Skyrocketing rents mean that tenants have more financial incentive than ever to sue for wrongful eviction and other claimed violations of the San Francisco Rent Ordinance. Many rental property owners and operators are unaware that they lack adequate wrongful eviction insurance to protect against such claims. Even if an owner wins a wrongful eviction or related case in court, legal fees can easily exceed $100,000. For those who lose, even if the violation was unintentional, the financial loss can amount to hundreds of thousands more.
This article explains why adequate coverage is more important than ever, and explores the basics of wrongful eviction insurance. The concept of “rent differential” damages is the key to understanding why wrongful eviction lawsuits increase when rents skyrocket. Rent differential is the difference between the former tenant’s monthly rent and the actual rental value of the unit. As we will see, it can quickly add up. When a residential tenant claims that a property owner or owner representative has wrongfully endeavored to recover possession of the tenant’s unit, the San Francisco Rent Ordinance authorizes the tenant to sue for triple the amount of actual damages and to recover attorney’s fees. Rent differential is a major component of these damages.
Consider the example of a tenant who claims he had to move out of his rent-controlled apartment because the owner refused to evict the excessively noisy neighboring tenant. The “evicted” tenant leased the unit in 2012, and paid monthly rent of $2,500. The current monthly rental value is $4,500, a rent differential of $2,000. If the tenant claims that he would have lived in the unit for another five years, the potential rent differential damages are $120,000.
However, it gets worse. Because the Rent Ordinance provides for treble (triple) damages, the actual rent differential damages exposure is now $360,000. Now add attorney’s fees to defend the action, the tenant’s attorney’s fees, and the amount of additional distress, and the total exposure in this scenario can easily exceed $600,000.
With these kinds of potential damages, it is not hard to understand why skyrocketing rents increase the financial incentive for even a relatively short-term tenant to sue for wrongful eviction.
The Basics of Wrongful Eviction Insurance
A typical liability insurance policy protects a property owner only from lawsuits and liability for ‘bodily injury’ and ‘property damage.’ These policies typically exclude claims for ‘personal injury.’ Personal injury coverage protects against intangible or economic harm to a claimant that does not arise from a physical injury to the claimant’s body. Wrongful eviction and other claimed violations of the San Francisco Rent Ordinance typically fall under this category.
The good news is that insurance companies offer policies that specifically cover personal injury claims, including claims for wrongful eviction. An owner can obtain such insurance through a separate policy rider or through a broader comprehensive general liability policy.
In either case, an owner must pay careful attention to the language of the policy to confirm that it offers adequate coverage. Further, the owner should obtain appropriate umbrella liability insurance coverage. The section of the policy that defines “Personal Injury” (sometimes called “Personal and Advertising Injury”) typically defines the extent of wrongful eviction coverage. The coverage definition should specifically reference coverage for “wrongful eviction” and
for “invasion of the right of private occupancy.” Not all wrongful eviction policies include coverage for the “invasion of the right of private occupancy.” However, this phrase is important to owners because of the intricacies of the San Francisco Rent Ordinance.
Further, the owner should obtain adequate umbrella liability insurance. Umbrella insurance covers for losses in excess of the limits specified in other policies and potentially serves as primary insurance for losses not covered by the other policies. An umbrella policy
should specifically apply to the “wrongful eviction” and “invasion of the right of private occupancy” coverage clauses of an owner’s primary insurance. If an owner does not have such primary coverage, then the owner should confirm that the umbrella policy specifically covers these types of claims and that it “steps down” to cover the first dollar of liability.
These opinions and information are general in nature and not legal advice. For any specific matter, please consult a qualified attorney. Steven L. Hammond is a partner at the law firm of
Morris, Polich & Purdy, LLP. He can be reached at 415.984.8554 or at [email protected]. Reprinted with permission of the Small Property Owners of San Francisco Institute (SPOSFI) News. For more information on becoming a member of SPOSFI or to send a tax-deductible donation, please visit their website at www.smallprop.org or call (415) 647-2419.