With renters insurance residents won't get burned: with less than 20 percent of residents carrying renters insurance, owners are financially vulnerable to the mistakes of residents. For about 10$ a month residents can protect their liability and personal property.

Jack, be nimble,/ Jack, be quick,/ Jack, uh Jack?

Oh, Jack tipped over the candlestick.

Now Jack has a fire in his apartment and he doesn't have renters insurance. Even Mother Goose knew that Jack should not play with fire. In the original nursery rhyme, Jack burns his toe, not his home, while jumping over the candlestick. Whether it be Jack or another apartment resident or a pet, an average apartment fire can cause about $10,000 in damage.

Nearly two-thirds of renters do not have renters insurance, risking "severe financial loss," according to a study conducted on behalf of the Independent Insurance Agents & Brokers of America (IIABA). Renters should protect themselves against liability for injury on their premises, physical damage to their apartment and their possessions.

"Our society pays such careful attention to securing auto insurance for our vehicles, yet we have millions of renters neglecting the need to insure the rest of their possessions," Robert A. Rusbuldt, IIABA CEO, said. Residents should consider what their belongings are worth--TV, stereo, computer, jewelry, clothes and other items--and evaluate liability coverage in case someone is injured while in their apartment home, he added.

Residents can have two types of insurance coverage: liability and contents. Liability insurance provides coverage if a resident causes damage to an apartment, a structure, the community or other residents, explained Dave Dillon of RegistryTLC, a division of Registry-SafeRent. Contents, or personal property, coverage insures a resident's personal belongings in case of loss, theft or damage.

Residents who cause damage and are not covered for liability exposure could lose their apartment and be responsible for thousands of dollars in damage, Dillon said.

Personal property insurance is an "additional living expense," said Andy Rubin, Director of Multifamily Sales for Bob Bader Insurance Co. The added cost is for the resident to maintain a standard of living in the event the apartment home becomes uninhabitable. If there is a fire, for example, and the apartment becomes uninhabitable for a month, the resident continues to pay the rent and the insurance company pays living expenses while the apartment is being repaired. This arrangement also allows the owner to maintain a resident who will return to the apartment once repairs are complete, he said.

Members of the Property Management Association of West Michigan (PMA) found that less than 10 percent of their residents carry renters insurance. PMA members have sustained damages ranging from a single apartment home to an entire building as a result of fires from a variety of sources, including cigarettes, a cat tipping a candle, lightning and nearby fireworks. In response, PMA has initiated a campaign, entitled "Get It, or Regret It," to encourage residents to purchase renters insurance and protect their assets. PMA has developed partnerships with insurance companies serving its area to help members get residents insured. (See the tear out sheet to photocopy and use at your community.)

According to the National Fire Protection Association (NFPA), 88,500 apartment fires occurred in 2002, an increase of 7.2 percent from 2001. The apartment industry sustained property damage from fires worth $926 million in 2002, according to "Fire Loss in the U.S., 2002," a study conducted by NFPA. Community and residents should be insured against such damages. When residents do not carry insurance, the financial obligation for repairs falls on owners and their insurance companies, and residents aren't compensated for the loss of their personal articles.

No Smoke and Mirrors

The most common misperception among renters is that they are covered by the owners' insurance policies, according to IIABA. This is not the case, however. "Renters insurance covers the items you have in your apartment, condo or other rental home should those items be stolen, destroyed or damaged," said Louise "Bebe" Canter, President of IIABA. For example, an insurance policy on contents of an apartment would cover clothing, electronics, furniture and other personal items owned by the resident.

"Renters insurance also includes some liability coverage should someone be injured in your home and you are held liable, or even in the event you accidentally burn down your apartment and the owner's insurance company sues you for damages," Canter said.

Increased Participation

Several property managers have been working to make renters insurance mandatory in Michigan after experiencing devastating disasters. (See the three sidebars.) While renters insurance is not mandatory in that state, it can be required by a community or recommended. Laws vary by state, so in some locations, as in Maryland, communities can require residents to carry renters insurance, at least liability coverage.

But it is not as easy as it sounds. "Some property owners fear that requiring renters insurance will make them less competitive," RegistryTLC's Dillon explained. "However, the alternative, not requiring participation, requires far more risk to the property and can be financially punitive."

If property owners fear that giving residents another monthly bill is a deterrent for some prospects, one way to work that out is to incorporate renters insurance into the lease and some communities are starting to do that, Bob Bader's Rubin said. "If you drive a car you have to have liability insurance to get on the road, and an apartment building is a whole lot more costly than a car," he said, encouraging owners to require residents to carry insurance.

"Some companies think that [requiring insurance] creates a marketing disadvantage, but you can tell residents that this is a nice community and ask for certain amounts of coverage in case they cause damage," Rubin said.

Dillon agreed that explaining the value of renters insurance to residents encourages them to participate. "If owners help residents understand that they are providing them full protection that is both affordable and convenient, the competitive issues fall away," Dillon said. "Residents begin to understand that you have their best interests at heart."

