purchase $15,000 of contents coverage.

Both programs pay property managers administration fees for handling the collection of premiums; income is typically $2 to $3 per tenant, per month.

This unique method of distributing insurance to renters appears to benefit everyone involved. The apartment tenant is provided an easy method of purchasing valuable insurance coverage. The landlord gains protection by having a higher proportion of tenants who have the ability to meet their financial responsibilities. The property manager earns a fee income to cover the costs of handling the administration of the program.

One user, Frank Suryan, president of William Lyon Property Management Company, credits the program with providing "an additional service and competitive edge in the apartment home market. The resident recognizes the need for insurance coverage and has the advantage of covering rent and the monthly premium in one simple payment. Tenants like having insurance available."

Indeed, the two property management companies that currently offer insurance to their residents believe it is an integral part of their risk management strategy and provides an important service to their tenants. If their experience is applicable to other managers, it seems possible that, by the end of this decade, apartment renters across the country could expect landlords to provide the insurance coverage they need at the time they rent.

D. Carlos Kaslow is a San Francisco attorney specializing in insurance law. He is a past editor of Smart's Insurance Bulletin and has written extensively on insurance and landlord/tenant issues. Mr. Kaslow received his law degree from the Golden Gate University School of Law, San Francisco, and his bachelor's degree from California State University, Long Beach.
COPYRIGHT 1991 National Association of Realtors
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Insurance Insights
Author:Kaslow, D. Carlos
Publication:Journal of Property Management
Date:Nov 1, 1991
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