In most cases, when “Liability” insurance is discussed, the key topic of conversation is going to be the policy coverage limits.  Does your rental property policy come with $300,000 of liability coverage, or $500,000?   These days those amounts are considered to be low, and many investors actually have landlord policies that include lawsuit limits of one or two million dollars.

But something that is seldom discussed is, who is going to pay for the attorneys, court costs, and other miscellaneous legal fees?   In one recent case involving a rental property, a lawsuit was brought that demanded $5,000.  By the time the case was settled, the landlord had spent $9,000 for attorney and court expenses.

The landlord won the case, but the court did not award him his defense expenses.  It is not uncommon for legal defense expenses to exceed the amount being requested as damages in a lawsuit. Your insurance policy gives your insurance company the final say in the settlement of a covered claim.  That is, they may decide that the damages being requested are a lot less than the cost to litigate, and therefore they can decide to pay the damages rather than stand on principle and go to court.

Most insurance companies pay all of the defense expenses whenever there is a covered claim.  And, many companies do so without any deductible charges for the policyholder (a ‘deductible’ for a liability case is actually referred to as a ‘retained limit’ and not a ‘deductible).

And there’s more good news:  whatever the insurance company spends for the defense expenses, is in most cases, an internal expense for the insurance company and therefore does not reduce or lessen the liability limit of the insurance policy.  In other words, if your policy has a $1 million liability limit, and the legal defense expenses for a covered claim total $300,000, the $300,000 is not deducted from the $ 1 million policy limit.  You still have $ 1 million available to pay out if your side loses the case.

Lastly remember that Liability Insurance generally focuses on bodily injury and does not cover all situations.  Technical issues or legal questions may be considered to fall in the area of professional property management and insurance coverage is only provided by an errors and omissions insurance policy that is specific to residential property management. Here’s another good reason to avoid doing your own property management and make sure someone you hire has property management errors and omissions insurance…with policy limits of at least $ 1 million.

* * * * * * CLARK SANCHEZ has been an Arizona insurance agent for almost 40 years and has been a Vendor-Affiliate with AZREIA for over 17 years.  You can contact Clark if you have any insurance related questions at: clark@clarksanchez.com   or  (602) 803-2179