Renters insurance in California vs. other states

Disclaimer: This article is not legal advice. Legal information is not the same as legal advice, where an attorney applies the law to your specific circumstances. Consult an attorney for advice on your interpretation of this information or its accuracy. You may not rely on this article as legal advice, nor as an endorsement of any particular legal understanding.

Many aspects of real estate law, including rules and regulations relating to landlords and tenants, differ in different parts of the country. In general, California is considered by-and-large a landlord-friendly state which means that rental owners and property managers have a fair amount of leeway in terms of how they structure leases and the requirements of their rental application process. Renters insurance in California is no exception to this trend, so landlords in California are free to require their tenants to purchase an appropriate amount of renter's insurance.

If you are a property manager in California, you'll want to be familiar with the state's rules regarding renter's insurance and how those rules differ from those of some other states. This is important not only to ensure that your tenants are properly protected but to ensure that your lease is clear about which aspects of insurance coverage are the responsibilities of the tenant and which are the responsibilities of the property owner.

Learn: What is renters insurance?

What is the Sutton Rule?

Most rules and regulations regarding landlord-tenant relationships are based on legal precedent. One of the most important legal precedents relating to renters insurance comes from a case decided by the Oklahoma Court of Appeals in Sutton v. Jondahl.

The Sutton Rule states that a property owner’s insurance company cannot sue a tenant for negligence because the tenant is considered a co-insured part of the property’s policy. This rule has been interpreted in different ways in different states and can be applied broadly or on a case-by-case basis.

In California, the Sutton Rule is usually applied on a limited case-by-case basis. Generally, the courts look at the language of the lease to determine what responsibilities the tenant has in regards to the protection of the property. For example, in many commercial leases, tenants are required to hold property insurance, while in most residential leases the tenant insurance coverage, if required, applies only to his or her personal property.

Can a California landlord require renters insurance?

Unlike some other states, California landlords are allowed to require tenants to obtain and maintain renters insurance while they are under the terms of the lease. This is done in part to protect landlords from lawsuits in the event that damage to the property causes it to become uninhabitable. It is also to protect the landlord from liability in the event that an injury occurs on the premises.

Finally, the renters insurance requirement can help to protect the landlord from a disruption in rent payments in the event that the tenant loses his or her belongings due to a fire or other natural disaster occurring on the property. By providing enhanced protection for the tenant, the landlord also provides additional protection for his or her own financial interests.

Adding a clause regarding renters insurance in California

In order to require renters insurance in California, you will need to include a clause in the lease making clear the policy requirements for the tenant. This is important because even though it is legally binding, an oral agreement is difficult to enforce. Simply notifying your tenant of their renters insurance requirement, therefore, could lead to misunderstandings and failure to follow through. Then the onus would be on you to prove notification and agreement.

Items to include in a clause regarding renters insurance

If you decide to add a clause regarding renters insurance to the lease agreement that your tenant signs, include the following elements:

• Named insured: Make sure that everyone living in the property is covered by the renters insurance policy or that each person has his or her own individual renters insurance policy.
• Types of policies: Check that the policy covers both personal property and liability.
• Amount: State the amount required for the policy limits. Check with your insurance company for suggested coverage amounts.
• Additional insured: List the landlord or property owner as additional insured to ensure that they are notified if the policy changes, is canceled, or lapses.
• Penalties: Include a clear statement of penalties in the event that coverage lapses or is canceled.
• Notification requirements: Include a clear description of acceptable ways of notifying you once coverage is obtained and periodically throughout the lease term.

Subsidized housing exemption

Individual tenants or properties may be subsidized through programs at the local, state, or federal level. For the most part, landlords, property managers, or rental agents who manage properties that are subsidized or those who work with tenants who receive a housing subsidy may not require renters insurance.

The renter's insurance exemption for subsidized housing is unfortunate because in many cases tenants in these units are the least able to afford the financial setback of personal liability, property loss, or damage. If you are a property manager working with tenants in subsidized housing, it may be a good idea for you to help them understand the importance of renter's insurance and assist them in finding low-cost options that fit their budget.

What to do in the event of a lapse in coverage

You will want to include language in the lease agreement that outlines the penalties for failure to comply with the renters insurance requirement. These could range from a fee and required proof of policy reinstatement all the way up to legal action for failure to comply with the terms of the lease agreement. You may want to draw special attention to this section of the lease to ensure that the tenant is clear on his or her obligations.

