Rob and Lisa have spent fifteen years building a portfolio of eight rental properties in Renton and Kent: five single-family homes, two duplexes, and a fourplex. On their attorney's advice, they moved the properties into three LLCs for liability protection.
They never told their insurance agent. Each property still had its own landlord policy in their personal names, renewing year after year. A refinance lender asked for evidence of insurance showing the LLC as the named insured, and that is when the problem surfaced.
What they asked for
Updated certificates showing the LLCs as named insureds.
What the review found
The policies insured the wrong owners. The named insureds were Rob and Lisa personally, but the LLCs owned the properties. After a fire, an insurer can question whether a named insured with no ownership interest has an insurable loss. The fix is simple before a claim and messy after one.
Eight policies, eight renewal dates, eight different limits. Replacement cost values ranged from reasonable to badly out of date. Two properties were insured well below current rebuilding costs.
Loss of rents was inconsistent. Some policies covered lost rent after a covered loss, others did not.
Their personal umbrella did not follow the LLCs. Rob and Lisa had a personal umbrella. It covered rentals owned in their own names. It did not clearly cover properties owned by LLCs, and the LLCs had no umbrella of their own.
What we put in place
We consolidated all eight properties onto a single commercial property portfolio policy with each LLC as a named insured, a single renewal date, replacement cost values rebuilt from current construction costs, and loss of rents on every property. The lender's requirements, including its mortgagee clause, were built in.
We added general liability for all three LLCs on the same program, covering premises injuries at any of the properties.
We placed a commercial umbrella over the LLCs' liability, and coordinated it with their personal umbrella so the same limit protects them whether a claim names an LLC, them personally, or both. Trella writes both sides, which is why we could line them up.
Why it mattered
The next winter, a pipe froze and burst in one of the duplexes while the tenants were away, flooding both units. The tenants were displaced for six weeks. The portfolio policy paid for the repairs and the lost rent from both units, with no question about who owned the building. Under the old setup, the named insured problem would have been the first question the adjuster asked.
If you own rentals in LLCs
- Make the LLC the named insured on every property it owns
- Rebuild replacement cost values from current construction costs
- Include loss of rents on every property
- Coordinate your personal umbrella with coverage for the LLCs
See how we work with real estate investors. Own rentals in your own name instead? See rental property insurance at Trella Insurance. Or get a free policy review.