Mitigating Risk: Dogs and Animals

Have you had a tenant ask to own a dog or other animal at one of your rental properties? Consider carefully before you answer.

Whether or not you utilize an LLC to compartmentalize your risk, we recommend umbrella insurance to all real estate investors for additional protection against lawsuits. But even an umbrella policy may not offer enough coverage to protect you.

Even if your landlord policy permits a tenant to have a dog, it likely isn’t to be in your best interest as a landlord. A recent incident involving a golden retriever with a very friendly disposition illustrates this point. 

One night a friend came to visit the owner and bent over the dog while it was asleep. Because the dog was startled, it became frightened and bit the guest on the chin. Although a minor injury, the bite required a trip to the emergency room. The friend assured the property owner that everything was okay, and not to worry.

But several weeks later, the property owner was sued for $1.5 million.

The case has still not settled, but the insurance company expects to pay the full limit of policy liability on this claim. If the amount of money that the plaintiff is awarded exceeds the policy limit, the property owner will have to pay the excess out of pocket.

I cite this example to illustrate that even if your property is insured for a dog or other hazard that a tenant brings to your property, you still carry risk. Even a small accidental injury, especially to someone’s face, can result in a massive lawsuit that can exceed your coverage limit. Aside from the financial risk, it can also exact a personal toll for both you and your tenant.

As dog bite incidences have increased, insurance companies have also tightened restrictions. Those that still permit “attack” or guard dog breeds either charge at the high end for coverage, degrade or eliminate some coverage in other parts of the policy, or utilize other requirements to increase the cost of your coverage. Lloyd’s of London, for example, permits any type of dog at rental properties, but on most of their policies, they simply exclude coverage for lawsuits that originate from animals. Most umbrellas do not fill in this coverage gap and you would not be covered.

These are the insurance risks and tradeoffs you should weigh when deciding whether to allow a tenant to have a hazard on your property.