A recent decision in the District Court has highlighted the need for tenants renting properties to take steps to protect themselves. In certain instances a tenant is not covered by a landlord's insurance policy. If you are renting, you should take steps to either be noted on the landlord's policy or to take out your own insurance, otherwise you could be facing a hefty bill if damage occurs due to something that you did.
In the District Court decision of Harrison v Shields, a claim was made by a landlord against the tenants of his residential property for damage caused by a fire during the term of the tenancy. The landlord claimed a total of $82,381.07. The landlord was insured, however the tenants were not. The Judge found in favour of the landlord and awarded the sum of $77,381.07 to the landlord. This decision may come as a shock to many tenants who may be unaware that their landlord's insurance policy does not cover them.
Most tenants would assume their landlord's insurance would cover them for the damage or destruction of the landlord's property. As a consequence it is likely that many tenants do not have their own insurance to protect themselves against the accidental damage or destruction of property owned by the landlord.
This decision is of particular concern given that for most tenants an award such as this could potentially bankrupt them. Under current residential tenancy legislation and the standard residential tenancy agreement, no protection is offered to prevent a tenant from being sued in respect to a fire or any other accident resulting in damage or destruction to the landlord's property. The reason that a landlord can sue a tenant for the amount of damage to the property even if the landlord is insured, is because the insurance policy is between the landlord and his insurance company, not with the tenant. As a consequence the landlord is protected by the insurance policy, however, the tenant is not. Invariably, the insurance company will pay out to the landlord, but will want to sue the individuals responsible for the damage. The insurance company can do this without the consent of the landlord. All insurance policies contain a clause giving the insurance company the right to sue in the landlord's name.
There are two options open to a tenant to ensure that they are not put in the same position as the tenants in Harrison v Shields. The first is for the tenant to obtain their own insurance to protect them against any possible liability to the landlord's insurance company. The second, and cheaper option, is for the tenant to have their interest noted on the landlord's insurance policy. They are part of the insurance so cannot be sued by the company.
The moral of this tale if you are renting is to ensure that you are either insured yourself or you are noted on the landlord's insurance policy.