In recent years, habitability claims have increasingly become a significant concern for landlords across the United States. Factors such as climbing rents, overcrowded housing conditions, and growing institutional ownership of rental properties have all contributed to this upward trend.
Consequently, landlords are now navigating a challenging legal and insurance landscape, particularly in regions known for tenant-friendly laws.
With rising jury awards and increased involvement from attorneys actively seeking out tenants with potential habitability issues, landlords face heightened financial risks. This scenario is further complicated by insurance carriers narrowing coverage and imposing stricter exclusions, particularly in states with historically high claim frequencies like California.
Chris Murphy, executive vice president at Amwins in San Francisco, highlighted key factors driving this trend and outlines strategies landlords can adopt to mitigate risk.
“Increasing jury awards, rising attorney involvement and a challenging insurance environment have made it more important than ever for landlords to be proactive about risk management,” Murphy said.
Murphy said that habitability claims typically arise when tenants allege violations of health and safety codes, covering essentials such as functioning plumbing, electrical systems, heating, and pest control.
"These laws vary by state," Murphy said, "but landlords who fail to address habitability concerns risk facing significant financial repercussions."
California, specifically, has become a focal point for habitability litigation due to its tenant-friendly regulations and frequent high-profile cases.
“Many insurers are pulling out of these states or limiting their coverage for habitability claims altogether, further compounding the challenge for landlords,” he said.
Murphy identified several underlying causes behind the recent rise in claims. "As rents climb, overcrowding becomes more common," he said, leading to higher property wear and maintenance challenges.
"Many personal injury attorneys actively seek out tenants with potential habitability complaints," Murphy said, further escalating litigation frequency.
The insurance industry has reacted to the increase in claims by tightening policy terms, particularly in states with frequent lawsuits.
“Coverage for punitive damages, attorney's fees and statutory penalties is also increasingly being excluded from commercial general liability (CGL) policies, leaving property owners to shoulder a significant portion of the risk,” Murphy said.
Given the complexities of state-specific regulations, Murphy emphasized the necessity for landlords, especially those managing national portfolios, to maintain thorough records and conduct regular proactive property maintenance.
"Comprehensive recordkeeping can serve as vital evidence in proving that the landlord met their responsibilities," he said. "It’s crucial to document all maintenance efforts and tenant communications clearly."
Murphy also highlights that habitability issues are frequently linked to tenant negligence. He recommends clearly specifying tenant responsibilities in lease agreements, including maintaining cleanliness and promptly reporting maintenance concerns.
"Tenants should be informed of their responsibility to prevent damage by maintaining the property properly," Murphy said. "Habitability issues often arise from tenant neglect, such as clogged pipes or pest infestations due to poor cleaning habits."
The insurance landscape for habitability claims continues to evolve, with landlords facing increasing premiums, narrower coverage, and greater scrutiny from underwriters. Murphy described the growing reliance on underwriting tools such as crime scores to evaluate property risk.
"Insurers are increasingly using underwriting tools like crime scores to assess risk, especially in areas with a history of higher claims," Murphy said.
Although crime scores do not always precisely reflect a property's actual risk, Murphy acknowledged their expanding role: "These scores, though not always an accurate reflection of every property’s risk, are becoming a key factor in determining whether coverage is offered, and at what cost."
For property owners operating in higher-risk locations, Murphy recommended close collaboration with insurance brokers. "Working with a knowledgeable broker can help ensure the right insurance coverage is in place as the market continues to evolve," he said.
Murphy stressed the value of broker relationships, noting that "brokers help property owners understand evolving risks and ensure adequate coverage."
Ultimately, while habitability risks cannot be entirely eliminated, Murphy emphasized that landlords can significantly reduce exposure through proactive property maintenance, comprehensive documentation, and clearly defined tenant responsibilities.
"By staying ahead of these trends, property owners can better manage their risk and protect their bottom line," Murphy said.
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