Risk Management and Claims

Risk ManagementClaim Corner

Community Management: The $20,000 Dog It’s exciting. You just purchased a manufactured home community. It has fifty (50) sites, forty eight (48) of which are occupied by home owning tenants paying $300/month in rent. You were pleased to purchase it for $960,000, or $20,000 per site. And now that it’s time to begin managing the community, you discover three things. First, four of your tenants own large dogs (a German Shepherd, a Pit Bull, a Rottweiler, and a Chow). Second, your insurance agent has advised you that your insurance company strongly discourages allowing tenants to own such dogs and will non-renew or cancel your insurance if you don’t force the dogs out of the park. Third, all four dog owning tenants have nice homes, are good neighbors, pay their rent timely, manage their dogs well, and will leave if their dogs have to go. What do you do? The standard answer is that you demand the dogs be removed, and hope you keep the tenants. Most insurance companies won’t underwrite a community owner with coverage that includes animal bites once they are aware vicious dog breeds are in the community. And if you do find an insurance company that will insure your property with these types of dogs in it, your insurance rates will increase dramatically. Historically, dog bites have been a source of a significant amount of the liability insurance losses suffered by community owners. Dog bites were the second largest cause of homeowners liability insurance losses in 2010. In January of this year, a pit bull attacked and killed a two year old in one of our client’s properties. The victim was the grandson of the dog’s owners. If you only want to risk losing these four quality tenants as a last resort, there are alternative risk control measures you can take that may satisfy both you and your insurance company that this dog risk is manageable. First, check with prior management and other tenants about whether the dog(s) at issue has a history of aggressive behavior toward humans. A large vicious dog that has a history of biting a human, or attempting to bite one, can’t be tolerated and must be removed. Second, presuming the dog has no history of aggressive behavior towards humans, require the dog owning tenant to sign a document in which they agree to defend and indemnify the park in the event a liability claim arises due to the dog. Third, require the tenant to purchase liability insurance and name the park as an additional insured. Mobile Home Owners liability insurance is inexpensive, usually about $100/year for $300,000 in coverage. However, most mobile homeowners insurance companies won’t offer this coverage to someone who owns an aggressive dog breed. Thus, the tenant will most likely have to purchase “canine/dog liability insurance.” Such policies typically cost about $600 per year for $300,000 of coverage. At that point, the tenant can choose between their heart and their wallet. If you Google “vicious dog liability insurance,” you will find companies that offer this coverage.
What About Your Utility Systems? When purchasing a manufactured home community, experienced investors focus considerable pre-purchase due diligence on the community’s utility systems. This infrastructure is a large part of the value of most properties. Major problems associated with utility systems can quickly destroy a community’s value. As such, it is important to consider the utility system when you are insuring your community. You should determine what portions of the utility system the park owns, and what portions are owned by a utility provider. Also determine the cost to replace park owned utility systems. Community utility systems include power pedestals at home sites, street lights, power poles, water pumps/wells, sewage tanks, sewage pumps, and other sewage plant equipment. Next, determine the susceptibility to damage and malfunction inherent in each. During the past year, park owning clients of Mobile Insurance have had tornadoes strip away power pedestals, lightning destroy electrical stations, fires melt and collapse underground utility lines, and mechanical breakdowns cripple sewage lift stations. These weren’t small losses. Ask your insurance agent to help you assess your risk. Most park utility systems are less susceptible to damage than park owned buildings, signs, fences, and other improvements. Therefore, the cost to insure them is usually less. For example, most park owners can insure every power pedestal in their park for less than the cost to replace just one. When insurance isn’t a good choice, consider funding long-term capital improvement accounts so you are prepared when cash is needed. Plan ahead and protect your investment. If you haven’t already, consider implementing a utility infrastructure risk management plan.
TOP 10 MISTAKES PARK OWNERS MAKE THAT RESULT IN AVOIDABLE LIABILITY LOSSES Failing to consistently and respectfully enforce all park rules. Clean, well managed parks stay fuller. You might make Bubba unhappy when he has to remove his junker car, but you made all your other tenants happy; Using uninsured contractors. When they cause problems, you are left holding the bills; Failure to use Performance Agreements/Contracts with all contractors. Written agreements save lots of time and money when things turn sour; Allowing tenants to own dangerous dogs... chows, pit bulls, wolf hybrids, German Shepards, and Rottweiler’s are too dangerous. They cause park owners large losses; Failure to make sure all public walkways and streets are free from slip and fall hazards. Slip and falls are the number one cause of loss for park owners; Being too friendly or too caustic with tenants. The best managers are consistent, direct and respectful, but not friends with tenants; Deferring maintenance on rental homes. These can be excellent investments, but must be properly maintained. Many of the largest liability losses are the result of poor home maintenance; Neglecting to have sturdy steps with handrails and working smoke detectors in all park owned homes. These are minimum requirements; Not meeting all safety codes and requirements with a pool. The risks for pools are manageable, but fences and safety equipment must be 100% up to code 100% of the time; Failing to have management walk the park regularly. Great way to find out what is going on in your park, and get rid of hazards like trampolines, kiddie pools, and other attractive nuisances before they bite you.
