Insurance loophole – illegal activities

by Readers Question

14:30 PM, 18th July 2019
About a month ago

Insurance loophole – illegal activities

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Insurance loophole – illegal activities

There is a potential loophole on landlords insurance. This is that most, perhaps all, policies now available exclude cover for any damage caused by illegal activities.

This leaves an uncomfortable situation where if, for example, your buy-to-let house was burned down by a tenant and it was discovered that some form of illegal activity had been going on, the insurance company might well not pay anything towards the cost of repair.

However well you know your tenant, or however often you inspect, you can never be 100% sure that no illegal activity is ever going on at a property.

I have yet to find a solution to this problem except to make 6 monthly inspections, screen tenants as closely as possible and trust to luck!

Charles



Comments

Jason McClean

16:12 PM, 18th July 2019
About a month ago

Hi Charles

You are quite correct, most insurers will exclude damage from illegal activities such as cannabis farms.

However, not all insurers exclude. We have at least one market that would cover you for damage from cannabis farms, providing all disclosure was correct, there were regular documented visits etc, etc. Basically adhere to their terms and conditions and they will treat it as malicious damage and payout if all in order.

There is no such peril as 'illegal activity' that will feature on a schedule with cover, but it's good to know some insurers will accept damage as a result of.

If I can help any further, do let me know. The provider we have is excellent with an enviable reputation for dealing with claims and usually well priced in the market-place. They are not normally the cheapest - if you want cheap policies, then you can expect exclusions like these to be run of the mill. But saying that, I have all my portfolio with this provider and think the performance per pound is superb.

Hope this helps!

The Property Man

9:22 AM, 19th July 2019
About a month ago

I yesterday on a routine inspection found one of my properties being used as a cannabis farm and just about to go full scale !!

The tenant was nearly 50 years old and a gentleman who passed all his credit checks and has a homeowner guarantor who also works full time and passed all her credit checks.

I would never of guessed he was the type to do this but it just shows you must inspect your properties!!!

The guarantor will now be hit with a hefty bill !

Rob Crawford

13:37 PM, 19th July 2019
About a month ago

It really is so important that landlords check the terms of their insurance cover and comply with those terms. If anyone has selected their insurance on the basis of premium alone or they have made the decision based on a nice advert on TV, it's probably not worth having!

Jason Mumford

9:29 AM, 20th July 2019
About a month ago

This is a good story to send to the housing minister to help counter the arguments from shelter and the likes.

It highlights the risks and costs associated with running an overall portfolio

For example

When a bank sets its loan rates on a product, it factors in that a percentage of people will default. And so the bank needs to set its rates to account for these losses to ensure it makes a profit or at least breaks even. Ultimately, this means the rates are higher than they might have been if every customer actually paid what they signed up to in their loan agreement.

The fact is landlords can be hit by massive losses from individual properties. In order for a landlord to break even and ensure they don't default on their loans (Meaning people would lose their homes), they need to charge all tenants enough to ensure the viability of the whole business in the event of shocks. This is good prudent management and ensures the good quality tenants are not adversely impacted by the crooks who don't pay or who cause damage.

Some examples of things that cause good tenants to pay more are

Damage and criminal use
Late payment of universal credit
Tenants not paying rent for prolonged periods
Section 8 proceedings (time and costs)
Additional bureaucracy

Most landlords provide very good quality homes to their customers. It's their duty to ensure these peoples homes are safe. Therefore they need to charge everyone enough to cover the costs of the portfolio, not just an individual property.

Ruth Clarke CRLA

14:50 PM, 23rd July 2019
About 4 weeks ago

Here at the CRLA we have three insurance agents vying for business from our members. All three confirm that their standard policies cover malicious damage by tenants (not just burglars which many policies seem to think is what landlords want). On cross examining them, yes this does include cannabis farms etc

Charles Pilton

17:45 PM, 25th July 2019
About 4 weeks ago

Reply to the comment left by Ruth Clarke CRLA at 23/07/2019 - 14:50
Hello Ruth,
the last policy wording that I looked at, from a reasonably well-known provider, capped the amount insured for malicious damage at £5,000 AND specifically excluded any cover for any damage caused by illegal activities at the property. £5,000 would be unlikely to cover the damage from a cannabis factory, especially if they accidentally burnt the place down. So you might want to check how much cover for malicious damage these providers are offering. Personally I would want to see in writing that they will cover cannabis factories and not just rely on a verbal reassurance.

Charles Pilton

18:45 PM, 25th July 2019
About 4 weeks ago

Reply to the comment left by Jason McClean at 18/07/2019 - 16:12
Hello Jason, thanks for your comment! Yes, I would certainly like to know who that provider is. I have seen at least 1 provider that will cover cannabis factories if certain conditions are met, such as 6 monthly inspections, tenant vetting etc. But they make no mention of any other potential illegal activities such as drug sales.

Jason McClean

9:43 AM, 26th July 2019
About 4 weeks ago

Hi Charles

Terms of the tenancy must be met - inspections, vetting, agreements etc. But providing they are, then malicious damage from illegal activities will be covered. The insurer is Amlin, so one of the best. If I can help any further, call on 01832-735388.

Best

Jason


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