Landlord's Rental: Tenant Damage, Meth and Refinancing
Priya owns a 1970s three-bedroom rental in Hamilton. Her 'House Owner' policy has a landlord's contents extension of $20,000, no rent-default cover and a $1,000 excess. The tenant leaves after six months. Priya finds $8,000 of intentional wall damage, $3,000 of methamphetamine contamination testing and cleaning, and 10 weeks of lost rent at $550 per week. The policy covers 'intentional damage by tenants' only if the tenant is prosecuted and convicted, and it excludes 'gradual damage' and 'contamination' unless caused by an insured peril. The tenant was not prosecuted; the property manager says the damage was discovered after the tenant left. Priya's bank is refinancing and requires evidence of full house insurance. Priya asks her adviser whether to claim and whether her current cover is adequate. She has a $420,000 mortgage and a replacement value of $680,000.
1. Advise Priya on whether the damage and loss are covered, explaining the policy conditions.
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On these facts, the intentional damage is likely excluded because the policy requires prosecution and conviction, and the tenant was not prosecuted. The methamphetamine testing and cleaning is likely excluded as contamination unless it resulted from an insured peril; the policy excludes contamination. The lost rent is not covered because there is no rent-default extension. Gradual damage is also excluded. Priya should still check the exact wording: some policies cover tenant damage without conviction, or provide a sublimit for meth cleanup. If the wording is as described, a claim is unlikely to succeed and she should not assume the $8,000, $3,000 and $5,500 will be paid. She should notify the insurer promptly if she wants a formal decision, and ask for the decline in writing. She should also mitigate by repairing and re-letting.
2. Undertake a basic needs analysis for Priya's rental and recommend changes to the sum insured and cover.
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The building sum insured should reflect the replacement value of $680,000, not the mortgage. The $420,000 mortgage is relevant to the bank's requirement but not the sum insured. Priya needs a landlord policy with: loss of rents/rent default (10 weeks at $550 = $5,500), tenant damage cover (including malicious damage), methamphetamine contamination cover, landlord's contents, and public liability. The $20,000 contents extension may be adequate for appliances and fittings, but she should list them. She should review the excess and consider whether the bank requires the insurer's interest noted. The current policy lacks rent default and has a conviction condition, so it does not match her risk. A needs analysis should record her rental income, mortgage, tenant profile and tolerance for exclusions.
3. What disclosure obligations arise when Priya seeks new cover or refinances?
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When applying for new cover, Priya must disclose the tenant damage, the meth contamination, the lost rent and any claim or incident, even if not paid. Insurers ask about claims and circumstances that may give rise to a claim. She should also disclose the property's age and any maintenance issues. If she fails to disclose, the new insurer may avoid the policy or decline a future claim. The adviser should record the disclosure and any exclusions imposed. For the refinancing, the bank will want a certificate of currency showing the building sum insured and the bank's interest; that is separate from the disclosure duty.