You Are a Landlord and Got Sued by Your Tenant – Now What?

You’re a California landlord. A good one. You own a nice building with good apartments. You provide housing for people who need it. You are attentive to your tenants. You make repairs when tenants notify you. You don’t raise the rent more than is allowed.

And you still got sued by your tenant.

Smartly, you maintained proper insurance. You contact your insurance broker and they tender the claim to your insurance company. The insurance company accepts the tender and selects an attorney to handle the claim. The insurance company must provide and is paying the attorney, so you can just sit back and let the attorney defend you, right? Not necessarily. Particularly if you receive a Reservation of Rights letter.

What is a Reservation of Rights Letter?

In all likelihood, the insurance company will issue what is known as a Reservation of Rights letter (“ROR”). The ROR is usually long and full of legal language. It explains that while the insurance company has agreed to provide and pay for the defense of the tenant’s claim, there are claims in the tenant’s complaint that may not be covered (or are specifically not covered), in addition to claims that are covered or may be covered. By issuing the letter, the insurance company is “reserving its rights.” Those rights include:

• The right to later deny your claim and seek reimbursement for the attorneys’ fees it pays and leave you liable for any ;
• The right to deny coverage for some claims and not cover you for any judgment on those claims;

A Reservation of Rights Creates a Conflict

The issuance of a ROR creates a conflict between you and the insurance company. The insurance company has an incentive to push the case toward uncovered claims. The attorney the insurance company has hired is now in a tough position.

The State Bar of California maintains that the attorney’s paramount duty is to protect your interests, not the insurance company. But despite what the State Bar says, the reality is that attorneys are running a business. Typically, the attorney has long-running relationships with a specific insurance company and so the attorney has an incentive to make the insurance company happy. That keeps the insurance company coming back to the attorney for future cases. By contrast, once your case is done, the attorney may never see you again.

Many attorneys are able to set aside this inherent conflict. But not all of them.

What To Do If You Receive a Reservation of Rights Letter

So what should you do? An independent attorney can help protect you. The independent attorney will monitor the case and ensure the attorney hired by the insurance company is properly defending you and putting your interests over the insurance company’s interests. Depending on what your Reservation of Rights letter says, your insurance company may even be required to pay your independent attorney for you, in addition to the attorney hired to handle the claim.

You’ve Been Denied Coverage? Call us.

There are some instances where the insurance company denies you coverage. There are various reasons they may do this. You should immediately seek legal advice if they do because their denial may not be valid. If it’s not, we can fight for you to get the coverage you paid for. If the denial is valid, we can also help you defend the lawsuit.

For assistance with issues related to your lawsuit, particularly if you received a Reservation of Rights letter or had coverage denied, you may contact Thomas J. O’Brien at Zacks & Freedman, PC for guidance. Contact us at your convenience to request a consultation.

Neither this website nor this post are intended to create an attorney-client relationship.