TOP 10 MISTAKES MADE WHEN INSURING A MOBILE HOME PARK Failure to list/insure all your improvements on your policy. Many simply don’t include above ground utility infrastructure, signs, fences and smaller buildings; Undervaluing your Property. Too often, people insure things based on its tax value or what the prior owner valued it at. For most regular construction buildings, start at $70/ft.; I won’t insure my park owned homes because each isn’t worth a lot. A $10k loss might not be catastrophic, but if you lose 10 homes at $10k each in a single storm, that’s too large a loss to not seriously impair your long term investment; Buying insurance from a non-specialty agent. They don’t have the knowledge or insurance company contacts to get you the right coverage or a good premium; Not buying loss of Business Income and extended loss of business income coverage. Both are critical for park owners; Paying for the insurance of every contractor that works for you. If they don’t have insurance, your insurance company will pay their claims. Make them prove coverage with appropriate Certificates of Insurance; Failure to include data breach and tenant discrimination coverage. These are large and growing loss drivers for park owners; Calling an Employee an Independent contractor. What functions and how they perform them define who is an employee. A simple contract stating otherwise won’t do it; Not buying Workers comp when needed. And if you have employees you need workers compensation insurance. Employers are responsible for medical expenses and lost wages for up to life when employees are injured on job; When you sell mobile homes, not including this coverage on your policy. You need general liability insurance that covers the park, any home sales, and all associated operations.
PRACTICING RISK TRANSFER IS SMART BUSINESS "Risk transfer" means making contractors who work for you responsible for their own negligence and mistakes. For example, if you hire an installer to set a manufactured home for your customer, and a faulty installation results in damage to the house or injury to its occupants, you not only want the installer to fix the problem, you want them to protect you. Examples of independent contractors hired by community managers and retail centers include installers, transporters, a/c suppliers, electricians, tree trimmers, plumbers, landscapers, road maintenance companies, and home foundation companies. Ensure that your contractors take care of you by putting yourself in a legally strong position. Here’s how to do it. First, make sure that you use written contracts with all your contractors. Contracts should say what you expect the contractor to do for you and should require the contractor to both defend and indemnify you in the event a demand is made by a third party due to the contractor’s work. Second, require that all contractors provide you with a “certificate of insurance” that names you as an additional insured on their general liability (and workers comp and auto, if applicable) insurance policy. Third, keep a file for all contractors that work for you that includes the contract and certificate of insurance for at least five years after the contractor ceases work for you. In the longrun, these business practices will save you a bundle of time and effort.
STEALTH AUTO LIABILITY Most of our manufactured home community and retail center operators don’t own a corporate vehicle or drive their own vehicles as a revenue generating part of their business. Nevertheless, most still have some auto liability risk. Examples include owners or employees using their own vehicles to go to the bank, pick-up supplies, take customers to see property, etc. Any accident involving either a company owned vehicle or a vehicle owned by another while being used on a company-related task will result in your company’s involvement in any resulting accidents. You can manage this risk by doing the following things: First, limit who can drive on company business. You don’t want every Lloyd and Harry driving all over town under your corporate banner. People love to sue business owners. Second, make sure you have either a corporate auto insurance policy or hired/nonowned auto liability coverage on your general liability insurance policy.
IT’S THE WINDY SEASON! WHAT SHOULD I DO?!? First, take an inventory of all your property that could be damaged in a major storm (buildings, contents, signs, fences, pool houses, utility poles, equipment, tools, etc.). Next, compare that list to the insured property list provided with your insurance policy.
SIMPLE STEPS FOR PLANNING FOR AN EMERGENCY A recent report by a national small business council revealed that 80% of the small businesses significantly damaged by a major storm or other calamity that didn’t have a disaster recovery plan failed within a year of the disaster. As for those that did have a disaster recovery plan, only 20% failed. Here are five simple steps to creating a viable disaster recovery plan: Create a detailed key contact list. Include employees’ home and cell numbers, utility suppliers, your insurance company and agent, and key contractors such as debris removal companies, carpenters, electricians, and plumbers. Call and secure help right away; Document all your property and possessions with either pictures or a video. This information will be invaluable in the event of a major storm; Electronically back up all your computer data regularly. Keep the back-up media or tape off premise; Have a back-up place from which to operate. Many businesses now have mutual agreements to temporarily assist the other in the event one’s place of business is unusable for some time; Visit with your Account Manager to discuss the coverage you have and might need in the event of a disaster.

