Those who rent property as tenants do not assume that the property will ever be damaged.
Nonetheless, the tenant is well advised to go over all possible scenarios to hedge against any claim for damages from the owner or third parties.
Legally, tenants must insure their tenant liability.
This means that the tenant must purchase their own fire insurance.
However, the owner and tenant can agree that this is not necessary and the tenant will be covered by the owner’s fire insurance.
In that case, we speak of waiver of recourse.
Waiver of recourse in fire insurance:
If the landlord’s insurance policy includes a waiver of recourse clause, the insurer will not be able to proceed against the tenant in the event of a claim.
This is an exception to the general principle that the insurer paying out a claim is stepping into the rights of the insured.
Suppose a property burns out as a result of arson.
In that case, the insurance company will pay compensation to the owner and then the insurer will turn against the arsonist.
However, such a right of recourse is rendered impossible by a waiver of recourse clause.
There is one exception to this.
If the liable third party has its own insurance, the owner’s fire insurer will deal with the insurer of the liable third party.
If there is a waiver of recourse clause in the insurance policy then you cannot.
Liability of recourse in the lease:
Now suppose there is a waiver of recourse provided in the owner’s insurance contract but the owner fails to pay his premium.
In that case, there is no valid insurance.
Theoretically, therefore, the owner who suffers damages could possibly turn against his tenant in person.
To avoid such a risk, it is therefore advisable to include the waiver of recourse not only in the insurance contract but also in the rental agreement.
Waiver of tenant’s recourse against landlord:
On the other hand, a waiver of recourse can also be agreed upon in the other direction, specifically from the tenant to the landlord.
After all, suppose a fire starts due to the poor condition of the electricity and damages the tenant’s belongings.
In that case, the tenant will be able to turn against the landlord or the tenant’s insurance company against the landlord’s insurance company.
Then parties may choose to include a waiver of recourse.
Careful with the premium:
At first glance, a waiver of recourse for parties seems to have only advantages.
Thus, the owner will not have to worry about whether the tenant has their own insurance on the one hand, nor will the tenant have to fear any recourse in the context of any claim.
However, nothing is free.
If the owner includes a waiver of recourse in his insurance policy, the premium will be increased by the insurance company.
In general, one can assume that a premium with a waiver of recourse is 15-20% more expensive than an insurance policy without a waiver of recourse.
As a landlord, the difference in premium can possibly be absorbed by charging a higher rent.
For questions about rental law and insurance law, Peterfreund & Associates is happy to assist.
