You just learned that your rental or investment property burned down. What are your legal rights? What are your risks? Can you collect on your insurance policy? Will the tenant sue you? I cannot answer all these questions at once, but I can offer some concise guidance on the most important legal issues you may be facing.
Collect on Your Insurance Policy
You are not a greedy person, but your primary concern is how to collect on your insurance policy. Obviously, you need to make a claim as quickly as possible. You also need to be as organized as possible. The more organized and prompt you are, the less likely your insurance company can avoid paying the claim.
Is there a statute of limitations?
IMPORTANT: There may be a one-year statute of limitations on your fire insurance claim. Do not let a year pass before submitting your claim! Over a hundred years ago, the Oklahoma Supreme Court upheld a one-year statute of limitations on a fire insurance claim, and this may still be good law in certain situations today. (See Wever v. Pioneer Fire Ins. Co). If you've missed the deadline, you could argue that the statute of limitations is unconstitutional, but that would be a long shot. Be safe, and don't miss the filing deadline.
What if you did not provide notice right away?
In many cases (or all cases), an insurance policy requires you to provide notice immediately after a fire. As a landlord, maybe you did not find out about the fire for several weeks or months, so you were unable to provide immediate notice. In this case, make sure to document the reason why you were unable to provide immediate notice. You may need to prove: (1) exactly when you found out about the fire; and (2) exactly why you did not find out until that date. By keeping accurate records and thinking through these issues in advance, you will increase your chances of collecting.
Do you need to file a lawsuit?
Even if you were prompt, organized, and filed your claim before the statute of limitations expired, your insurance company might still deny the claim. If they did not have a good reason for the denial, you may have a legal claim. If your insurance company simply misinterpreted the insurance policy, you may have a contractual claim for breach of contract. On the other hand, if your insurance company simply refused to pay with no good reason at all, you may have a claim for “bad faith.” An insurance company has a duty of “good faith” to the insured, meaning they must treat the insured fairly. (See Christian v. American Home Assur. Co.).
If you are considering filing a lawsuit against your insurance company, find a trustworthy attorney who specializes in insurance litigation. Our firm does not specialize in insurance litigation, but I would be happy to provide you with a referral.
Tenant's Rights vs. Landlord's Rights after the Fire
Generally, the landlord is responsible for structural damage (unless the fire was the tenant's fault), and the tenant is responsible for damage to his/her own belongings (unless the fire was the landlord's fault). However, even if the tenant caused the fire, you should still file a claim with your own insurance company. Your insurance company will pursue the tenant and the tenant's insurance company to collect payment from them.
Can the tenant sue you? What is your potential liability?
If someone was hurt or killed in the fire, you need to think through your exposure to liability in a wrongful injury or wrongful death lawsuit. If the tenant's family or estate brings a lawsuit, your liability may not be covered under your umbrella policy. Make sure you can prove that the property was up to code and was maintained property. For example, can you provide evidence that there were working smoke alarms in the building? Did your lease make your tenant responsible for changing the smoke alarm batteries? Did you have reliable and safe appliances in the building? Think through these types of issues to assess your potential liability.
Can your LLC or business entity protect you?
Your liability may be limited if you own the property in an LLC or similar business entity. Theoretically, your LLC would create a liability shield, such that you are not personally liable for lawsuits arising from the property. Since the LLC owns the property, only the LLC is liable. This corporate shield prevents liability from traveling upstream and infecting your personal assets or other businesses.
However, your LLC will only provide protection to the extent that you have kept it up to date, maintained the proper paperwork, and treated it as a separate entity. For this reason, it is critical to update your LLC records at least annually.
Contact me for Assistance or a Referral
A major disaster like a fire at your rental property can drain your valuable time and energy. I am happy to help you reclaim some of your time by assisting with the details of this process. If necessary, I can also refer you to a trustworthy and effective insurance litigation attorney.