FTM LAWSUITS ARE STILL A MAJOR INSURANCE RISK IF YOU OWN A MOBILE HOME PARK IN CALIFORNIA
Unfortunately for Mobile Home Park owners, the residents, and insurers of Mobile Home Park Communities, “Failure to Maintain (FTM)” litigation remains alive and well.
Recently a long time insurer of Manufactured Home Communities decided to leave California because a large number of their insured’s became involved in FTM litigation. They are not the first, but only one of many we have seen leave the market since this type of ugly litigation first sprouted its head in the mid 1980’s. This particular insurer entered the California market in 1995 and their mobile home park insurance program was viable, due to the largest part of their business was written by one insurance broker that understood the FTM problem and realized that a careful risk selection process was tantamount to long term success. Because their insurance program was highly successful in its early years, they succumbed to the greed factor and gradually made it more readily available through additional insurance brokers.
In 2004 they had their first Manufactured Home Community insured facing an FTM claim. After that, they came fast and furious. In 2009 when they decided to leave the market over a dozen of their insured’s were or had been involved in FTM litigation.
Big losers in FTM litigation are Manufactured Home Community Owners for the following reasons.
They can be at risk to come out of pocket in a settlement even if they have the broadest insurance available.
During and after FTM litigation the cost of insurance will be more expensive and limited in scope. Insurance company underwriters may want to exclude FTM for many years to come.
The community could have a black-eye for many years to come reducing its value
The insurance coverage available to Manufactured Home Communities becomes more limited.
The Manufactured Home Community Industry loses because another insurer finds insuring its communities unacceptable.
The community’s residents lose. Often they don’t end up with a settlement that is even close to what they may have been promised by a plaintiff lawyer. The rising insurance costs for the community put additional pressure on community rents.
Insurers lose. In most instances an FTM lawsuit includes allegations that trigger a “duty to defend” for the insurer. This is a big deal for defense lawyers, making defense of FTM litigation highly sought after. We heard a quote several years ago that the defense of a FTM lawsuit averages $750,000—which means in some cases it’s even higher. Part of the problem is that the average General Liability premium for a manufactured home community in California might be $4,000. Also, the insurer can be responsible for the plaintiff lawyer fees and costs when the defendant prevails, which can also easily run into the hundreds of thousands of dollars. The newest version of the insurance industry standard Commercial General Liability (CGL) Form (CG0001 12 07) has been reworded to exclude payment for prevailing plaintiff lawyer fees. Not all manufactured home community insurers have adopted the latest version of the CGL form and in some cases those that have adopted the latest version have agreed to amend the form by endorsement to include plaintiff lawyer fees. However, we suspect that if FTM litigation continues to proliferate, more and more insurers of Manufactured Home Communities will consider adopting the new form and will not be agreeable to revision to provide coverage for plaintiff lawyer fees.
So who wins every time in FTM litigation? That’s easy the lawyers. They almost always seem to find a way to get paid no matter how the litigation turns out. Often industry attorneys tout a victory when community residents receive little or no indemnification. However, they fail to mention the hundreds of thousands of dollars they billed to the community’s insurer and/or community owner. Also, the plaintiff lawyers don’t usually settle without being paid a large sum.
The very best answer to FTM litigation is avoidance for the manufactured home community owner. The best insurance you can have is superior resident relations. People don’t usually sue people they like. Keeping in mind the biggest common denominator that triggers FTM litigation is an extraordinary rent increase—all of a sudden a plaintiff lawyer can get the attention of your residents. The second best insurance you can have is to put in place an arbitration mediation agreement with your residents. The more that have signed on, the less likely it is that a plaintiff lawyer will be interested.
Prior to the filing of a FTM lawsuit the California Mobilehome Residency Law requires that you be served with a “NOTICE OF LAWSUIT FOR FAILURE TO MAINTAIN”. If you receive such a notice your insurer(s) should be immediately notified through your insurance broker so that it can be made certain that all appropriate insurers past and present are properly noticed. It is important that you comply with the notice requirements of your insurance policy which gives all parties an opportunity to strategize a response that is in best interest of all concerned, even if you feel it needs to be done in concert with your attorney.
With all of the aforementioned being said, make sure you have a liability policy with the following:
Limits that are sufficient to protect the asset you are insuring and even more if the property isn’t held in an LLC.
No “per claim” liability deductible as it would apply “per claimant”.
No exclusion or limitation for FTM litigation.
No “Failure to Supply” exclusion.
No “Abuse or Molestation” exclusion or limitation.
If the latest version of the CGL form an amendatory endorsement giving back plaintiff lawyer fees.
An insurer that is rated “A” or better by A.M. Best Company.
California Southwestern Insurance Agency has been the pioneer in creating comprehensive insurance coverage for Mobile Home Park Communities since 1972. We insure more communities than any other agency in California. Our specialty programs are available in Arizona, California, Nevada, Oregon, and Washington. For more information on how to properly manage the risks associated with owning a mobile home park community, feel free to contact Bill Joseph at 408-445-3095 firstname.lastname@example.org, Al Reeder at 949.472.6567 email@example.com, Josh Woods at 949-707-0471 firstname.lastname@example.org or Greg Barber at 949-472-6564 email@example.com