How to avoid receiving a million dollar bill for burning your toast and causing a fire in your apartment block

How might you need to change your insurance cover if you move from a rental house to a rental apartment or townhouse?

This is a question that struck me as I fairly recently said “goodbye” to my cat, fireplace and sunny BBQ area, and “hello” to the convenience of inner-city apartment living.

I believe I’m among an increasing number of people (young Aucklanders in particular) choosing to rent smaller places in central locations, rather than paying exuberant prices to buy houses an hour’s commute away from work.

The head of product and facilities at Crombie Lockwood insurance brokers, Cheryl Stuart, says having contents insurance is the most important thing, irrespective of whether you’re renting an apartment or house.

As well as covering everything that will fall out of your dwelling if you tip it upside down, contents insurance policies cover legal liability arising from an event that damages the property you’re renting. In other words you’ll be covered if you accidently flood the bathroom and damage the carpets, or start a fire that burns the property down.

Most insurers cap this coverage at between $1 million and $2 million.

Stuart says apartment or townhouse tenants may like to consider getting greater legal liability cover, as there can be more at risk when a fire starts in an apartment building or townhouse block, than in a free-standing house.

A million dollars doesn’t go that far if a fire spreads to a few apartments, let alone the whole block.

Stuart says insurers should be willing to underwrite greater legal liability into your policy if you’re willing to pay for your extra cover.

She says doing this is more viable if you’re working through a broker rather than buying insurance direct.

The Insurance and Savings Ombudsman, Karen Stevens, hasn’t seen cases where this has been a particularly major problem for apartment renters.

She points to cases where uninsured students have caused fires in their rental properties and been crippled by the repayments they’ve had to make out of their own pockets.

Either way, she says getting contents insurance is paramount – not necessarily for the stuff you own, but for the legal liability.

Know what’s on your tenancy agreement

Stevens says, “The message to get through to people is that is if they’re going into a renting situation, they need to read the tenancy agreement. They need to know what they are likely to be liable for if anything goes wrong.”

This can be more complex if you’re renting a property where a body corporate’s involved.

She says in some situations the body corporate uses contributions from the dwellings’ owners to insure the building, but there will be different arrangements in different cases that may be worth noting.

Flatting arrangements complex for renters across the board

Stevens and Stuart say the same issues arise in apartments as they do in houses, where tenants live with people who aren’t family.

While contents insurance policies cover you and your immediate family, they don’t cover others you live with.

In flatting situations, Stevens says it’s important to check if all the tenants on the tenancy agreement are jointly or severally liable. In other words, does everyone share the burden of Flatmate A burning the place down, or will Flatmate A have to pay for the damage on their own?

Stevens says it’s important for tenants to know that they’re responsible for any damage done to their property by anyone they’ve permitted to be on the property.

So if you’ve signed a tenancy agreement that says the tenants are jointly liable, and one of your flatmates’ friends damages the property when you’re on holiday, the onus still falls on you.

Stuart notes there’s reluctance among insurers to cover flatmates as a group, so tenants need to take out their own individual contents insurance.

She admits insurers may be hesitant to provide comprehensive contents insurance to students or larger groups of people living together, so these people may have to accept watered-down policies, without accidental cover for example. However ensuring there’s legal liability is the main thing.

Treat your rental like you would your own property

Withstanding all of this, Stevens says it’s important for renters to treat their properties like their own, as any intentional negligence can see your contents insurance claim denied.

While it’s hard to draw a line in the sand in terms of how negligent is too negligent, she says, “The courts in New Zealand have said, in order for the insurer to show the person failed to take reasonable care, they have to prove the person was grossly careless, grossly negligent or reckless.

“As some of the judges have said, most of us are negligent or careless from time to time – that’s what the insurance is meant to cover. But they’ll consider what a reasonable person would have done in the circumstances of each particular case.”

This might be the difference between starting a fire from burning a piece of toast, compared to causing an explosion by putting a metallic object in the microwave.

Stevens also suggests tenants contact their landlords if there are any broken window latches or locks for example that may make the property less secure. A claim following a burglary through an insecure door might not make the cut if the tenant hadn’t endeavoured to get it fixed. 

Insurance checklist for renters:

• Get contents insurance.
• Make sure you’re comfortable with your level of legal liability cover.
• Read your tenancy agreement and understand who’s responsible for what – you, your landlord and the body corporate.
• In a flatting situation, check whether you and your flatmates are jointly or severally liable for any damage done to the property.
• Contact your landlord if there’s anything compromising the security of the property – ie a broken door lock or window latch.
• Treat the property like it’s your own.