What is Tenants Legal Liability Coverage?
Tenants Legal Liability coverage (TLL coverage) is a specialized form of liability insurance found in most tenant or renter policies, including broader package policies covering tenants. TLL coverage protects tenants from liability for property damage in the context of a lease agreement that renders the tenant legally liable for such damage. Lease provisions that create liability are often referred to as leasehold agreements.
Regardless of whether the lease is written or oral, stated as an exclusion, warranty, or covenant, an agreement to pay for certain losses or damage to premises generally creates a liability . For example, if a lease states that a tenant will be responsible for any damage caused to the property, any loss or damage to the property resulting from an insured peril – such as fire, water damage, or theft – may create a liability for the tenant under the terms of the lease. Similarly, if a lease provision states that the tenant will not be liable for any loss or damage to the property at any time, even though it is not consistent with what would normally be found in a lease, that provision may also create a liability on behalf of the tenant.
While TLL coverage may be included in both tenant and condominium policies, most of the discussion surrounding this type of insurance occurs in the context of tenants or renters. The reasoning behind this is the best example of how TLL coverage works is in the context of a lease between a landlord and tenant.
Tenants Legal Liability Insurance Key Features
A tenants legal liability insurance policy is generally intended to cover an insured’s liability for damage to "building property" caused by the insured or other parties for whom the insured is liable. Generally speaking, however, liability policies, which are intended to cover "all sums" that the insured is "legally obligated" to pay as damages because of "property damage," will serve to protect against liability for damage to "building property" without the need for specific language providing coverage under the policy’s liability insuring agreement for damage to real property owned or rented by others.
Coverage A of the sample form submitted to the legislature in 2019 provides:
The Insurer agrees to indemnify the Insured on the following terms and conditions:
Insured’s Policy: To pay all sums which the Insured shall become legally obligated to pay as damages because of loss or damage to building property caused by fire, explosion, impact by vehicles and aircraft, leakage from automatic sprinkler systems, earthquake, storm, flood, escape of oil or water, smoke and other causes of loss covered by the Insured’s fire policy as defined by the Insurance Act of British Columbia policy of insurance in effect during the currency of this form, in the course of the Insured’s use of the premises.
This is the standard coverage A insuring agreement for tenants legal liability insurance, although the factors triggering coverage may vary. For example, the form policy contained in the 2000 file for the B.C. Insurance Act provided:
The Insurer agrees to indemnify the Insured on the following terms and conditions: To pay all sums which the Insured shall become legally obligated to pay as damages because of loss or damage to building property caused by fire, explosion, impact by vehicles and aircraft, leakage from automatic sprinkler systems, earthquake, storm, flood, escape of oil or water, smoke and other causes of loss covered by the Insured’s fire policy as defined by the Insurance Act of British Columbia policy of insurance in effect during the currency of this form, in the course of the Insured’s use of the premises.
The 2000 form policy removed the listed perils for which coverage applied and simply relied upon the coverage afforded by the insured’s fire policy. Thus, unless otherwise defined in the insuring agreement, the standard form of tenants legal liability liability insurance in B.C. would apply to any damage to "building property" caused by a covered peril under the tenant’s policy.
The insuring agreement also included specific exclusions for damage which arose "deliberately, maliciously or wilfully," "intentionally or inadvertently." Specifically, the forms excluded liability for loss or damage intentionally or inadvertently caused to property that had been previously damaged, unless the damage was "repaired or compensated for by or at the instance of the Insured." The context of that exclusion in the form could easily be read to exclude liability for damage to "building property" after damage to "building property" had already been repaired by a tenant or its employees, contractors or agents.
Liability policies generally require that the loss be caused by an "occurrence," which is further defined as an "accident." The term "accident" is not defined in tenants legal liability insurance form policies. In its strictest sense, the term "accident" excludes gradual damage, but when taken in context, a reasonably arguable position exists for sudden and accidental damage to "building property." Therefore, if the damage to "building property" occurs suddenly in the form of a leak, the tenants legal liability insurance policy may cover liability arising from that loss.
These components of tenants legal liability insurance policies appear reasonably straightforward, but common sense does not always apply in the insurance context. A B.C. court found that hidden damage to "building property" fall within the coverage intent behind tenants legal liability insurance policies, even though the ordinary meaning of the terms would exclude such damage.
Tenants Liability Versus Renters Insurance
The terms tenants legal liability coverage and renters insurance are often used interchangeably, but they are really two very different policies. One common misconception is that tenants legal liability coverage is renters insurance with a higher deductible and premium. The reality is that tenants legal liability coverage is just that: tenants legal liability coverage, which is meant to cover claims that the apartment owner or landlord might have against the tenant. It is not meant to cover any personal property that may be either inside or outside the unit being rented.