Enrollment in a renters insurance program can be integrated with resident screening, so onsite staff can enroll residents and monitor community participation. This integrated system guarantees approval for insurance as soon as an applicant is accepted as a resident and selects RegistryTLC for liability insurance, Dillon said.

Making payment easy for the resident, the insurance premium can be collected monthly with the rent. And, depending on the community, liability coverage can be up to $100,000. If a claim should be filed, RegistryTLC pays the owner or other claimant directly.

United Investors Management Corp. (UIMC) is one company that requires its residents to carry renters insurance and bundles the monthly premium with the monthly rent payment if the resident chooses to be insured by the community's insurer.

"Residents are supposed to pay [for their renter's policy] with their rent to UIMC," said Jordan Miller, Property Manager for UIMC. "Then UIMC pays the insurance company."

This method functions by including residents on the master policy, Miller said. "Or they can carry third-party insurance and UIMC gets proof that they carry insurance or notification when they drop," he explained, similar to car insurance. UIMC has not had any claims since it started this program 18 months ago.

Not all communities elect to require insurance even if allowed by law. "If an owner doesn't want to require renters insurance, another approach is to say, 'You don't know what your neighbor is going to do and it makes sense that you have protection,'" Rubin said.

It is important for owners to understand that "increased resident participation in renters insurance means that those who cause the damage can actually pay for it. This can have a very positive impact on operating costs, resident relations, and may even help in property insurance negotiations in the future," Dillon said.

If a community requires or recommends that residents purchase renters insurance, the leasing agent can take an active role in enrolling them in insurance plans by telling them, "We know an agent who can get a policy for you," and then making the referral to an insurance company by fax or e-mail, Rubin said.

As one area director learned at a few communities, the premium continues to rise when the insurance company has to cover damages. "To the insurance company a loss is a loss, and our insurance rate is affected whether it is the resident's fault or an act of God," said Gabriele Preston, Area Director for IPA management company. "The ability to negotiate a new insurance contract is diminished because of the loss history."

With less than 20 percent of residents carrying renters insurance policies, the "it-won't-happen-to me" syndrome is common. Preston said, "In reality, residents don't know who lives next door and they don't know if their neighbors live like they do," taking the same precautions. Mistakes happen.

Jack, be nimble,/ Jack, be quick,/ Jack, don't jump over the candlestick, and if you do, make sure you have renters insurance.

Accidents Happen You're Fired

Gabriele Preston, Area Director for management company IPA, found herself facing uninsured residents. She has experienced several incidents in a short time: a cooking fire, an electrical fire and a fire caused by lightning.

At Robbins Nest in Grand Haven, Mich., an apartment was destroyed from a cooking fire, nearby common areas were damaged by smoke and surrounding apartments sustained minor damage. The apartment community's insurance company took care of all the repairs and renovation needed to bring the apartment home and surrounding areas back to where they were before the disaster, Preston said. The owner paid a deductible of $5,000 on total damages of $35,000.

The resident was not insured.

The management company and its insurance company pursued the resident to recoup their costs. IPA was able to arrange a payment plan with the resident to recover its $5,000 deductible, "but the woman was not rich" so the insurance company is still working on the case, Preston said.

The resident's church provided interim housing while the apartment was under repair, and "the resident continued to live there once the apartment home became inhabitable and now has renters insurance," Preston said.

In another fire al all IPA community the resident had renters insurance. The television caught fire while "the resident was home and was able to take care of the matter before it got worse," Preston said. The fire, contained inside the apartment, caused $5,000 to $7,000 in damages.

"The insurance company stepped in and covered the cost to repair the apartment, but the management company was not able to collect its deductible [from the resident] because of the type of policy the resident had," Preston said. The resident did not have liability insurance, only personal property coverage, she explained. IPA is trying to collect the deductible from the resident with difficulty, because the resident moved away and did not leave any notification of new address, she said.

To encourage residents to purchase insurance, IPA includes occurrences such as these in its community newsletters, "showing that incidents are real and they can happen anytime," Preston said. "The majority of claims are due to resident negligence," she said.

The Area Director also said that while it is not mandatory for residents to carry renters insurance their sales people encourage residents to consider it and provide information on local insurance agents.

Accidents Happen The Wrong Kind of Fireworks

Jim Wilson, General Manager at Prairie Creek Apartments in Wyoming, Mich., had a Fourth of July he will never forget.

Accident investigators concluded that a spark from fireworks at a single-family home on the perimeter of the community ignited a wood structure building of 16 apartments. It seems that a spark got underneath the overhang of a second-floor walkway, smoldered and caught fire.

The two-level building had to be demolished and reconstructed. The structure of mostly one-bedroom apartments was scheduled to reopen May 1 of this year, 10 months after the structure became uninhabitable.

Prairie Creek paid a deductible of $10,000 on a total loss of approximately $500,000, not including the residents' personal property loss. With Wilson's estimate that 10 percent of his residents carry renters insurance, the personal loss from this fire was tremendous.

"When something like this happens, you feel for the people, but their is little you can do to absorb their loss." he said. "It's hard for them to understand."

Wilson gave each resident of the 16 apartments $500 gift certificates to a store to purchase household goods, kitchen and bath ware and food, he said.

