DOS/Insurance One Last Time
Never seem to quite get all the issues with DOS & insurance answered.
With all the info I have read I have concluded that you either you have insurance coverage or have the liability protection of a LLC but not both. Using land trust to LLC to hold a rental with a mortgage.
Policy is no good if ownership changes. And the policy must be in the true name of the owner which would be the LLC. This has to be the first name/ policy holder and not as additional insured. So the bank will notice this.
So you could buy a second policy that the bank would not see. Would this not cost more than getting a lot of extra liability protection on current policy and keeping title in your name?
And since most policies do not allow double coverage in their fine print would you not have a problem if you had a claim and the insurance company found out there was 2 policies.
Seems like the LLC may not be worth it or you take a gamble..
Am I missing something?
Thanks for any input
Quote: The insurance covers the 1st named insured FIRST, then any appropriate ADDITIONAL INSUREDS (AI) for liability ONLY. A LOSS PAYEE (LP)endorsement garners protection from loss in the property ONLY.
LLC---1st named insured.
Mortgage company---mortgagee
Land Trust----Additional insured (also maybe a loss payee, too, depending on your Trust arrangement with the LLC)
You---Additional insured
Trying to understand the LP. It does not seem that you have any LP examples above. Is an LP the same as the co-insured? Could you give an example of an LP?
Brenda
The insurance covers the 1st named insured FIRST, then any appropriate ADDITIONAL INSUREDS (AI) for liability ONLY. A LOSS PAYEE (LP)endorsement garners protection from loss in the property ONLY. A mortgage company is inherently both an AI and an LP. If the LLC is the deeded/titled owner it must and should be the 1st named insured. Therefore it (the LLC) "holds the rights and benefits" of the policy primarily, just as you, or your land trust would, IF it were the deeded/titled owner and thus, 1st named insured.
You can't "hide" this from the mortgage company without doing it incorrectly and jeopardizing the coverage. The LLC is not a "prevention" mechanism of liability as much as it is a "buffer" or "wall" from such liability reaching YOU. The insurance is there to protect it (the LLC in your case) by transferring defense and covered claim and claim settlement cost(s). Does this help at all? Tim
Look at it like this ("players" on your policy):
LLC---1st named insured.
Mortgage company---mortgagee
Land Trust----Additional insured (also maybe a loss payee, too, depending on your Trust arrangement with the LLC)
You---Additional insured
Mortgage company happy as they are listed (and so is the Land trust).
You are happy as you have one premium and your assets are listed and insured properly.
The insurer is happy as there is only one policy...
This is how, based on the info I have gathered in your post(s), the policy should be structured.
Have the Agent call the bank and explain how and why it needs to be structured as such. We do it often with usually little effort. Hope this helps! Tim
[ Edited by norrist on Date 02/16/2004 ]
[quote]
Have the Agent call the bank and explain how and why it needs to be structured as such. We do it often with usually little effort. Hope this helps! Tim
So the agent calls and tells them what. That it needs to be like this because the title has changed and LLC owns it. How would this help? Still could DOS proplem since title changed.
1. Brenda-
A loss payee may be an entity that has a financial stake in the property (or policy) itself. You could be a loss payee if you have rehab work/value in a property that you don't own. A "tenant" on a lease/option may have sweat equity they should protect. There are scenarios where we make the management company of multiple properties the first named insured and the owner (in most cases, a land trust) as the AI and LP. This allows the client to take advantage of policy discounts and benefits better while still protecting the respective entities properly. This technique is savvy and requires a little more contractual attention, especially if the management company isn't "you".
2. Ray- My opinion is that if the DOS is invoked, it is better than gambling on improperly insuring your investment. As stated, in 12 years, we have NEVER had one called, even in the sub2 arrangement. We usually simply produce the policy with ALL relevant parties as described and never get a call from the lender. Granted, some lenders take a little more convincing than others. I have seen plenty of denials and reduced coverage scenarios, however. Hope this helps. Sorry I haven't completely explained, but the written venue is a tad tougher.