Some scenarios as to when tenants legal liability coverage applies include:
1. A water leak from the tenant’s unit causes damage to a neighbor’s unit.
2. A guest of the tenant negligently leaves a candle burning, which ignites and burns the building.
Common misconceptions about renters insurance are as follows:
- Renters insurance covers landlords for the all the above-noted situations. This is false.
- Renters insurance coverage is intended to cover a tenant’s contents. This policy is supposed to cover the tenant’s personal property, including clothing, furniture, jewelry, electronics, etc. Essentially, as long as it is not the legally responsible tenants ability to buy it, it is supposed to be covered.
- Renters insurance is usually affordable and cheap. Not really. The only time I have seen renters insurance add a reasonable fee to a tenants monthly rent is when application fees are waived on properties. I have seen others where the cost of the renters insurance is added up front in addition to the application fee, and I have also seen rentals where the landlord or agent has charged tenants a one-time administrative fee, and then they buy the renters insurance policy on their behalf.
The above is a very short synopsis about the differences between tenants legal liability coverage and renters insurance. If you have any questions, please feel free to send us an inquiry, and we will do our best to help you.
Tenants Legal Liability Coverage Benefits
The real benefit to Tenants Legal Liability coverage is that it protects the tenant from financial loss if he is accused of causing damage to the building and he has no say in who fixes the repairs or how much it costs. Problems can arise under a Residential Tenancies Act lease if a tenant causes damage. If there is a question about what caused the damage, and the owner cannot conclusively prove that the tenant was responsible, the tenant may be able to avoid paying for all of the loss-out of his own pocket. If the owner is wrong, the tenant will sue for the loss that he has incurred.
A tenant who has Tenants Legal Liability coverage will allow the tenant to fight the matter out in insurance court, without having to pursue the issue through the residential tenancies process. It will speed up the resolution of the issue and will save the tenant money. In addition, it is unlikely that a tenant will need to defend his tenant’s legal liability claim with his own money. The insurer will typically fund the defence.
Here are few examples:
Example 1. Craig has Tenants Legal Liability coverage on his tenant’s policy. His furnace breaks down and causes damage to the building. Craig is sued under the Residential Tenancies Act by the landlord for the damage. Craig tells his insurer about the incident and submits his defence and occupation’s counsel account to his insurer. His insurer pays his defence lawyer and settles the claim for very little (it turns out the furnace didn’t actually break down but malfunctioned, something that wasn’t Craig’s fault). Craig has no costs and no problems with his landlord.
Example 2. Tanya and Mark have Tenants Legal Liability coverage, and they rent a condo from their friend David. Tanya leaves a candle burning on the coffee table all night. The candle causes a small fire and damages the condo. The condo unit has extensive smoke damage. Tanya is sued under the Residential Tenancies Act for the damage. Her insurer pays her defence costs. It turns out David is responsible for the damage as he had a faulty electrical outlet. Tanya’s costs are paid and David pays nothing intimately.
Example 3. Pierre and Tanya have matching Tenants Legal Liability coverage on their tenant insurance policies. They are renting an apartment. The sump pump in their basement fails during a rainstorm and damages their neighbours’ property. According to their policy, they will contribute $5000 of the claim, or limit their liability for the neighbour’s property to $5000. Their neighbour sues them for the damage. Their $5000 contribution from the neighbour’s property and legal fees total $29,684.94. Tanya and Pierre are joint and severally liable for making up the difference -$24,684.94. Tanya and Pierre do not trust each other. Tanya says she is $10,000 short. Pierre says Tanya is responsible for $22,000 at least. They separately tell the insurer what they are referred to doing. Tanya says $10,000 on her tenant application for benefits. Pierre says Tanya’s part of the claim is $22,000 on his tenant application for benefits. The insurer believes Pierre. The claim is still ongoing. Tanya and Pierre may sue each other for the $12,000 difference. If Pierre wins, Tanya could end up paying the full $22,000 himself.
Who Should Have Tenants Legal Liability Coverage
In most cases, it can be assumed that all tenants should purchase tenants legal liability coverage. This is because it is mandatory for basic renters insurance policies. Tenants legal liability coverage is generally the first coverage option listed under the "Property Coverages" section of an individual policy. It is essentially included by default, unless the insured policyholder specifically opts to waive it.
