Do you know what’s in your rental contract?
By Danny Newman, Branch Manager – Beit Shemesh,Goldfus Insurance
The answer for most people, is probably not. A simple modification to the contract and relevant insurance policies, could save both the tenant and landlord thousands of shekel.
How much do the modifications cost?
In many rental agreements, the obligation to insure the structure falls on the landlord, and the onus of covering the contents falls on the tenant. There is an added requirement for either one, or both of the sides, to have a policy that includes third party liability.
What is Third Party Liability cover?
Most structure and contents insurance policies have an element of third party liability cover automatically built into the policy. This will cover you in the event that you or your property caused physical injury or damage to another person’s property as a result of negligence or accident.
3rd party liability covers a number of outcomes, but 2 of the most common ones are:
- Someone falling and injuring themselves (the person must be a 3rd party to the insured i.e. not family living on the property)
- Fire or water damage, that spreads and causes damage to your neighbour living beneath you.
It is always important to check the level of coverage that is automatically included in your policy. Standard coverage most often ranges from NIS 500,000 to NIS 1 million, but can be increased. It is recommended to determine the correct level of coverage needed for your particular situation.
When taking out a mortgage, banks often offer the services of their in-house insurance wing to cover the various insurances required for the mortgage. It is important to note, that most structure insurance policies sold through banks DO NOT cover third party liability, meaning that should you have, for example, a burst water pipe that causes damage to your neighbour’s property, then you may be faced with a large bill, as the policy will NOT cover the damage.
Is 3rd party liability enough to cover damage negligently caused by the landlord or renter?
In one word, NO.
The landlord and the renter are second party to each other and as a result the third party liability cover will not be extended to damage caused to a second party’s property. What this means in reality is as follows (the assumption is that both sides have their own insurance policies):
You are invited to a neighbour for Friday night. You light the Shabbat candles before you leave, but upon your return home you are welcomed by the fire department informing you that there has been a fire, started by the Shabbat candles. As to be expected, there is damage to both your contents as well as the structure of the apartment itself, owned by your landlord.
Upon making a claim, you find that your insurance company will cover the damages caused to your contents and your landlord’s insurance company will cover the damage caused to the structure. A few days later, the landlord’s insurance company informs you that as a result of your proven negligence, they will be counter suing you for the NIS 85,000 worth of damages caused to the structure.
Your tenant informs you that there is a problem with the fuse box, causing sparks to appear. You delay in fixing it, or send someone round who is not a qualified electrician. The next week, a spark from the fuse box causes a fire. There is damage to both your tenant’s contents and your structure.
Again, both insurance companies pay out. Your insurance company covers the damage to the structure, and your tenant’s insurance company pays out for damage caused to their contents. As a result of your proven negligence, your tenant’s insurance company will be counter suing you for the NIS 150,000 worth of damages caused to their personal belongings.
While the third party liability cover will not cover you in these scenarios, there is a solution that can protect both the renter and the landlord, in the event of damage caused to the other side through negligence.
What is the solution? Cancellation of the Subrogation Clause.
In Hebrew it is called ביטול סעיף שיבוב (Bitul Se’if Shibuv).
By cancelling the subrogation clause on both policies, as well as adding the relevant clauses to the insurance policies into your rental contract, you are effectively cancelling the insurance company’s right to counter sue the second party involved in the claim. By law (as stipulated in the 1981 Insurance Act), the insurance company is not allowed to object to the cancellation of the subrogation clause.
How much extra will this clause cost me?
Nothing. It is free. This small change to both policies allows both the renter and landlord to protect each other, potentially saving either side thousands of shekel in the unforeseen event of damage caused by negligence.
When it comes to signing on a rental contract and home and contents insurance, it is important to check all the details with an insurance professional, to make sure that you have a comprehensive and appropriately constructed policy which protects all outcomes. If you are already making the effort to purchase a home and contents policy, it is worthwhile to make sure you are doing it right.
For more information about Home & Contents Insurance contact us today!