I just went through a lawsuit experience that underscores the importance of adequate insurance coverage and why with recent developments, you might want to examine the policy you have in place.
As background, my family owns a three unit building comprising of two residential units and one commercial. Our commercial tenant is a church. We hold title through an LLC. We have an insurance policy with a million dollar limit for personal injury and a one million dollar limit for each occurrence. I also made the church get a million dollar policy` similar to ours. So, between the LLC and the inusrance policies, I felt pretty secure. Well, the risks that I saw in lawsuit made me think many landlords might not have enough coverage.
So, in May of 2011, a person was walking and supposedly tripped by the church entrance. She broke her ankle. I won’t get into details but it was not clear as to whether we were at fault or whether the church was. Plus, the lease was a tad ambiguous on who had the responsibility for repairs/liability(I used a Blumberg form). So, the plaintiff sued both the church and us. The Brooklyn Courts are so slow that the case did not come up for trial till May of this year. Now, when you have a suit like this, the landlord does not pay. The insurance company does. So, the insurance company had counsel ready to go. So, I was expecting a settlement but both sides were prepping for trial. I spoke to “our” counsel and he told me a pretty scary revelation. Recently, a plaintiff won over a million dollars for a similar set of circumstances and it was affirmed on appeal. A million bucks for a broken ankle? Seems crazy but those are the risks. Now, my folks had an umbrella policy also so there was not a huge risk of anyone being able to get their house. Indeed, the property was owned through an LLC(with the intent of no one being able to get to my parents personal assets). However, let’s say you had a policy limit of $500k and owned the property in your name outright. You could be in trouble and depending on the facts. Given the current legal landscape, a plaintiff might not want to settle. Now, I am not 100% sure what would happen if you lost. I would think most likely anything not paid out by the insurance company could result in a lien on your property or the plaintiff goes after your personal assets. Not sure but that seems to be the risk. Now, I created the LLC because there was no mortgage on the property and a transfer of ownership would be easy. We upped our limits on the insurance in 2008. I told the church that a policy less than a million bucks was a deal breaker. My folks were wise enough to have the umbrella policy of a million bucks. Like I said, I was pretty confident that we would not get hurt but we were pretty diligent. The case settled and the plaintiff got a pretty generous settlement. The insurance company couldn’t take the risk. There was no money out of our pocket. But, folks, take a look at your policies as they are more important than owning your property through an LLC(if you do this). If you own property in your own name, I think it is imperative to have a lot of insurance coverage.