Habitability Lawsuits Raise New Risks for Apartment Owners, Insurers

California juries are handing down million-dollar awards in lawsuits alleging apartment complex owners have failed to maintain ‘habitable’ properties. Insurers, concerned the litigation trend could spread, are adding exclusions to limit their risk. Brokers need to be aware of the impact habitability litigation and coverage restrictions can have on client property programs.


Apartment complex owners in California are facing a growing litigation risk that has caught the attention of insurers across the country. As California juries hand down million-dollar awards to tenants in lawsuits where it is alleged that landlords have failed to maintain ‘habitable” properties, insurers are taking steps to limit their exposure. Some carriers have already added exclusions for cockroach and bedbug infestations, and now broader, generalized habitability exclusions are becoming more common.

While habitability lawsuits have been limited largely to California, particularly Los Angeles, San Francisco and Oakland, insurers are concerned that this type of litigation could spread to other cities and states.

To protect themselves, property owners need to take a proactive approach to maintenance of multifamily units and keep detailed records of that work. Brokers need to be aware of the impact that potential litigation and coverage exclusions may have on client property programs.


California juries, and sometimes judges, are handing down bigger awards in habitability cases. Verdicts that may have been considered outliers five years ago are seen as the norm today. Typical awards in habitability cases have risen from $15,000 to $25,000 per plaintiff to $75,000 to $100,000 per plaintiff.

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Several trends are helping to drive the higher awards. Juries in California’s major cities have become more judicially active, particularly in cases involving corporate landlords in areas suffering from a shortage of affordable housing. Corporate ownership of multifamily dwellings has increased in recent years with fewer ‘mom-and-pop” landlords. In addition, rents in California cities have soared in recent years, leading to more overcrowding, which can create conditions more conducive to vermin infestation. The move toward corporate ownership has resulted in some insureds’ inability to adequately respond to alleged violations.  In an effort to capture efficiencies of scale, insureds with a broader schedule of properties may be inclined to spread management and maintenance resources across an array of properties instead of dedicating a maintenance team to a single location.

Another contributing factor may be California statutes that allow for recovery of attorney fees in certain habitability claims.  The latter should not be viewed as incidental to the compensatory damages award.  Los Angeles, among several California cities, provide for the payment of attorney’s fees as a component of any award for violation of applicable Rent Control Ordinances.  The tripling of compensatory awards and the allowance for attorneys’ fees are far more onerous than those instituted by many other cities.

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To combat this growing exposure, insurers have been adding habitability exclusions to California multifamily property coverage. The exclusionary language varies along with the wide array of potential hazards, the exposure to which carriers are looking to avoid. Conditions of a premises which may generally be alleged to impair habitability of a premises may include, faulty and dangerous wiring, pest and vermin infestation, peeling paint, faulty weatherproofing, broken windows, leaking roof and water intrusion, lack of carbon monoxide and smoke detectors, faulty plumbing and water sealing, mold, lead-based paint and the catch-all “lack of general maintenance.” 

Insurers are concerned not only about the size of the awards, but also the steep defense costs for cases involving multiple or even dozens of plaintiffs. Habitability litigation may also trigger multiple policy periods. In comparison to cases such as slip-and-falls that trigger just one policy period for a specific date of loss, habitability actions can trigger insurance coverage over a number of years. That can range from up to four years, which is the statute of limitations in such cases, or up to 18 years if minors are involved. The challenge in determining the exposure over multiple policy periods gave rise to the Continuous & Progressive Damage Exclusion (C&P Exclusion).  Although generally associated with construction defect cases (where a latent defect may span any number of years prior to its eventual manifestation), the C&P Exclusion actually finds its genesis in a site exposure case in California dating back to 1995.  In Montrose Chemical Corp. v. Admiral Ins. Co, the court held that the policies of multiple carriers over a span of decades were triggered in latent property damage which eventually manifested itself in 1986.  Montrose had manufactured the pesticide DDT at its plant in Torrance, CA from 1947 until 1982. Consequently, the court held that each year that the premises was exposed to the offending condition was its own “occurrence” under the CGL policies.  The prevailing condition was held to constitute a “continuous trigger” thereby activating multiple years of continuous coverage (source).

Concerned with the potential aggregation of multiple years’ exposure under the Montrose ruling, carriers conceived the C&P Exclusion which essentially defined any continuation, change or resumption of bodily injury or property damage during the pendency of any policy to be deemed to have been known prior to those subsequent policy period(s).  In effect, pushing coverage for a continuous trigger back onto the first policy period during which a known condition may be shown to have commenced.  In the context of construction defect, the initial “responding” policy is usually defined as the policy during which the construction was completed as that was the date when the allegedly defective construction was put into motion, regardless of subsequent years of latency and eventual manifestation.  However, in the context of habitability claims, multiple years of alleged mold exposure may be related back to an incident of water intrusion which was improperly remediated, for instance.  The C&P language will serve to push coverage to a prior carrier or, at worst, restrict coverage to only one year versus a series of years.

In order to carefully circumscribe the array of potentially covered exposures, insurance carriers may also attach “Fungi and Bacteria” exclusions which restrict any bodily injury or property damage associated with exposure to harmful conditions.  Further, any expenses associated with abatement, testing, monitoring or remediation of these conditions are also usually excluded.  Similarly, coverage may be restricted or excluded for bodily injury or property damage caused by or attributed to the alleged exposure to wild animals, vermin, insects (such as bed bugs) or their droppings, carapaces, etc.  Lead exclusions are being utilized to preclude coverage for bodily injury or property damage caused by or contributed to by the presence, ingestion, inhalation or absorption of or exposure to lead contained in any material, but are usually associated with peeling paint or the removal of lead paint from a surface prior to refinishing.  Again, the costs associated with the abatement, mitigation or removal of lead materials are excluded from coverage.

Finally, some exclusionary language may act as a catch-all for other various conditions that are alleged to impair the safe habitability of a premises.  Such policy language will generally preclude coverage for violation of any federal, state or local laws, ordinances, statutes or health codes, and failure of the insured to maintain any premises in a safe, sanitary, healthy or habitable condition.  Acts which are tantamount to wrongful, constructive or retaliatory conviction are similarly not covered.  Carriers have no obligation to defend or indemnify any insured for non-covered conditions.  However, if an investigation into the allegations is warranted a carrier may defend under a reservation of rights as the duty to defend is generally construed to be broader than the duty to indemnify. 

Because habitability exclusions are relatively new, it’s not quite clear yet how stringently they can be applied if lawsuits also involve covered claims. Still, the growing trend of habitability litigation means that property owners have to take a proactive approach not only to maintenance, including established procedures for performing repairs and responding to complaints, but also to keeping detailed records of that maintenance. That should include hiring professional exterminators to maintain pest control on a regularly scheduled basis.


Brokers need to be aware of the growing trend of habitability litigation and its impact on insurance coverage. As carriers add habitability exclusions, addressing the terms and conditions of the policy becomes more important. Property owners need to know which coverages are available and what exposures they may face. Brokers should also take a more proactive stance to evaluating properties in terms of location, age and prior claims experience. Obtaining better data on the property and its exposures helps to provide better results for clients.

Contact your CRC Group producer for more information.



Jeff Coles is a Senior Vice President, Casualty Broker in CRC’s Los Angeles office and a member of the Casualty Practice Advisory Committee.