By: Brooks Hayes, President of Hayes Insurance Group
March 11, 2021
With most Landlord Dwelling insurance policies, childcare or any other business conducted on the property is not allowed. Most carriers will send you either a non renewal letter or if they feel there's a real liability they will send you a cancellation for violation of contract. But even if they didn’t cancel the policy, the simple fact that it’s excluded from your policy affords you no coverage.
If the law (proposed HB 2484) ends up anything like it is in California, you’re in for some real surprises. Not only are you not allowed to evict a tenant that starts a daycare, the tenant only has to notify you its going to happen, with or without your permission. Your only defense is you are allowed to increase the deposit by 2x and sometimes 3x, you are however NOT allowed to evict or raise the rents because of the increased traffic or liabilities, you’re not even allowed to require nor are the tenants mandated to have liability insurance, they can have the parents of the children sign an agreement that they don’t have liability insurance and that the landlords insurance may not cover liabilities. So does that relieve you of any liabilities then? NO I don’t think so! The second there’s an accident they come looking for the deepest pockets. The tenant decided it wasn’t worth the premium to acquire the correct insurance or any, the landlord dwelling policy excludes all business conducted on the property, so that leaves the landlord to defend claims and pay liabilities on their own. With this being said, it would be in a landlords best interest to acquire a commercial childcare business insurance to offset any open liability with an average cost of thousands of dollars per year. What about upgrades? As a landlord are you going to have to bring the property up to childcare regulations? Does the property have any lead based paint? What if a nail works loose and a child is injured? I believe there is a huge amount of risk that could potentially be directed to the landlord. I’m sure the insurance carriers will see an opportunity, they will sit back and assess for a few years and then raise rates on all properties to account for the coverages that will be required, So whether or not you have a daycare or not, will not change the fact you’ll be paying the price for it.
This is my opinion and not legal advise, I advise you to talk with your attorney and insurance agent to see how it will effect the policy you have in place.
References Cal. Health and Safety Code section 1597.40 (2021)