Insurance Jam For Renters

Sydney Morning Herald

Wednesday February 27, 2008

By Lesley Parker

Tenants are being sued for the cost of claims.

Tenants' advocates have become concerned about the emerging practice of insurance companies suing tenants to recover payouts they've made under landlords' insurance, a form of insurance that has been widely marketed in recent years.

Consumer lawyer Denis Nelthorpe, who has been looking at the insurance needs of tenants for the Tenants Union of Victoria, says his research has revealed "a dangerous catch-22" for renters.

He says tenants' unions around Australia have noted an increase in the past year in the number of renters being pursued by insurance companies over accidental fire damage on the grounds, sometimes disputed, of negligence. Yet the industry's own research indicates most tenants don't have insurance that covers this type of claim, often because available policies don't cover their circumstances or because insurers refuse to insure them for various reasons.

"You've got the insurance industry saying, 'Isn't it terrible that all these people are uninsured for contents?' They do nothing to promote it, then they sue tenants as a result of providing landlords' insurance," Nelthorpe says.

"And the policies that are offered to tenants basically don't provide the cover you'd expect. It's a double-edged sword."

Nelthorpe says he's not saying landlords' insurance shouldn't be encouraged, "but the real question is the legitimacy and efficacy of chasing the tenant in these circumstances".

Asked to comment, the Insurance Ombudsman Service says its general view is that insurance companies should not pursue tenants when accidental or inadvertent loss is involved.

Nelthorpe collected cases from legal services around the country. Among them, he cites an uninsured university student being sued over $60,000 in damage caused after clothes drying on a heater caused a fire. In another, a tenant is being sued for $8000 in damages caused by a kitchen fire in a property where there was no fire extinguisher or fire blanket. In yet another, the landlord told the tenants he was horrified they were being pursued by his insurer and he never envisaged this happening when he lodged his claim.

Nelthorpe says only two insurers - AAMI and Aon - have specific "renters' insurance" with the potential to protect tenants in the event of accidental damage to buildings and fixtures and fittings (as opposed to home contents insurance, covering the loss of personal belongings). However, he believes there are question marks over the extent to which in practice even these renters' policies would cover a tenant for fire damage to a building and its fixtures.

AAMI told him the "legal liability" clause in its policy would cover fire damage to a rented property but he remains concerned that the wording of the two insurers' policies suggests the insurance won't apply if the landlord is already covered for such damage - precisely the circumstance where tenants are being pursued for restitution.

He is also concerned at the failure of policies to address modern living arrangements, such as formal co-tenancies and looser arrangements in shared houses. "Despite the practice of allowing nominated drivers on motor vehicle insurance policies, insurers refuse to provide for 'nominated tenants' and don't even cover those tenants named on the lease," he says.

Each tenant would have to have a policy covering the same premises.

"Contents insurance for shared households is even more problematic," he says. "Many insurers won't even provide cover for shared premises due to difficulty in identifying the changing tenants during the term of the policy."

Other tenants are declined insurance because they live in a high-risk crime area or because there are no deadlocks on the doors and the landlord can't be compelled to install them.

Tenants might be refused insurance for all sorts of reasons that have nothing to do with them, Nelthorpe says.

Peter Hardham, chairman of the Insurance Ombudsman Service's independent panel, which helps resolve disputes, says the service has been encouraging insurers to introduce specific landlords' insurance, rather than leave it to catch-all building insurance policies that try to do too much. To their credit, the insurers have done this.

However, there are still problems in this developing area - from the points of view of landlords and tenants alike. Some policies still don't cover a landlord for malicious damage, he says, and many policies only provide cover if there's a written lease - and this cover lapses if the landlord neglects to renew the lease in writing after the initial term expires.

"In terms of tenants themselves, they need to know what the landlord's policy covers - whether it covers damage to buildings, fixtures and fittings," he says.

If they bring their own fixtures or fittings - such as a dishwasher or light shades - they need to check whether these are covered by the landlord's or their own insurance.

"If there are new people [in a shared house or flat], they need to make sure the new people are covered."

Asked to comment on the practice of insurers pursuing tenants over payouts, Hardham says this should occur only where there's a degree of negligence.

"I have no sympathy for tenants when insurance companies chase them for malicious damage. [But] when it's accidental or inadvertent loss, then insurance companies shouldn't be hounding tenants."

He says the general insurance code of practice requires insurers to comply with debt collection guidelines issued by the Australian Competition and Consumer Commission. If the tenant is financially disadvantaged, insurers have to comply with the code's guidelines on financial hardship - referring the matter to counselling services.

However, Nelthorpe says another problem is that if tenants believe they are being wrongly targeted they have no recourse to the ombudsman. The service can act only on complaints from the policyholder - in these circumstances, the landlord not the tenant.

That can leave tenants facing thousands of dollars in legal costs which they can't afford or which outweigh the disputed damages.

© 2008 Sydney Morning Herald

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