$10 million... $20 million… $30 million… the sums landlords are covered for under 'legal liability' in their insurance represent lots of zeros, but just what is liability cover and why do you need cover with seven-figures?
There is mention in most landlord insurance policies about legal liability (sometimes referred to as 'public liability' or 'liability to others') and it usually notes a cover limit stretching into the tens of millions. Many landlords know there is cover for liability, but it is not until something goes wrong they realise how invaluable this protection can be.
So what exactly is liability? According to Black's Law Dictionary, liable means "responsible or answerable in law; legally obligated". Let's dig deeper…
What are landlords liable for?
Landlords (and in some instances an agent acting on their behalf) have a responsibility to provide a safe and liveable property for tenants and any person who is legally on the premises. This includes guests, delivery people, tradies, property managers, utility meter readers or visitors (like charity collectors). Landlords must take care to avoid foreseeable harm whether it is property damage or injury to their tenant and other visitors to the property. To a degree, it may even extend to people who do not have permission or a lawful right to be on a property, such as trespassers and burglars.
A common liability claim…when your property is in disrepair…
A landlord or rental agent is commonly found liable for property damage or injury in a rental property when the injuries/losses result from a dangerous condition at the premises:
- which had not been identified because the landlord or their agent failed to conduct regular inspections (should have known of the risk); or
- which they were made aware of and knew about but failed to properly rectify within a reasonable time.
TIP: in instances where the landlord was made aware of a defect, and did nothing about it, the failure to mitigate loss may become an issue when it comes to making a claim.
Why cover in the millions?
If a landlord fails to provide a safe environment for tenants, they can be sued for compensation by the person who is injured.
And those costs and compensation payouts can stretch from tens of thousands to hundreds of thousands or even millions of dollars once medical costs, loss of income and pain and suffering are factored in.
To date, the highest personal injury claim in Australia for one person was an eye-watering $19 million – and half of that was legal costs! That's why the legal liability limits set out in landlord insurance policies are in the millions.
Liable, not liable?
Importantly, for the landlord to be held legally liable, they must be found to have been negligent (failed to act to avoid causing damage, injury or loss). It means the landlord was either aware or should have been aware of a reasonable foreseeable risk that may cause damage or injury to the tenant and failed to act to avoid the harm.
Before the landlord can be held liable, three things must be demonstrated:
1. Injury or damage has occurred at the property as a result of the state of the premises (oftentimes the damage is a result of non-compliance with the Building Code of Australia);
2. The landlord knew about, or should have known, the danger that presented itself at the property; and
3. No reasonable action was taken by the landlord to prevent the risk of harm.
Legal liability hinges on the fact the landlord knew or should have known about a risk and failed to act on it. This means, a landlord generally will not be held liable for losses/injuries that are caused by a defect, hazard or condition they did not know about and could not have known about.
In most landlord insurance policies, there is a section stating all reasonable measures must be put in place to prevent or minimise loss. If a landlord breaches this section by failing to act to make a property safe for a tenant, this can have a negative impact on a claim. This should be in the back of the mind of all landlords when they are notified of a defect at a property and are considering how quickly to respond.
Avoiding liability
In order to meet their legal obligation to ensure the property leased out by them is safe, a landlord or their agent should:
- undertake regular inspections to ensure the home is in a safe condition;
- identify any repair or maintenance which may be the responsibility of the tenant and request they fix these, and conduct a follow-up inspection to confirm they have been fixed properly;
- perform/arrange repairs ASAP; and
- ensure any repairs and maintenance is done by appropriately licensed people (such as qualified tradies).
TIP: If the repairs cannot be carried out ASAP (for whatever reason) and the danger is real and imminent, you should isolate and cordon off the area to prevent access. If that is impossible, you should do everything in your power to ensure the safety of your tenants until the repairs can be taken.
It is not just landlords that need liability insurance
A landlord will only be liable if their negligence caused the injuries to others. This means, tenants should also ensure the property is safe for anyone who is legally on-site. If their action, or inaction, leads to damage or another person being injured on the premises, they can be held liable. This is known as occupier's liability and is why all tenants should have renter's insurance like TenantCover, which provides up to $10 million if the policyholder is found legally liable for injury or property damage.
Tenants should also advise the agent or landlord if there is something wrong at the property that they feel is unsafe or could cause an injury. If the tenant fails to give notice of a hazard, and it does cause an injury, they may not be able to claim compensation.
The role of insurance
Given the potential high costs of compensation claims (and, with an increasingly litigious society which has increased the risk of being sued), legal liability insurance can be expensive.
However, we have good news: It is generally a standard inclusion in landlord insurance policies. By including legal liability, landlords can get their hands on a high level of cover (at EBM RentCover it's up to $20 million for RentCover ShortTerm policies and up to $30 million for RentCover Platinum and RentCover Ultra policies) at a fraction of the cost of taking out a separate policy.
Essentially, legal liability insurance provides the policyholder with protection against claims resulting from injuries and damage to people or property. The policies cover both legal costs and any payouts for which the policyholder would be responsible for if found legally liable.
Legal liability claims are probably more common than you think. Here are a couple of examples of landlords who have recently made claims on the legal liability component of their EBM RentCover policy:
Claim one – personal injury
The tenant was injured when the shower screen at the rental fell off its hinges and shattered while they were showering. As the tenant had advised the landlord there was an issue with the shower screen and the landlord had failed to act to rectify the issue, the landlord was found negligent. It has been accepted that there is a loss and a payout is required. Medical opinion is now being sought to determine the amount to pay out.
Claim two – compensation
The tenant made a claim for compensation through VCAT for the inconvenience of living with a damaged ceiling. Despite the tenant suffering no injury or damage to their possessions when the ceiling collapsed, they were awarded compensation by VCAT. As VCAT found the landlord legally liable for the compensation, the insurer covered the $2,238 cost.
Without legal liability cover, these landlords would foot the legal costs and compensation claims themselves. By having cover, they have the support of their insurer.
At EBM RentCover we offer reliable solutions to help landlords, agents and tenants feel confident they are well protected by insurance. Talk to us today to find cover to help safeguard your financial wellbeing against legal liability claims.