Q: I own a townhouse that I rent out. The rules of the association make owners responsible for damage that is done by themselves, guests or renters. Our renter had a guest who was involved in a robbery attempt at the complex; he damaged a sign and light pole, but he escaped and the police haven’t been able to find him or the owner of the car he was driving. Now the association is trying to get me to cover the repair costs. Can the association do this? –Alex B.

A: Your association’s rules are common and legal. You are responsible for common-area damage you might cause, and if you invite people to your home, you likewise become responsible for the damage they might cause. The same is true for renters. Because they stand in your shoes, if they cause damage, you are ultimately on the hook.

This doesn’t mean, however, that you cannot attempt to recoup any money you pay the association by looking to the real cause of the damage: your guests, your renters or your renters’ guests. That would require a lawsuit if the responsible party doesn’t pay up. Meanwhile, the association will have been paid by enforcing its rule, and if you don’t comply, it will take whatever actions its rules provide for when members fail to make good on financial obligations.

Sometimes, an insurance policy can cover the costs of these mishaps. If, for example, you accidentally hit a sign while backing out of your driveway, your auto insurance would cover; and the same is true for your renters and their car insurance. Or, if the renters damaged association property by accidental misuse (of a meeting room, for instance), their renters insurance would cover (assuming they had the "liability" part). Even a guest’s accidental damage of association property, in a non-auto situation, might be covered by that guest’s own homeowners or renters policy.

But before you get your hopes up, consider the circumstances of this damage: It was inflicted in the course of an attempted crime. That’s the kiss of death as far as any help from an insurance company goes — they will not cover. That’s because insurance is meant to cover accidental damage; policies specifically exclude damage or loss from illegal activities.

This leaves you with one source of recompense, after you pay the association: your renters, who you may argue should be responsible for the acts of their guests (hopefully, your lease advises them of this common obligation). You may be able to look to their security deposit, because deposits may be used to cover unpaid rent and damage to the premises. You may even, once you have depleted the deposit, demand that it be topped off, so that you can dip into it again to satisfy the balance. If the renters refuse, that’s grounds for termination.

In the future, if you continue to rent out this townhouse, be sure to require renters to have renters insurance, and insist on a coverage called "damage to property of others." This is good neighbor coverage that pays up to $1,000 (not much but better than nothing) for damage an insured causes other people’s property, including damage to real property. This will provide a deep pocket (the insurance company) for damage caused by your renters at least, but it won’t cover their guests’ acts, nor would it ever cover damage that resulted from an illegal act.

Q: We lost our rental property in a fire, and have been dealing with our insurance company over the proceeds from our policy. I don’t think the amount is going to cover the cost to rebuild, but that’s the coverage that I thought I had (at least, that’s what I had years ago). Is there anything I can do about it? –Winston F.

A: If you owned property many years ago, chances are that you did, indeed, have what’s called "guaranteed replacement" as part of your property insurance coverage. In post-World War II times, when the housing market boomed and mortgage lenders as well as homeowners demanded insurance, the industry responded with policies that included guaranteed replacement. But in the mid-1990s this guarantee ceased to be the norm. In its place you have "capped insurance," or insurance limits pegged to the home’s value.

Now, in an ideal world, the replacement cost should be the same as the home’s value, but when the industry switched to capped insurance, it became the duty of the homeowner, not the broker, to correctly ascertain value. In other words, under guaranteed replacement coverage, the risk was on the insurance company if it set premiums that were too low to support the cost to rebuild; but with capped policies, the homeowner bears the responsibility for correct valuation.

If you believe that your coverage was based on a seriously low valuation, you can contest the issue by asking that the valuation be "reformed." Unfortunately, this is a very tricky legal argument, and almost always involves litigation. Successful homeowners end up with a new valuation, which provides coverage as if the correct value had been used all along.

Homeowners everywhere should consider whether their valuation is correct in today’s market. At renewal time, think about whether building costs have gone up (which includes costs associated with code upgrades), and whether the home’s overall value has increased over time. Your broker is not the person to turn to for help with this evaluation — these folks are experts in insurance clauses and contracts, not home value. The insurance industry itself is adamant that the burden is on you, the homeowner, to make sure the valuation in your insurance policy is sufficient.

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