Tenant Damage – more than one excess?
This guide explains why a single claim could mean more than one excess.
An excess applies to each event that caused the damage, not to each claim. So if damage was done on multiple occasions; for example different days and different areas of the home; then even if you discover all the damage at one time and lodge a single claim, you could be up for more than one excess.
Paying an excess per event is common across house insurance providers in New Zealand. In fact a lot of insurers advertise that they only charge one excess. But what they are actually referring to is that if one incident (or event) causes damage and multiple policies need to be claimed on, eg. home, contents and car, you’ll only pay one excess being the highest of the excesses. So while you are paying one excess for more than one claim on more than one policy, the crucial thing is that the claims were caused by a single event; eg. a burglar breaks into your garage and steals your car, with a laptop on the back seat.
We have compiled this guide to explain excesses and events because we want customers to understand their insurance cover upfront, so that come claim time, there are no surprises.
What does house insurance cover?
Insurance covers sudden and accidental (unexpected and unintended by you) loss (physical damage) to the home. Accidental damage extends to cover intentional damage caused by tenants if you have landlords insurance.
When you make a claim for loss or damage, the excess is the first amount of the claim that you must pay.
An excess is payable for each event; or series of events where the damage arises from a single source or original cause.
How many excesses?
This is a scenario we see all too often.
- Tenant vacates a rental property
- landlord arrives to discover that the tenant has caused damage to the home.
- Landlord makes a claim with the insurer.
- Landlord is claiming for holes in walls, stains in carpets, and doors with broken hinges.
The insurer informs the landlord that the damage is covered by insurance, but that the damage was caused by multiple events….. and that the excess applies to each event. This means that the excess is applied to the wine stain on the lounge carpet, while another excess is applied to the cost to repair the holes in the bedroom wall, and another excess comes off the cost to rehang all the kitchen cabinet doors.
So while the thousands of dollars worth of damage was worth claiming, once the $650 excess (excesses can vary depending on your policy) is applied to each source of damage (or event), the cost to repair each lot of damage could be less than the excess. The end result is the claim doesn’t proceed and the landlord is left out of pocket.
The landlord is understandably annoyed, “This is why I have landlord insurance isn’t it ?”
Why can’t it be one excess?
The excess is payable for each event that causes damage. So a tenant neglecting a property during a tenancy is not considered to be a single source or original cause. It is considered to be multiple events happening over a period of time.
Insurance policies are not designed to payout for property maintenance, wear and tear, or general use. Unfortunately having lousy tenants that are careless or hard on the property is a risk that all landlords face.
If landlords could group all of the damage that happens over time into a single claim and pay a single excess, there would be significantly more insurance claims. While this might sound great for customers, insurance companies would soon have a situation where the cost of claims exceeds the premium. As more claims means higher premiums, this would not be a good result. Rather than paying for maintenance and wear and tear; insurance is designed to pay for the larger unexpected losses, which without insurance would result in extreme financial strain for the customer.
When is a series of events considered to be from a single source?
Sometimes, multiple events are considered to be from a single source or original cause, and that’s when only one excess will apply.
Below are examples of claims that have been treated under one event.
|A tenant is evicted from a rental property, and the tenant deliberately damages the walls throughout the house. The landlord provides evidence that the sudden loss causing the event was the eviction. It’s clear that the damage occurred over a short period and one excess is applied.|
|Tenant throws a party that gets out of hand. Guests damage walls, carpets and windows. The party is treated as the event and a single excess applies.|
|A tenant on a drug fuelled frenzy took a machete to almost all the wooden window sills on the house. The damage happened over a 24 hour period, and the while there were multiple attacks on multiple windows they steamed from the one event, so only one excess applied.|
|A rental property is left vacant by a tenant without the knowledge of the landlord and another group illegally occupies the property. This group causes significant damage to the property which is only discovered after learning that the actual tenant had abandoned the property. The insurer treats the event as being the illegal occupation of the property and applies one excess.|
These examples show how one excess could apply, but every claim has its own unique set of circumstances and is assessed on its own merits.
One Excess per Room
When there is clear evidence that the damage is extensive throughout the entire home some insurers (like initio) can choose to reduce the number of excesses to one excess per room, rather than per event. This means that even though there are multiple holes in the lounge wall, and stains on the carpet that happened on different occasions, the insurer can chose to apply only one excess to the lounge room. This can be seen as a compromise and means that often the claim can proceed.
The Importance of Managing your Property
Fortunately, there are effective ways to reduce the risk of your property being damaged during a tenancy, and facing multiple excesses at claim time.
The best form of risk management is pro-actively managing your tenants. Meeting your obligations as a landlord is a critical aspect of reducing the chances of multiple event losses. Most landlord policy wordings require management of rental properties in the form of landlord obligations. This involves screening tenants through reference checks, monitoring rents, and conducting property inspections. Regular property inspections are the single best way of recognising when damage ‘events’ have occurred. You can better identify, repair and prevent damage if you (or your property manager) are regularly recording the condition of the property. This helps to minimise the chances of discovering multiple event damage later that is unlikely to be covered with only one excess.
If you identify damage at the end of a tenancy, this can often be resolved through your bond. Collecting a bond at the beginning of a tenancy will provide you with funds that can be used to cover the cost of uninsurable damage to the property.
Charging the Tenant
If the damage is deliberate you can make the tenant pay – either via their bond or directly from them. If the damage is accidental the tenant is entitled to benefit from the cover under your landlord insurance policy. However, this can be complex. To learn more see our guide on who pays for damage.
Where damage is deliberate the bond should be used in the first instance for repairs of tenant damage, rather than your insurance cover.
Learn more about our landlord insurance:
Comprehensive Landlord Insurance Guide – Learn more about what is landlord insurance.
Initio Landlord Insurance – Learn about our specialist landlord insurance cover.
Multi-unit Rental Insurance – For serious landlords with multiple units under one roof.