Real Estate Investment Articles

Think You Will Not Get Sued?

By: The Hughes Brothers

Some people are interested in living a quiet life unobstructed by others. They have few assets and just want to be left alone by the “sharks” in the world. Receiving a phone call during the dinner hour soliciting magazines is considered an invasion of their privacy.

Other people have substantial assets to protect. They own businesses, investment property, live in nice houses, have teenagers that drive, drive expensive cars and hire employees.

Most of the time when you think about asset protection you can’t exclude privacy issues. While becoming more private is relatively easy, protecting your assets is not. In fact, if your goal is to protect your assets, you MUST become more private. In this article we are going to discuss both topics as if they were one in the same. It is our opinion that you should integrate privacy and asset protection techniques into your daily life in order to be more successful at living free.

Still Think You Will Not Get Sued?

A family sues the Weather Channel for not forecasting the storm during which a family member on a fishing trip drowned.

A man sues six bars and liquor stores and the electricity company because of injuries he sustained when, while drunk, he climbed over a fence with a locked gate and scaled an electrical tower.

A burglar sued the store he broke into (and won a judgment) because he fell through the suspended ceiling while breaking in, and injured himself.

The owner of a company settled a slip and fall claim from one of his employees. The next week he was sued by 11 other employees who happened to “slip and fall.”

A wealthy doctor was sued by his girlfriend because she developed a cold sore on her lips after going out on a date with him. He settled for $50,000 and immediately began implementing an asset protection plan.

A gun distributor (not even the manufacturer) was hit with a $1.2 million judgment for distributing a pistol which was used by some deranged thirteen year old kid to kill his teacher.

A fireman brings suit against an investor for knee injuries brought upon him when kicking the door down to respond to a fire alarm call to the fire department.

A woman brings a liability suit against an emergency room doctor, alleging while the doctor was using a tongue depressor to examine the back of her throat, that he stuck his tongue into her mouth. The complaint actually read as such.

Recently the New York Times ran an article entitled, “Lawyers Who Sue to Settle.” The article pointed out that there is a sub-species of lawyer that exists solely to “blanket the business world with hundreds of lawsuits at a time, often making claims that appear fanciful, even absurd.” These lawyers make their money on settling cases prior to trial (cases that they never intended to go to trial), paid by defendants that want to make the lawsuit “just go away.”

These lawyers call themselves, “bounty hunters.” One interviewed lawyer said that it is his “job to go out there and hunt these people down.”

The most critical part of a defense system is to buy the proper liability and property insurance. This includes the correct NAMED INSUREDS, ADDITIONAL NAMED INSUREDS, INSURING PROVISIONS, CONDITIONS, LIMITATIONS, EXCLUSIONS. Then you want to craft the right LIMITS, CO-INSURANCE CLAUSES, DEDUCTIBLES and INSURED PERILS.

We think a foundation of insurance information will be very important at this point as we develop the following material. Let’s discuss each of these insurance provisions at this point so that we can establish some basic floor of understanding to build upon during this fact filled day.

But, before we get too far, let us explain that we are trying to head in the direction of providing you the broadest coverage as possible in this discussion. For example if the named insured is incorrect the insurance company can deny DEFENSE and SETTLEMENT of a claim presented for payment. Our objective is to make sure that at time of a liability or property claim that you have the insurance company on the hook for all costs except for deductibles or self-insured retentions. So now that you know the objective lets get a real basic definition of each key above term:

LIABILITY

NAMED INSUREDS – This is an essential first step in the process of setting up an insurance policy. The named insured has to have an insurable interest in the property. So if you have the named insured as MS. SUSAN SMITH and the claim is submitted, setup with an adjuster, investigated and found to be owned by ABC, LLC then technically the insurance company can deny the loss or claim. So make sure the named insured is written in the NAMED INSURED section of the declaration page of the insurance policy (usually first or second page).

Secondly, we would also recommend that you name the property owner, yourself personally, your management corporation or LLC and any other entity that has anything to do with the management, maintenance or ownership of the property.
Example:

John Doe, trustee, under Land Trust dated 1-1-02
All unnamed beneficiaries of this Trust
ABC, LLC property manager
XYZ, LLC property maintenance

ADDITIONAL NAMED INSUREDS – This is important but not as critical as the NAMED INSURED position on the insurance policy. Why? Because the scope of insurance provided the named insured is far broader than the additional named insured. The intent of this portion of the policy is to provide coverage for the secondary insured’s for this property. Example you need to name lenders, first mortgage holders, second mortgages holders and any person or entity with a security interest in the property.

Examples:

First Mortgage Company
123 Easy Street
High Interest, CA. 91250
Mortgagee
Rich Rick
222 Second St
Secureville, TN. 12345
Second Mortgagee

Midwest Bank
333 Financial St
Big Bank, Ma. 54321
Equity Line of Credit

INSURING PROVISIONS – This is very important part of the insurance policy because this is the place where the COVERAGE PROVIDED by the insurance company is defined. You always want to read this section of the policy to make certain that it matches up with the exposures that you think are present for you and all the named and additional named insureds. Again if not provided in this section of the policy, then the insurance company can deny the claim. It is better (in this section) to have more coverage than needed. A little tip as well --- the broader the contract language in this section of the insurance policy the BETTER position you are in at time of interpretation. The courts are more in favor of the insured’s position rather than the insurance company if the language is ambiguous. Better safe than sorry, right!

Tips to remember here:

1) If insuring property make sure all buildings are listed. Don’t forget to list the shed or out building on the property.

2) If it is liability, make sure the wording is from a Commercial General Liability policy form provided in most states by the INSURANCE SERVICE OFFICE general forms. You don’t want a PREMISES LIABILITY or form of coverage provided by an Excess & Surplus Lines class of insurance company.

CONDITIONS & LIMITATIONS – you should read these sections of the insurance policy as soon as you receive the original from your agent or insurance company. These two elements of the policy can cause the insurance company to Bob & Weave in and out of providing you coverage. Make sure that you meet all conditions and limitations of this section of the insurance policy so as to still be covered by the policy.

EXCLUSIONS – Insurance companies love to interpret this section of the policy, so watch your step in this section. Read carefully the exclusions of your policy and if you don’t understand any part of it, then call your agent and have him give you an explanation. I would submit the questions in writing and expect the response in writing from the agent or insurance company. This helps you have the backing of the explanation when a claim is submitted and denied for whatever reason. Remember, where the claim’s department goes once a loss is submitted for coverage, first to verify the NAMED INSURED, then to see if the policy is still in force, and then on to the EXCLUSIONS section.

The Hughes Brothers

PUT THIS GOOD INFORMATION TO WORK!
View our Products Page and buy Tools to help you protect your assets like the RICH protect theirs!

Do you have a Real Estate question?

Please click the image below to access our Forums

<<Back