Members of a fraternity at a Sacramento-area college badly damaged a house they were renting and since the landlord doesn’t know who put holes in a wall, or tore up the bathroom tile, he’s suing everyone listed on the lease.
That’s just one example of a potentially nightmarish scenario in which every roommate doesn’t have a renters insurance policy.
Only one of the fraternity members on the lease had renters insurance, which provides liability coverage and protects the policyholder’s personal property and covers additional living expenses. Four others without renters insurance could end up paying out-of-pocket for some or all of the damages they are being sued for, whether they were directly responsible or not.
They also are paying out-of-pocket for Jonathan Stein, an attorney in Elk Grove outside Sacramento, to represent them in the case. Even if a person is no longer living at a residence, they could be considered liable if their name is on the lease.
“Most people don’t think about that,” Stein said. “Most people assume that if there is a renters policy that it covers every renter in the house or apartment and it doesn’t.”
More than 95% of individuals who own a home have homeowners insurance because mortgage lenders require owners to have a policy. Landlords generally do not require renters to have a renters insurance policy and they often forgo it. Only 37% of renters have renters insurance, according to the Insurance Information Institute and there is no data available on how many roommates each have their own policy.
Stein handles a variety of cases but is especially familiar with insurance claims. He was an insurance adjuster for nine years, earned his Chartered Property Casualty Underwriter (CPCU) designation and has handled claims for many things including homes, boats and airplanes. Law school was intended to be an avenue into risk management but he ended up working at a couple firms then starting his own practice.
Thefts and fire damage are two common reasons renters go to Stein for help.
Like liability coverage under renters insurance, the personal property protection is exclusive to the policyholder and resident relatives. The personal property of a roommate is not covered and that news could be alarming after a theft or a fire.
Even for a policyholder, proving to an insurer what property belonged to who can be challenging after a loss. Without documentation, tenants can be at the mercy of insurance companies.
“You know, it's really kind of hard to prove [who owns what],” said Evangeline Grossman, a partner at Shernoff Bidart Echeverria Bentley LLP in Los Angeles. “A lot of people don’t save receipts, particularly college students or people in a situation where they have a roommate. So huge portions of their claim are going to get denied because they couldn’t prove it was their item in the first place.”
Grossman said renters insurance cases are usually pretty small and that her firm doesn’t take on many related cases. Founding partner William M. Shernoff is best known for establishing case law in 1979 that allows plaintiffs to sue insurance companies for bad faith.
Avoid the “deposition from hell”
Attempting to file a claim for property that does not belong to you is not advised. Doing so is fraud and insurance companies dedicate substantial resources to identifying and investigating potential fraud cases.
A common practice by insurers is to conduct an examination under oath if they suspect a claim is fraudulent. Grossman said companies frequently hire outside counsel to administer the examination, during which they ask the policyholder questions and to bring forward documents and receipts.
She said policyholders should have an attorney present during the examination because it is on the record. However, they frequently can’t afford an attorney or underestimate the importance of having one present during the examination. Without an attorney to guide them, policyholders could make a statement that insurance companies can “pick apart” and use to deny a claim.
Stein’s comments on examinations under oath echoed Grossman’s. He called them a “deposition from hell.”
“They are really fun if you are the attorney taking the examination under oath," Stein said. "They are a complete nightmare if you’re the person being examined."
The reason, he said, is that the examinations are extremely broad and failing to cooperate with the insurance company can mean denial of a claim. Stein added that an adjuster can perform an examination under oath but they are almost always conducted by an attorney once fraud is already suspected.
No specific amount claimed draws special attention from insurance companies or automatically leads to an examination under oath. Stein said as an adjuster, he saw companies treat $5,000 claims as if they were $5 million claims.
The cost versus the benefit
Both Grossman and Stein said each renter should have a renters insurance policy.
“For me, renters insurance is one of the biggest no-brainers around,” Stein said. “The cost is so low and...it’s so valuable but people never think about it. I think it’s really an area where people need to get themselves educated about it.”
Grossman said having renters insurance policies from the same company would help roommates in the event they need to file a claim. That circumstance would eliminate potential back and forth between independent companies involved in a claim.