Community Management: The $20,000 Dog

It’s exciting. You just purchased a manufactured home community. It has fifty (50) sites, forty eight (48) of which are occupied by home owning tenants paying $300/month in rent. You were pleased to purchase it for $960,000, or $20,000 per site. And now that it’s time to begin managing the community, you discover three things. First, four of your tenants own large dogs (a German Shepherd, a Pit Bull, a Rottweiler, and a Chow). Second, your insurance agent has advised you that your insurance company strongly discourages allowing tenants to own such dogs and will non-renew or cancel your insurance if you don’t force the dogs out of the park. Third, all four dog owning tenants have nice homes, are good neighbors, pay their rent timely, manage their dogs well, and will leave if their dogs have to go. What do you do?

The standard answer is that you demand the dogs be removed, and hope you keep the tenants. Most insurance companies won’t underwrite a community owner with coverage that includes animal bites once they are aware vicious dog breeds are in the community. And if you do find an insurance company that will insure your property with these types of dogs in it, your insurance rates will increase dramatically. Historically, dog bites have been a source of a significant amount of the liability insurance losses suffered by community owners. Dog bites were the second largest cause of homeowners liability insurance losses in 2010. In January of this year, a pit bull attacked and killed a two year old in one of our client’s properties. The victim was the grandson of the dog’s owners.

If you only want to risk losing these four quality tenants as a last resort, there are alternative risk control measures you can take that may satisfy both you and your insurance company that this dog risk is manageable. First, check with prior management and other tenants about whether the dog(s) at issue has a history of aggressive behavior toward humans. A large vicious dog that has a history of biting a human, or attempting to bite one, can’t be tolerated and must be removed. Second, presuming the dog has no history of aggressive behavior towards humans, require the dog owning tenant to sign a document in which they agree to defend and indemnify the park in the event a liability claim arises due to the dog. Third, require the tenant to purchase liability insurance and name the park as an additional insured. Mobile Home Owners liability insurance is inexpensive, usually about $100/year for $300,000 in coverage. However, most mobile homeowners insurance companies won’t offer this coverage to someone who owns an aggressive dog breed. Thus, the tenant will most likely have to purchase “canine/dog liability insurance.” Such policies typically cost about $600 per year for $300,000 of coverage. At that point, the tenant can choose between their heart and their wallet. If you Google “vicious dog liability insurance,” you will find companies that offer this coverage.

What About Your Utility Systems?

When purchasing a manufactured home community, experienced investors focus considerable pre-purchase due diligence on the community’s utility systems. This infrastructure is a large part of the value of most properties. Major problems associated with utility systems can quickly destroy a community’s value.

As such, it is important to consider the utility system when you are insuring your community. You should determine what portions of the utility system the park owns, and what portions are owned by a utility provider. Also determine the cost to replace park owned utility systems. Community utility systems include power pedestals at home sites, street lights, power poles, water pumps/wells, sewage tanks, sewage pumps, and other sewage plant equipment. Next, determine the susceptibility to damage and malfunction inherent in each. During the past year, park owning clients of Mobile Insurance have had tornadoes strip away power pedestals, lightning destroy electrical stations, fires melt and collapse underground utility lines, and mechanical breakdowns cripple sewage lift stations. These weren’t small losses. Ask your insurance agent to help you assess your risk.

Most park utility systems are less susceptible to damage than park owned buildings, signs, fences, and other improvements. Therefore, the cost to insure them is usually less. For example, most park owners can insure every power pedestal in their park for less than the cost to replace just one. When insurance isn’t a good choice, consider funding long-term capital improvement accounts so you are prepared when cash is needed. Plan ahead and protect your investment. If you haven’t already, consider implementing a utility infrastructure risk management plan.

TOP 10 MISTAKES PARK OWNERS MAKE THAT RESULT IN AVOIDABLE LIABILITY LOSSES

Failing to consistently and respectfully enforce all park rules. Clean, well managed parks stay fuller. You might make Bubba unhappy when he has to remove his junker car, but you made all your other tenants happy;
Using uninsured contractors. When they cause problems, you are left holding the bills;
Failure to use Performance Agreements/Contracts with all contractors. Written agreements save lots of time and money when things turn sour;
Allowing tenants to own dangerous dogs... chows, pit bulls, wolf hybrids, German Shepards, and Rottweiler’s are too dangerous. They cause park owners large losses;
Failure to make sure all public walkways and streets are free from slip and fall hazards. Slip and falls are the number one cause of loss for park owners;
Being too friendly or too caustic with tenants. The best managers are consistent, direct and respectful, but not friends with tenants;
Deferring maintenance on rental homes. These can be excellent investments, but must be properly maintained. Many of the largest liability losses are the result of poor home maintenance;
Neglecting to have sturdy steps with handrails and working smoke detectors in all park owned homes. These are minimum requirements;
Not meeting all safety codes and requirements with a pool. The risks for pools are manageable, but fences and safety equipment must be 100% up to code 100% of the time;
Failing to have management walk the park regularly. Great way to find out what is going on in your park, and get rid of hazards like trampolines, kiddie pools, and other attractive nuisances before they bite you.

