Warning for tenants: contents insurance an absolute must

Tenants have been strongly advised to take out contents insurance to guard against being sued for damaging rental properties. Photo / Getty Images

It should cost tenants only a few hundred dollars annually but it could save you hundreds of thousands of dollars if you ruin your rented accommodation or the neighbour's.

Tenants have been strongly advised to take out contents insurance to guard against being sued for damaging rental properties.

Property management and insurance experts say even the most basic contents policy should contain provisions to insure them against carrying the liability for the entire cost of a house rebuild in the event of a terrible accident.

The issue came to light last week when Auckland tenants Kenji and Tieko Osaki won a Court of Appeal ruling saying they were not liable for damage caused when Mrs Osaki left a pot of oil on high heat and unattended for five minutes.

Fire broke out, causing substantial damage to the house.

Insurers AMI lost because the tenants were found to be immune from any liability for the damage to the property, which their landlord had insured, because it was ruled to be unintentional.

However Seamus Donegan, enterprise deputy general counsel for New Zealand's biggest insurer IAG, whose brands include NZI and AMI, said a contents policy was crucial for tenants. Tenants needed that to cover them for damage to the property they rented, he said.

"All tenants in New Zealand should have contents insurance. Most New Zealand content policies have at least a $1 million legal liability cover for claims against the tenants by third parties," Mr Donegan said.

"In light of the Court of Appeal decision, tenants are still liable for unintentional damage to other property such as neighbouring properties and tenants still need liability cover in their contents policies for that risk," he said.

David Friar, a Bell Gully partner, said tenants should be careful.

"A landlord - or the landlord's insurer - can still sue a tenant who intentionally damages the house.

"Many tenants will have contents insurance that covers them for liability for damage to the rental property," he said.

Referring to the Court of Appeal decision, he said that was really about the two insurers.

"The court's decision means that the landlord's insurer will typically not be able to recover any losses from the tenant's insurer," Mr Friar said.

Weekend Herald calls resulted in one major business quoting $361.59 a year to insure $10,000 worth of contents on the North Shore this week, with an excess of only $100. That was for a house rented by the policy holder, in a relatively affluent area.

A client's age, address, insurance history, property tenure, payment regularity, whether the house has an alarm and whether the client has other business with the insurer all affect the price.

Property expert and investor David Whitburn wrote in his book Invest & Prosper with Property (Random House NZ) how a tenant had burned down his Te Atatu South house in 2009 and an insurer took court action against that young tenant for the rebuild costs.

"The moral of this story is to have contents insurance if you are a tenant, or otherwise go to the rather impractical step of getting your landlord to note your interest as tenant on the policy," Mr Whitburn wrote.

Advice for tenants

• Take out contents insurance.

• This should automatically cover not just your possessions but also the house you rent.

• If you burn that place down, you're likely to be covered.

• Without it, you can be sued for the full rebuild costs.

• Be careful who you invite around: you're responsible for guests and their actions too.