Consult the experts when crafting your lease

It is vital that you consult your real estate attorney, insurance agent, and financial advisor when determining the way that you will craft the renters insurance requirement for your lease. Once you know what policy specifics you want to require, ask your real estate attorney to properly craft the language within your current lease.

In addition, if it has been a few years since your lease was prepared, this may be a good time for you to meet with your attorney to discuss any other changes or updates that might be needed. Remember, laws change all the time and it is important to stay abreast of the latest rules and regulations, disclosures, and other elements of an effective lease agreement so that you can ensure that the lease protects you in the event that the unexpected occurs.

What happens if a tenant does not have renters insurance and liability, loss, or damage occurs?

Tenants may take the attitude that they are not concerned about their personal property, especially if they do not consider it valuable or Irreplaceable. However there are a number of reasons that it is in the tenant’s best interest to hold renters insurance.

Liability coverage

Aside from the personal property coverage provided by renters insurance, the liability coverage provides a powerful incentive for obtaining coverage. This can protect the tenant by providing compensation if a guest is injured while on the property the tenant is renting. It also provides protection from damage occurring to the guest’s personal property or from damage done to a neighbor's property by the tenant’s pet.

Landlord compensation

In the event that the property is damaged or destroyed, the renter's insurance may cover the landlord's insurance deductible. If renters insurance is required and not carried, the landlord can then sue the tenant both for failure to abide by the terms of the lease agreement and for the amount of the deductible.

Neighboring tenant compensation

In the event of damage to neighboring property caused by the negligence or actions of the tenant, not only the landlord but the neighbors can sue the tenant for damages arising from loss of use and destruction of property as well as any injuries that occurred.

Discussing the renters insurance requirement with a potential renter

It can be difficult to talk to a tenant about their obligations under a lease agreement. In some cases, you may be reluctant to impose restrictions or requirements that might cause a well-qualified tenant to look elsewhere. In addition, you may be concerned about the headaches associated with ensuring that coverage is obtained and maintained according to the terms of the lease agreement.

Here are some tips for simplifying the conversation with your potential tenant:

Focus on the positives

Renters insurance is a clear win-win with tremendous advantages and protections for the tenant. Make sure that your discussion comes from a place of service and emphasizes the benefit for the renter as the primary message.

Provide useful information

Rather than simply outlining the requirement, provide useful information about renters insurance as an attachment to the lease agreement or on a page on your website. Outline why it is important and how it can protect the tenant from personal property damage, loss, or personal liability.

Emphasize affordability

For all of its importance, renters insurance is one of the most affordable types of insurance coverage available. Emphasize this message of affordability and value so that your tenant sees the policy as an important protection offered at a low cost.

Streamline the process

Whatever you can do to streamline the process of researching and obtaining renters insurance will be useful in ensuring that your tenant complies with this requirement. The more you can educate and connect the tenant with useful resources, the more likely they are to become insured and stay that way.

Include the specifics

Don't be vague about the type of insurance coverage your tenant will be required to carry. Provide real numbers so that he or she can easily find the insurance coverage that is right for them and for you. Check out standard renters insurance policy limits when setting your requirements to simplify the process even more.

Shopping for renters insurance

Shopping for renters insurance in California can be a frustrating experience for the tenant, so it is crucial to help them understand their options so that they can find the coverage that is right for them and their household. If you have multiple adults on the same lease, they will, in all likelihood, need to obtain separate rental insurance policies, all of which will need to conform with the requirements.

As a property manager or leasing agent in California, you may choose to require renters insurance. If you do, you can help streamline and facilitate the process by helping renters identify relevant coverage options and find a reliable carrier. This provides excellent customer service while also making sure your needs—and those of the property owner—are met in a timely manner.

When you work with RentSpree, you’ll enjoy the peace-of-mind of coverage options that are good for you and for the tenants you serve. By partnering with Sure, an insurance tech company that provides innovative solutions to the needs of both renters and property managers, you can notify tenants of their insurance obligation and help streamline the process of finding and obtaining coverage, directly from the RentSpree platform.

Want to check the status of your tenant’s renters insurance policy? You can find the latest information right in your RentSpree dashboard. That means more convenience for the tenant and more peace of mind for you.

A policy obtained through Sure provides protection for personal property, personal liability, sewer or drain backup, loss of use, replacement costs, and even identity fraud. That means your tenants are better protected from loss and financial reversal which is good news for tenant stability and long-term retention.

Now that you know how renters insurance in California works, it’s time to find out how renter’s insurance differs from landlord insurance.