TOP 10 MISTAKES MADE WHEN INSURING A MOBILE HOME PARK

Failure to list/insure all your improvements on your policy. Many simply don’t include above ground utility infrastructure, signs, fences and smaller buildings;
Undervaluing your Property. Too often, people insure things based on its tax value or what the prior owner valued it at. For most regular construction buildings, start at $70/ft.;
I won’t insure my park owned homes because each isn’t worth a lot. A $10k loss might not be catastrophic, but if you lose 10 homes at $10k each in a single storm, that’s too large a loss to not seriously impair your long term investment;
Buying insurance from a non-specialty agent. They don’t have the knowledge or insurance company contacts to get you the right coverage or a good premium;
Not buying loss of Business Income and extended loss of business income coverage. Both are critical for park owners;
Paying for the insurance of every contractor that works for you. If they don’t have insurance, your insurance company will pay their claims. Make them prove coverage with appropriate Certificates of Insurance;
Failure to include data breach and tenant discrimination coverage. These are large and growing loss drivers for park owners;
Calling an Employee an Independent contractor. What functions and how they perform them define who is an employee. A simple contract stating otherwise won’t do it;
Not buying Workers comp when needed. And if you have employees you need workers compensation insurance. Employers are responsible for medical expenses and lost wages for up to life when employees are injured on job;
When you sell mobile homes, not including this coverage on your policy. You need general liability insurance that covers the park, any home sales, and all associated operations.

PRACTICING RISK TRANSFER IS SMART BUSINESS

"Risk transfer" means making contractors who work for you responsible for their own negligence and mistakes. For example, if you hire an installer to set a manufactured home for your customer, and a faulty installation results in damage to the house or injury to its occupants, you not only want the installer to fix the problem, you want them to protect you. Examples of independent contractors hired by community managers and retail centers include installers, transporters, a/c suppliers, electricians, tree trimmers, plumbers, landscapers, road maintenance companies, and home foundation companies.

Ensure that your contractors take care of you by putting yourself in a legally strong position. Here’s how to do it. First, make sure that you use written contracts with all your contractors. Contracts should say what you expect the contractor to do for you and should require the contractor to both defend and indemnify you in the event a demand is made by a third party due to the contractor’s work. Second, require that all contractors provide you with a “certificate of insurance” that names you as an additional insured on their general liability (and workers comp and auto, if applicable) insurance policy. Third, keep a file for all contractors that work for you that includes the contract and certificate of insurance for at least five years after the contractor ceases work for you. In the longrun, these business practices will save you a bundle of time and effort.

STEALTH AUTO LIABILITY

Most of our manufactured home community and retail center operators don’t own a corporate vehicle or drive their own vehicles as a revenue generating part of their business. Nevertheless, most still have some auto liability risk. Examples include owners or employees using their own vehicles to go to the bank, pick-up supplies, take customers to see property, etc. Any accident involving either a company owned vehicle or a vehicle owned by another while being used on a company-related task will result in your company’s involvement in any resulting accidents.

You can manage this risk by doing the following things: First, limit who can drive on company business. You don’t want every Lloyd and Harry driving all over town under your corporate banner. People love to sue business owners. Second, make sure you have either a corporate auto insurance policy or hired/nonowned auto liability coverage on your general liability insurance policy.

IT’S THE WINDY SEASON! WHAT SHOULD I DO?!?

First, take an inventory of all your property that could be damaged in a major storm (buildings, contents, signs, fences, pool houses, utility poles, equipment, tools, etc.). Next, compare that list to the insured property list provided with your insurance policy.

SIMPLE STEPS FOR PLANNING FOR AN EMERGENCY

A recent report by a national small business council revealed that 80% of the small businesses significantly damaged by a major storm or other calamity that didn’t have a disaster recovery plan failed within a year of the disaster. As for those that did have a disaster recovery plan, only 20% failed. Here are five simple steps to creating a viable disaster recovery plan:

Create a detailed key contact list. Include employees’ home and cell numbers, utility suppliers, your insurance company and agent, and key contractors such as debris removal companies, carpenters, electricians, and plumbers. Call and secure help right away;
Document all your property and possessions with either pictures or a video. This information will be invaluable in the event of a major storm;
Electronically back up all your computer data regularly. Keep the back-up media or tape off premise;
Have a back-up place from which to operate. Many businesses now have mutual agreements to temporarily assist the other in the event one’s place of business is unusable for some time;
Visit with your Account Manager to discuss the coverage you have and might need in the event of a disaster.

American Insurance Alliance