Zurich Programs bringing home solutions for rental properties facing habitability lawsuits

As the old saying goes: “Home is where the heart is…” Then again, if home happens to be a rental property troubled by mold, pests, HVAC issues, leaks, and maybe even noisy neighbors, home might be where your next general liability suit is living, until it relocates to court.

In recent years, driven by soaring rents, overcrowding and increasing corporate ownership of rental properties, habitability litigation has been leveled against a growing number of property managers and owners across the U.S.  Because of state laws leaning more heavily toward the rights of tenants, and jurors becoming more susceptible to the siren call of social inflation, judgments against landlords are big and getting bigger. This is especially true in California, where the rising trend of habitability litigation was first sighted by Program Administrators active in the rental property market. It’s a phenomenon likely to become an increasingly significant concern for landlords across the United States, as members of the plaintiff’s bar in jurisdictions beyond the litigious West Coast seek to get in on the action.

The rise of corporate ownership

Like other major population centers around the country, California, particularly San Francisco, Los Angeles, Oakland and other jurisdictions, has seen rapid growth of corporate ownership of multi-family rental dwellings. As the shortage of affordable housing has ballooned in recent years, rents have soared. The result: higher densities, overcrowding and increasing stress on the systems, maintenance and amenities that renters expect under the implied warranties represented by their rental agreements. But more residents in smaller spaces means more trash, more wastewater, potentially more vermin and infestations, rising complaints over mold and other contaminants, and generally more wear and tear on structures, on building amenities and on the nerves and patience of residents.

Even management firms committed to staying on top of living conditions and maintenance issues may find it challenging to monitor hundreds of properties all the time. And even in well-maintained properties, behavioral disputes among residents, such as loud music at all hours, second-hand smoke, and other points of contention, can result in habitability-related claims that engage property owners if those making complaints believe they are not being heard.

Corporate owners with many units under management may be inclined to distribute maintenance resources across multiple locations, rather than having dedicated, onsite services assigned to each complex. Delays in responding to complaints can exacerbate frictions between landlords and tenants, frictions that the California plaintiff’s bar has become quite adept in addressing.

Covid adds fuel to the fire

While habitability laws have sparked some level of landlord-tenant litigation in California and other venues for years, disruptions caused by the pandemic gave rise to a perfect storm. Job losses quickly led to tenants being unable to pay rent. In California and other states, housing laws may allow renters to hold back rents in such emergency situations, resources that are then unavailable to property owners for the maintenance of electrical, mechanical, plumbing and other services. As maintenance is deferred, problems multiply, resulting in habitability issues that attorneys have discovered to be lucrative ground for liability litigation. As the pandemic ended, economic vitality recovered, but the propensity of renters with unanswered complaints to hire attorneys who see the financial opportunities of habitability litigation has not abated. If anything, it has accelerated.

Once the word spreads that a habitability suit can pay off, the potential for a flood of similar actions against the same property owner becomes a real possibility. Indeed, being tagged with one lawsuit makes the likelihood of more of the same a virtual certainty, with the local plaintiff’s bar only too willing to help. And the size of recoveries in such verdicts is increasing. Claims data indicates that cases settled for $3,000 to $4,000 just a few years ago are now netting $30,000 to $40,000, and some considerably more.

Taking past as prologue, socioeconomic trends originating in California have a habit of spreading to other regions. Already there are concerns about New York City, Philadelphia, Chicago and other high-density urban areas with robust rental markets and aggressive plaintiff’s bars.

Building a viable plan of action

What can property managers do to potentially reduce the risks of successful habitability suits? The following actions can help build a viable plan of action:

• Respond quickly to all complaints or notifications registered by residents and maintain transparent communication about corrective actions and timeframes. 
• If a repair or some other remedial action is required, whether broken concrete, faulty HVAC, mold or some other issue, address it as quickly as possible. 
• Document all communications and actions taken to address an issue from the first report of a complaint to its ultimate resolution. 
• At lease inception, provide documentation defining the landlord’s responsibilities for maintaining habitability as well as the renter’s own responsibilities for maintaining the property. 
• Work with your insurance carrier’s risk engineering team to proactively evaluate potential red flag issues and to develop a preventative maintenance plan.

Zurich solutions

Zurich is responding to the challenges of property managers and owners facing a growing number of habitability claims with two solutions available to Program Administrators and customers.

One is a non-admitted, sublimit endorsement that can be added to renewal and new policies. The sublimit can deliver a specified level of coverage within the general liability limits purchased by a property, with defense costs included within the sublimit. Importantly, the new sublimit is not “stackable.”  If a tenant asserts that a problem has existed across more than one policy term, the claim cannot be multiplied for each policy term. The sublimit endorsement was finalized and rolled out in August 2025.

Also available is an exclusion for properties choosing to self-insure against habitability claims. This option may be attractive for well-managed, well-maintained facilities historically at low risk of habitability litigation.

A team effort

The development of Zurich insurance solutions for habitation customers is a story of close collaboration between Program Administrators and the Zurich Programs and Product Development teams, all working together to provide answers for a developing risk management challenge. Program Administrators who possess specialized customer knowledge helped to first bring the problem of rising habitability claims to light, then worked with their Zurich colleagues in the creation of a tailored program. This was an example of how teamwork between Program Administrators and Zurich underwriting, risk engineering an claims professionals can help deliver innovative risk solutions to the customers we serve.