The multifamily real estate insurance market in the United States has hardened significantly over the past few years, resulting in major rate increases and restrictions in coverage terms and conditions.
Three prevalent issues that are driving claim severity in the multifamily real estate space - and therefore influencing the hard market conditions - are: slips and falls resulting in serious injury or broken bones, swimming pool deaths and/or life-threatening incidents, and assault and battery.
Jeremy Burr, VP of sales specializing in multifamily real estate transactions at Insurance Office of America (IOA), described assault and battery – where an individual uses their own body and/or a weapon of some sort to inflict harm on another – as “the most heinous claim type that is really crushing the casualty side of our property and casualty (P&C) sector”.
“Historically, general liability policies have been silent on assault and battery insurance coverage, meaning that there was no explicit coverage or exclusion for assault and battery,” said Burr. “But with the hardening of the insurance market, that has now changed. While some carriers are still silent, others have introduced a sublimit for assault and battery. Instead of the $1 million per occurrence coverage that used to be offered via the general liability policy forms being silent, now they’re sub-limiting coverage to $50,000 or $100,000 and so on. There are also carriers who have introduced specific exclusions for all assault and battery-type claims.”
There are two key factors that underwriters are using to create their positions around assault and battery exclusions, according to Burr. The first is historical claims experience, so any insured with a history of assault and battery claims or issues should expect at least a reduction of coverage to a sublimit, or an overall coverage exclusion.
“The second is a new-found utilization of the pulling of crime scores by underwriters for geographic locations,” Burr told Insurance Business. “A broker says they’ve got a client in a certain zip code, or at a specific street corner or intersection, and the underwriters have the ability to go online and pull crime scores for that area and determine, based on different data points, how safe that community is. Obviously, the more dangerous the community, the more likely that there’s going to be a reduction or exclusion of assault and battery coverage.”
There are certain things that multifamily real estate insureds can do to mitigate the risk of assault and battery. For example, Burr suggested hiring a security company to monitor the risk, fencing and gating the community, putting up signage to warn against crimes, using security cameras, and ensuring that the property and its surrounding areas are well lit.
Unfortunately, the reality is that multifamily real estate owners can be held liable for most incidents on their property, even if they involve criminal acts. A simple claim might involve a person who enters a multifamily building and attacks a resident, and that resident then sues the property owner for not keeping the building safe and secure.
“That type of claim makes sense,” Burr commented, “but we’ve even seen claims involving two people who don’t live in the property, who perhaps get into an altercation during a bad drug deal in the parking lot, an incident ensues, and the property owner is sued for lack of security.”
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Burr added that while many insureds in that scenario would try to defend themselves by highlighting the criminal nature of the act, it is often cheaper for the insurance carrier to pay a settlement and resolve the situation outside of the court system than it is for them to pay to actually fight against the claim. That difficulty to defend is another reason why rates are increasing so significantly in assault and battery coverage.
“I think this is a trend that is likely gaining steam as we speak, unless there is tort reform with how our system works so that there’s a limitation to the liability of a landlord,” said Burr. “I think that, not only is the market going to continue to harden in 2022 or become worse, there’s a likelihood in my mind that, at some point, almost all properties will be unable to even get assault and battery coverage.”