Workshop Recap: Habitability Claims & Impacts on Insurability
On Thursday, July 8th, SCANPH convened for a workshop on Habitability Claims, focusing on the Impacts on Affordable Housing Insurability. Led by Gallagher’s insurance and risk management team, this workshop featured key information about habitability lawsuits and their impact on affordable housing operations in California. Panelists Sara Gibson, Risk Control Consultant, and Robyn Roesner, Area Executive Vice President and National Director of the Affordable Housing Nonprofit Practice, outlined best practices to prevent and defend such claims, as well potential solutions to minimize risk to nonprofit housing developers and operators.
These suits typically allege how landlords or property managers have breached the implied warranty of habitability. Vague health and safety codes make such claims difficult to defend. Roesner and Gibson offered solutions to help minimize the impact upon developer’s portfolios and reduce the potential severity of a claim.
Panelists began the workshop by providing an overview of impactful insurance costs and how habitability claims often cause problems down the road. Habitability claims occur when plaintiffs allege that a landlord has breached an implied warranty of habitability. Unfortunately, the law doesn’t give a clear definition of the term habitability so landlords have to be compliant within vague habitability standards. Units must have amenities such as effective waterproofing, weather protection, plumbing and gas facilities, water, heating, ventilation, electrical lighting and wiring. The majority of lawsuits reviewed by Gallagher and filed against affordable housing organizations allege that the landlord and/or property management company has breached the implied warranty of habitability by failing to correct substandard conditions. Other habitability lawsuits focus on key issues tenants experience and make complaints about unresolved issues such as bed bugs, mold or plumbing issues.
Plaintiffs often allege suffering from damages such as illness, physical injury, mental stress or emotional distress, discomfort, annoyance or anxiety. Many of these claims are driven by attorneys who use these harms for profit. If a claim goes to trial, and if the plaintiff’s attorneys claim even one dollar, attorneys can hold plaintiffs responsible for 100 percent of attorney fees.
The frequency or severity of habitability claims may result in possible non-renewal of coverage, exclusion of habitability coverage for the location or entire portfolio, potential surcharge in premium rates or carrier reduction in availability limit. When you see significant rate increases due to claims, lenders and investors often do not support these cost increases.
It is often difficult to defend habitability claims at trial. Contributing factors include jury bias and “he said she said” arguments. To defend habitability claims, defense attorneys need to emphasise strong communication and documentation with tenants. It is also imperative to develop policies and procedures for tenant complaints. Additionally, property management can establish a property walkthrough to self identify potential hazards or reportable issues.