Landlords across the United States are facing growing challenges with habitability claims. These claims have become a major issue due to rising rents, overcrowded housing, and an increase in institutional ownership of rental properties. As a result, landlords are dealing with a tough legal and insurance environment, especially in states known for their tenant-friendly laws.
The financial risks for landlords have heightened significantly. With jury awards on the rise and more attorneys seeking tenants with potential habitability complaints, landlords are feeling the pressure. Insurance companies are responding by tightening coverage and adding stricter exclusions, particularly in states like California, which have a history of high claim frequencies.
Chris Murphy, an executive vice president at Amwins in San Francisco, pointed out that habitability claims often arise when tenants report violations of health and safety codes. These codes cover essential services like plumbing, electrical systems, heating, and pest control. Murphy emphasized that landlords who ignore these issues could face severe financial consequences.
California has gained attention for habitability litigation due to its tenant-friendly laws and numerous high-profile cases. Many insurers are either withdrawing from these markets or limiting their coverage for habitability claims, which adds to the difficulties landlords face.
Murphy identified several reasons behind the increase in claims. As rents rise, overcrowding becomes more common, leading to increased wear and tear on properties. Additionally, many personal injury attorneys actively look for tenants who might have habitability complaints, further increasing the likelihood of litigation.
The insurance industry has reacted by tightening policy terms, especially in states with frequent lawsuits. Coverage for punitive damages, attorney’s fees, and statutory penalties is increasingly excluded from commercial general liability (CGL) policies, leaving landlords to bear more risk.
To mitigate these risks, Murphy suggests that landlords maintain thorough records and conduct regular property maintenance. Good documentation can serve as evidence that landlords have fulfilled their responsibilities. He also recommends that lease agreements clearly outline tenant responsibilities, including the importance of maintaining cleanliness and reporting maintenance issues promptly.
Murphy noted that habitability problems often stem from tenant negligence, such as clogged pipes or pest infestations caused by poor cleaning habits. As the insurance landscape evolves, landlords are seeing rising premiums and stricter scrutiny from underwriters. Insurers are now using tools like crime scores to assess property risk, which, while not always accurate, are becoming increasingly influential in determining insurance coverage and costs.
For landlords operating in higher-risk areas, Murphy advises collaborating closely with insurance brokers. A knowledgeable broker can help ensure that landlords have the right coverage as market conditions change.
While it may not be possible to eliminate all habitability risks, Murphy believes that landlords can significantly reduce their exposure through proactive property maintenance, comprehensive documentation, and clearly defined tenant responsibilities. By staying ahead of these trends, property owners can better manage their risks and protect their financial interests.