This article was posted on Saturday, Apr 01, 2023

There have been some major changes and developments in the real estate marketplace recently that have had and may continue to be extremely costly for landlords and apartment owners!  The industry is experiencing double digit property insurance rate increases and finding competitive insurance solutions has never been so difficult for apartment owners.  The good news is, there still  are really good options out there for apartment owners and landlords seeking competitive options.  You just need to know where to look.

Apartment Owner Market Conditions

Reinsurance property rates have gone up 70% – 90% in a very short period recently due to the number of catastrophic storms and fires that have taken place across the country.  Due to the losses that insurance companies have taken, insurance premiums have increased significantly for apartment owners, coverage offering and coverage forms have gotten more restrictive and underwriting is becoming even more strict, resulting in carriers requiring newer built buildings with updates to plumbing, electrical and roofing among other things with appetites for only the most favorable of risks.  With the increase in fire risk and environmental exposures property, carriers have exited many markets leaving landlords and apartment owners with fewer and fewer markets to select from resulting in even tougher to find solutions.  We have heard that even companies like State Farm have paused, offering property insurance for apartment owners in California starting in February.    

There has been a continual update and change to fire hazard mapping which has not only increased insurance rates/premiums for property owners in specific cities and areas, but has made finding coverage even more difficult to secure due to insurance companies unwillingness to offer coverage in higher fire prone areas.  Even with double digit property rate increases in the past 12 months, we foresee this trend continuing for the average apartment owner that doesn’t have a specialist working with them.  Even then, it likely requires an even more creative approach to achieve a superior solution that is more competitive than what the average marketplace has to offer.

Insurance to Value: Buildings, Business Personal Property and Rental Income

Most property insurance policies settle buildings and business personal property claims on a “Replacement Cost” basis rather than the price you paid, or the depreciated or actual cash value.  Construction supplies have increased exponentially over the last two years, thereby affecting the replacement cost that you should be insuring your buildings and business personal property. 

In addition, the time it takes to rebuild has also increased.  This affects the Rental Income limit and/or time you need to reconstruct after a loss. 

- Advertisers -

Careful attention needs to be made to each of these limits especially when underwriters impose penalties for under-insuring.  A knowledgeable broker will be able to assist in securing proper valuations on your behalf.

Beware!  Key Coverage Exclusions for Apartment Owners

One of the most important coverages that apartment owners and landlords should have in place is coverage for habitability lawsuits.  Landlords in California are facing an increase in growing litigation risk that has sent red flags to insurance companies across the country.  California courts are handing down million dollar awards to tenants in lawsuits where landlords are failing to maintain “habitable” properties.  As a result, insurance companies have either stopped offering coverage to apartment owners all together, exited California all together or are excluding this coverage in the policies they are writing for landlords.  It is now more probable than ever that if you haven’t done a thorough review of your policy, an apartment owner may have a current exclusion on their policy form for cockroach or bedbug infestations or even broader a complete “habitability” exclusion. 

The best course of action for a landlord to protect themselves is to be proactive in their approach to maintenance and have detailed records of their maintenance and upgrades they are regularly making.  Some recent habitability claims we have seen was in 2018 a jury awarded $1.6M to a single family in Los Angeles County for a bedbug complaint.  Also in 2015, nearly 100 tenants were awarded $2.18M in a settlement involving allegations of cockroach infestations, in addition to heating, plumbing and electrical issues.  Several other trends are contributing to an increase in high awards to tenants.  Another contributing factor may be California statutes that allow for recovery of attorney fees in certain habitability claims.  Los Angeles, among several other California cities, allow for payment of attorney’s fees which are included in an award for violation of applicable rent control ordinances.

Insurance companies that insure apartment owners in California and many other states have been steadily adding habitability exclusion wording to their insurance policies.  This exclusionary language varies from insurance company to company, but is essential to have a specialist in landlord insurance coverage provide an expert opinion and overview of what is and isn’t covered.  In California, a landlord is obligated to provide a habitable living space, which is referenced in CA Civ. Code 1941.2.   This legal requirement, commonly known as “implied warranty of habitability”, also outlines the tenants rights of repairs when not made in a timely manner. 

Quick Habitability Facts:

  • Landlords Responsibility: Windows/Doors, Roof, Hot/Cold Water, HVAC, Plumbing, Electrical, Gas, Sanitation Facilities, Trash Can, Stairs/Railings, Floors, Fire Exits, No Combustible Materials, Smoke Detectors, Mailbox, Telephone Jack
  • Time Limit for Repairs: 30 days
  • Tenant Recourse Options: Withhold rent, repair and deduct if less than monthly rent and abandonment if “unlivable”


Insurance carriers through inspection are looking to avoid properties with faulty or dangerous wiring, pest and vermin infestation, peeling paint, faulty weatherproofing, broken windows, leaking roof or water intrusion, lack of carbon monoxide or smoke detectors, faulty plumbing, water sealing, mold, lead-based paint and “lack of general maintenance”.  The other major concern for insurance companies, as it relates to habitability exposures, is these legal complaints can date back to four years which would result in coverage triggers over multiple policies/policy periods.  There is some language that insurance companies include to exclude coverage that isn’t as obvious.  This includes wording that precludes coverage for violation of any federal, state or local laws, ordinances, statutes or health codes and failure of the insured to maintain any premises in a safe, sanitary, healthy or habitable condition.  On top of this, insurance companies do not have an obligation to defend or indemnify insureds for non-covered conditions. 

This trend of excluding habitability claims by insurers is growing which means it’s more important than ever for apartment owners and landlords to understand what coverages they have and what essential coverages are excluded from their policy forms. 


Bottom Line

Apartment owners that are proactive to their risk management needs are going to see a great return, pay less in premium and secure broader coverage terms.  Our advice is to partner with an insurance expert that specializes in the real estate industry and has a proven track record of success specifically with apartment owners and landlords.  It’s imperative that your insurance brokerage has access to all carriers that can offer the product and service solutions that will meet your all risk management needs.  Don’t be passive when renewing your insurance policies, it’s never too early to have a real estate insurance expert review your insurance portfolio to avoid any catastrophic surprises.


GS Insurance Solutions is the exclusive endorsed insurance brokerage for the AOA, Apartment Owners Association of California.  We specialize in the real estate industry and as a result of our penetration on the real estate space, we have a plethora of products and exclusive services tailored specifically for apartment owners, landlords and property managers.  We are domiciled in California with thousands of real estate clients across the country.  For more information or to get a quote, call (800) 827-4262.