"We had good insurance coverage and I sat them in the office with I don't know how many young couples and it was hard for them to understand, especially since they weren't responsible," Wilson said. "They lost everything not of their own doing" and didn't have any insurance to cover their loses.

Wilson said he was able to relocate all but two residents of the scorched building in Prairie Creek or a sister community, placing some in two-bedroom apartments at the one-bedroom rate. He offered the residents the opportunity to carry over their leases or renew if they chose, leaving the rent the same. Most residents continued to reside there.

In the end, Wilson said, "We don't do a good job upfront when a person moves into a rental apartment of encouraging them to purchase renters insurance. People leave [the office] thinking their personal property is covered by our insurance" and that is not the case.

Accidents Happen Put in the Lease

Georgia Leslie, Risk Manager with Hartman & Tyner, a property management company of 29 communities in metropolitan Detroit, has been active in several significant changes in its lease and renters insurance requirements.

"After I first started at Franklin Hills Apartments in Southfield, Mich., we had a large kitchen fire. A son and mother were renting an apartment. The mother was the lease holder and the son had a renters insurance policy which paid for them to stay in a hotel while the apartment was being repaired," she said.

The fire caused about $2,000 in damages and the renters insurance policy would not cover the cost.

Leslie explained, "We gave the son the receipt for the repairs and said he should submit it to his insurance company to pay for it. The insurance company would not pay, because Michigan state law states that a [property owner] is responsible unless it is specifically stated otherwise in a contract."

With many things undefined within the law, management companies are left unprotected. To cover itself in the future Hartman & Tyner took a new approach.

In June 2003, the management company started testing a renter's insurance requirement at three communities--the largest has 500 apartment homes and the smallest has 215. Upon renewal or move in, residents sign a lease addendum saying they will carry renters insurance. They can sign up for a third-party policy and provide proof, or use the RegistryTLC product that the company offers. By June 2004 it is expected that all residents will have renters insurance. For $10 a month, residents carry liability coverage of $15,000 per incident and for an additional $5 residents can sign up for personal contents coverage, too, Leslie said.

"At first everyone [management] was nervous how residents would react, but everybody accepted it well," Leslie said. At the higher end community, many residents already had third-party" policies. Leslie only received two or three phone calls from residents who where adamantly against it, and once the residents knew the entire scenario, they understood that this keeps rents down, she said.

"Prior to taking up this program, in the past two years we had an average of nine kitchen fires a year from residents without renters insurance," the risk manager said. Sustaining approximately $900 of damage each time, the management company would have to work out a payment plan with the resident or the resident would retain an attorney and both parties would end up spending money, she said.

The renters insurance program has been so successful that as of Jan. 1, 2004, Hartman & Tyner introduced it at its remaining communities, at lease renewal or move in time.

"By putting this into our lease it definitely defines who is responsible for what," Leslie said.

RELATED ARTICLE: How to conduct an emergency investigation.

Survey the Facts

[check] Take photographs of the scene. Depending on the nature of the event, photograph anything that may be disputed or called into question later

[check] In the case of a crime scene or associated accident, consider taking pictures of locks, latches, pinlocks, windows, pool-yard gates and latches, pool fences, light fixtures and shrubs.

[check] Photographs or videotapes taken at the time of the incident can be effective to destroy allegations about poor maintenance or overgrown landscaping made several years later at a trial. Record the date on the pictures or video and the name of the photographer or videographer.

[check] Request information from the victim or injured party regarding details of the incident and begin preparing the appropriate incident report.

[check] Get the facts from witnesses. Make a list of the names and phone numbers of all witnesses. Try to get them to sign the report of the incident as soon as possible.

Investigate and Preserve Evidence

[check] Test locks, latches, lighting, windows, gates and self-closing/locking devices that are or could be involved in the incident. Perform the test with one or two persons as witnesses who can later testify in court about what was and was not working or defective right after the incident occurred. Perform tests on any related items. Photograph or videotape all investigations.

[check] Test any intrusion alarm or similar electronic devices. Remember to have witnesses. Notify the monitoring service and ask them to test the system also, if the circumstance warrants it.

[check] Procure samples of failed components or representative materials for later testing, if applicable.

[check] Secure all onsite and off-site records and correspondence regarding the residents involved and maintenance records that mw be needed. Photocopy of all records.

[check] Notify the answering service to save all written and audio records covering the time periods in question. Forward the information to the corporate office or designated individual(s) immediately.

Remember, every scrap of paper in the resident's file and every scrap of paper in the entire management office is subject to discovery and subpoena by the plaintiff's attorney. Be careful what gets put in writing in interoffice memos, reports, instructions, training materials, manuals, correspondence, etc.

Cooperate Cautiously

[check] Provide cordial yet cautious cooperation to design professionals, subcontractors, suppliers, insurance representatives and investigators who do not represent enforcing authorities.

These tips were contributed by Kathy Vallie, Association Executive, Property Management Association of West Michigan (PMA). She can be reached at [e-mail].

Rachel F. Goldberg is NAA's Managing Editor, She can be reached at [e-mail].