September 2024 Coach's Quiz

QUESTION #1

While performing due diligence, you discover that an apartment community you’re in the process of acquiring recently received a letter from an attorney representing a prospect threatening to sue the property for deliberate family status discrimination. There’s no record of any reply from the community. Nor are you able to find out anything else about the matter. If the attorney later makes good on the threat, will you be covered by insurance? 

a.         Yes, as long as you have commercial liability insurance

b.         Yes, as long as you have claims made tenant discrimination liability insurance

c.          Yes, as long as you have occurrence tenant discrimination liability insurance

d.         No

QUESTION #2

The state fair housing agency is investigating your community for potential source of income discrimination. Your attorney advises that there’s a very good chance that the agency will target you for enforcement action. So, you decide it’s imperative to get tenant discrimination insurance. Should you disclose the investigation and threat of legal action to potential insurers?

a.         Yes, but only if the insurer asks

b.         Yes, since the risk of a legal claim is very real

c.          No, because no actual legal action has yet been taken

d.         No, because it will likely increase the premiums you have to pay

COACH’S ANSWERS & EXPLANATIONS

QUESTION #1

Correct answer: d

Reason: Rules #1 and #7 apply here:

Rule #1: Don’t Count on Your General Liability Policy to Protect You

Rule #7: Don’t Count on Insurance to Protect You from Deliberate Discrimination

It’s possible to acquire tenant liability insurance covering you against the costs of fair housing legal claims in all 50 states. But while available coverages and exclusions vary, tenant liability insurance is just about always limited to discrimination that’s inadvertent. The problem is that the potential complainant in this case is claiming that you engaged in deliberate discrimination. As a matter of public policy and, in many cases, state law, insurers can’t insure landlords against intentional discrimination even if they want to. So, you’re not insured and d. is the right answer. 

Wrong answers explained:

a. is wrong because commercial general liability insurance policies that landlords typically carry don’t cover fair housing discrimination, even if it’s inadvertent. If you want such a policy, you need to purchase it separately, either as part of your E&O coverage or as a standalone policy.

b. is wrong, because while a claims made tenant discrimination liability policy does cover fair housing complaints that are filed while the policy is in effect, it doesn’t cover claims of intentional discrimination. If the claim alleges inadvertent or disparate impact discrimination, you’d be insured as long as the policy was in effect when the lawsuit was filed. But since the complaint involves intentional discrimination, that’s a moot point. 

c. is wrong because while an occurrence-based tenant discrimination liability policy does cover fair housing complaints that are filed while the policy on or after the date the policy takes effect, it doesn’t cover claims of intentional discrimination. So, the question of whether the policy was in effect on the date of the lawsuit becomes a moot point.  

QUESTION #2

Correct answer: b

Reason: Rule #9 applies here:

Rule #9: Don’t Count on Tenant Discrimination Liability Insurance to Cover Pre-Existing Claims

Until recent legislative changes, most health insurers wouldn’t cover pre-existing medical conditions. The idea was to insure only against health problems that the insured developed after the policy began. The same principles apply to tenant discrimination insurance. Moreover, insurers require landlords to disclose not only actual fair housing claims against them, past and present, but potential claims of which they’re reasonably aware, including threat of legal action by a state government agency in this scenario. The landlord’s failure to disclose the potential claim would likely give the insurer grounds for voiding the policy. So, b. is the right answer.   

Wrong answers explained:

a. is wrong but is pretty much a moot point because it’s a sure bet that any insurer will, in fact, ask a landlord about potential fair housing claims before issuing a tenant discrimination policy.

c. is wrong because the landlord’s duty to disclose includes not just actual but also potential fair housing claims against it of which the landlord is or should reasonably be aware.  

d. is wrong even though it’s true that disclosing the risk of upcoming legal action will likely cause the insurer to increase the price of the policy, if it even issues it at all. The problem is that such disclosure is required by contract and insurance law. Deliberate failure to disclose may constitute fraud and grounds for voiding the policy.