The recent high-rise fire in Toronto’s Jamestown district has once again demonstrated the importance of tenant insurance and just how careless some renters can be when it comes to protecting their possessions.
It isn’t the first time temporarily displaced renters have had to learn the hard way that the landlord isn’t always responsible for their losses, and nor will it be the last. While professional managers take diligent steps to ensure every tenant who signs a lease is aware that tenant insurance is a requirement, often this step is skirted. A landlord may demand evidence of insurance before move-in; follow up with yearly reminders and emphasize again and again that the landlord is under no obligation to assume responsibility for events that are beyond their control. Yet still some tenants refuse to buy it, putting themselves at risk.
Some of the sneakier tenants will even go so far as to obtain insurance prior to first occupancy only to terminate it right after move-in. That said, if the landlord can show that a reasonable effort has been made to impress upon the tenant the importance carrying tenant’s insurance, there’s little more that can be done. Terminating the lease for failure to insure is a non-starter for many reasons.
Landlords have a legal obligation to maintain their properties in a safe and livable condition. It is their duty to ensure that the integrity of the building’s envelope is well maintained and that the systems within the building work properly and safely. It is not the landlord’s responsibility to predict events that cannot be expected, and which fall outside of the reasonable right of the building occupants’ expectations of good maintenance and management.
Where a tenant can make a case that negligence on the part of the landlord (or its employee or agents) was the cause of a loss, then the tenant has every right attempt to recover that loss. This does not, however, extend beyond the market value of what was damaged. A simple case in point is that there is no recovery right to have older contents replaced with their newer equivalent. For that reason, tenant insurance policies provide coverage on a “replacement cost” basis, recognizing that there might otherwise be a financial hardship that the tenant is unable to handle. The cost of “new” is normally higher than the value of “used”, which is the limit of the legal responsibility that any landlord might have, assuming negligence is evident.
Tenant insurance policies, in the same fashion as home insurance policies, also provide assistance in paying for temporary lodgings if the apartment is untenable. Thus, the insurer helps maintain the tenant’s monthly living costs at the same level as that of being in the apartment, even though the hotel bill is going to be much higher during the repair period.
The reality (based on the best empirical evidence available) is that about one half of all tenants do not insure. Where the damage is unexpected and unpredictable, the onus is on the tenant to prove the landlord’s liability. A tenant who won’t pay a few hundred dollars for insurance is one who can hardly afford to hire legal counsel to take on the landlord. The result is usually vocal complaining that the problem was not created by the tenant and thus the responsibility is automatically that of the landlord. For the landlord, this becomes uncomfortable identification in the press and also, ultimately the loss of one or more affected tenants.
Despite this being a long-standing problem, very little has developed into a solution. The reasons are fairly obvious: for starters, tenants are voters too and it would be a bit scary for anyone seeking political office to try to suggest to the renting public that tenant insurance is mandatory. On occasion, insurance brokers have attempted to create programs for larger landlords wherein tenants are offered such policies, perhaps even at a discount, but the fact that the purchase of tenant insurance is not enforced, or enforceable, renders such attempts meaningless.
One option would be to take a page out of the leasing business, wherein the lessee’s failure to provide ongoing evidence of insurance allows the leaser to build an insurance charge into the leasing contract. If a landlord were to add a small charge to the monthly rent (perhaps $25) where the tenant has not proven the existence of coverage, he or she could then use that money to arrange insurance for the tenant through an insurer. However, the right to levy that charge would have to be enshrined in the lease. Failure to pay would essentially be the equivalent of being delinquent in the payment of rent and allow the landlord, if it so wished, to terminate for non- payment. We can easily assume that few tenants would want to face eviction for not having paid that small additional amount.
This problem of uninsured displaced tenants, following an unpleasant event, will not go away until all tenants have some form of insurance at a cost that, to this day, is pretty insignificant.
Andy Schwartze, BSc., MBA, CIP, is an insurance broker specializing in property management and real estate. He can be reached at: andy@takecover.ca
