The mobile home park industry and our clients think of us as a resource to insure their mobile home parks. However, our job involves helping mobile home park owners manage business risks that have the potential to disrupt their cash flow, or be so catastrophic that it could put them out of business. We most often help them manage this risk by transferring insurable risk to an insurance company.
A prime example of a catastrophic risk for mobile home parks is Failure to Maintain Litigation. The allegations found in Failure to Maintain Litigation, for the most part, involve issues of habitability and always appear to be quite onerous, at least on the surface. Most of the time, underlying issues are the cause of the Failure to Maintain Litigation, not habitability as alleged. Some of the underlying issues that have a long history of triggering Failure to Maintain Litigation are as follows:
• An extraordinary rent increase.
• Approval of a special rent increase in a rent controlled area. Particularly, if a large increase is approved and it’s implemented all at once.
• Park Closure for purposes of a usage change.
• Subdivision for purposes of selling lots to residents.
A cornerstone for plaintiff lawyers in Failure to Maintain Litigation has been the California Mobilehome Residency Law. The Mobilehome Residency Law gives the plaintiff attorney the ability to collect large amounts of legal fees if they can obtain even a very small judgment.
Historically, the large plaintiff lawyer fees have landed on the back of insurers by virtue of the Supplementary Payments provision found in General Liability policies. However, in 2007, the Insurance Services Office (ISO), revised the Commercial General Liability Policy Form, Supplementary Payments Section, to exclude coverage for plaintiff lawyer fees. ISO is a provider of data, underwriting, risk management and legal/regulatory services to property and casualty insurers.
Most insurers have adopted the 2007 policy form or the subsequent 2013 policy form, both of which do not include a provision for payment of plaintiff lawyer fees. There are only a few insurers left standing that are willing to include coverage for prevailing party attorney fees that insure mobile home parks. Our prediction is that, in the not too distant future, it will be virtually impossible to obtain insurance coverage for prevailing party lawyer fees. Without coverage for prevailing party attorney fees, exposure to Failure to Maintain Litigation will be virtually uninsurable. Noteworthy is the fact that the California Mobilehome Residency Law, under section 798.85, sets forth a provision that the prevailing party is entitled to reasonable attorney’s fees and costs.
If you are wearing your property rights hat, the triggers mentioned above have the potential to improve your return on investment, which we totally understand. However, if you are concerned about managing business risk, more may need to be considered than just return on investment. It’s not uncommon for mobile home park owners to consult with attorneys and accountants before making operational decisions. Mobile home park owners might also be well served to consult with their insurance broker about the additional risks that might be created by the above mentioned. Suggestions to mitigate risk or transfer certain risks to an insurer might be available. Or at the very least, an explanation from another perspective of what those risks might be. You can be sure that a property that has Failure to Maintain Litigation in its history may lose value in the eyes of a potential buyer.
California Southwestern Insurance Agency, serving the mobile home park industry over 45 years.