In Part 1 of this blog series, we warned owners of multi-location businesses who carry blanket coverage that they may be susceptible to requests for extensive financial information from their carrier when they submit a claim for a covered loss. While we’re flagging possible problem areas in your insurance coverage, here’s one for owners of apartment buildings.
If you own apartments, you will likely insure all your buildings under one policy. The problems can begin when you have a loss, and you have tenants who are displaced. In this event, most property owners take the initial step of putting affected residents into whatever vacant units are available – whether within the same building, or in another that you own nearby. This effort is undertaken to try to help the tenants out, and to maintain a positive relationship.
Things get tricky with this arrangement, however, when the insurance company comes into the picture. The carrier might look at that situation and determine that you, as the building owner, are still earning the same level of rental income. After all, the tenant is still paying you rent – it’s just that now that rent is covering a unit that was not otherwise earning you income.
So, you’ll possibly be placed in a position where you must prove to the insurance company that the placement of these residents into vacant units is effectively precluding new residents from moving in. This can be challenging as you may have to get very granular about things like the involved unit types and waitlists. It’s not as easy as saying – ‘We lost this unit and therefore are losing money because we can’t rent it to someone else.’
Ultimately, you have to make a business decision. You don’t want to be a landlord who doesn’t care about your residents, so of course you’re going to try to help. Sometimes what’s best for the long-term business is not ideal for your insurance claim. But if you’re aware of every aspect, you can at least make an informed choice.