To put it in simple terms, renters insurance with tenants legal liability coverage is compulsory level coverage designed to protect both the landlord and tenant from extensive damage in the event of a fire or other disaster which renders the unit uninhabitable. The reason tenants legal liability coverage is required is due to packet A of the approved Ontario standard tenancy agreement , which states that landlords and tenants must each maintain insurance on their units and that both the landlord and tenant must be able to provide proof of insurance if requested by the other party.
Due to the overwhelming demand from insurers, that tenants maintain this crucial coverage, it is uncommon for an insurer to agree to waive tenants legal liability coverage for tenants who can prove a significant underlying home insurance policy with ample supplemental liability coverage.
As such, nearly all multi-unit commercial apartment buildings and steadily occupied condos will benefit from tenants legal liability insurance.
How to Select The Right Policy
When deciding what type of tenants legal liability insurance coverage to buy, a tenant should consider some factors such as the level of coverage offered, premiums and deductibles. For instance, a general liability policy may include coverage for potential tenants legal liability claims but it is not a specific tenant legal liability insurance policy. A general liability policy may contain many exclusions while a tenant legal liability policy is tailored to provide coverage for a tenant.
The amounts of coverage will vary, but the insurance industry is experiencing a trend towards offering tenant legal liability insurance of $100,000. Higher limits are available usually with higher premiums and deductibles. Having enough coverage to cover the financial burden of the reasonable costs of repairs in the event of a covered claim is highly versus "saving" money on premiums and forcing the insured to deal with a "major headache" with paying out-of-pocket for many small liability claims. It is also wise to check the liability policies of your landlord/management company to make sure your coverage overlaps with theirs and you are not "double-dipping" for the same claim.
A deductible is the amount that the insured must pay out-of-pocket for a loss before the insurance coverage kicks in. Higher deductibles mean lower premiums but may also mean that the insured is paying out-of-pocket for more of the loss. Because buildings are generally assessed at replacement value and contractors often use quoted estimates that can reach into thousands of dollars to repair the damage a few hundred dollars in savings in the premium may be insignificant in comparison to the repairs. Although many carriers offer deductibles of $1,000 or less, the coverage can usually be obtained by self-insuring some portion of the water damage loss. The self-insured portion can be thought of as a true deductible; one that the insured must personally pay. Larger self-insured portions reduce the insurer’s claims handling expenses.
Tenants Legal Liability Coverage Misconceptions
Among the most pervasive of outdated misconceptions is the lack of coverage provided under typical Tenants Legal Liability forms. The intent of Tenants Legal Liability Coverage is not to deny coverage; rather, it is intended to provide coverage for loss or damage for which a tenant is legally liable.
Another common misconception is that Tenants Legal Liability is still available on a Personal Property Floater. Although a variety of Tenants Legal Liability forms were widely available in the early 90s on Personal Property and Valuable Papers FLOP policies, they are now provided only on Building and Personal Property policies.
Finally, one of the biggest misconceptions relates to the intent of Tenants Legal Liability coverage. Although property owners can typically enforce terms of their lease agreements by pursuing collection on judgments and other enforcement actions, it is often very time consuming and costly to recover on these judgments. Tenants Legal Liability Coverage, however, provides an immediate, direct payout when insurance proceeds are paid for a loss.
Filing A Tenants Legal Liability Claim
Submitting a claim under tenants legal liability coverage generally involves the following steps:
- . Read your tenants legal liability endorsement.
- . Report your claim to your insurer and obtain a claim number.
- . Whenever you report your claim, the best practice is to obtain the name of the claim representative and a contact number. That way, you’ll have a way of tracking your claim.
- . Fill out a property loss notice.
A sample notice is provided below:
DIRTY AGENCY INSURANCE COMPANY
Phone Number: __________________
Your Name: _____________________________________________________
Policy Number: ________________________________________________
Your Address: __________________________________________________
City: ________________State: _____Zip: _____
Claim Number: _________________________________________________
Describe what happened clearly: ___________________________________________________
____________________________________________________________________________________
When did the loss occur? ___________________________________________________________
Where did it happen? ________________________________________________________________
Do you have receipts for all of your damaged contents, if so, submit them to us .
List your damaged property: _______________________________________________________
Was the property damaged because of "wear and tear" or was it suddenly damaged? ____________
Was anyone else in the property (i.e., guest, delivery person, etc.) injured by the loss? __________
Were you aware that there were any hazards in the property that needed repair? ______________
Were you aware of any leaks, non-flush toilets, running water, etc. in the area of loss? ___________
Has any previous damage occurred to the area of loss? _________________________________
Do you have pictures of the damage? ________________________________________________
Was there a flood in the area of your unit? ______________________________
Your Signature: ____________________Date: ___________________________
Your Email: ________________________
DONOT SEND US YOUR RECEIPTS!