Manufactured Home Community Managers Insurance Buyers Guide By Kurt D. Kelley, JD

There are multiple layers of risk mitigation for Manufactured Home Community (MHC) operators. The first three are: 

1. Acquisition selection 

2. Entity Ownership Structure, and 

3. Management/Operations Techniques 

These three layers are foremost for risk reduction. Nevertheless, significant ownership risk remains. Proper commercial insurance is designed to reduce or remove much of the remaining risk. Here’s what to look for when purchasing insurance to protect your investment. 

General Liability Insurance – Coverage forms begin with wide coverage grants for liability resulting from your negligence that causes bodily injury or property damage to others. The secret is reviewing the listed coverage exclusions. Any coverage offer you receive should include a full list of all the policy exclusions. If it doesn’t, ask your agent for the list. 

A number of these exclusions are endemic and can’t be removed. These include exclusions for bodily injury and property damaged suffered by others due to: 

1. Mold or mildew 

2. Pollution, and 

3. Intentionally caused injury (exception for self-defense) Your operations and management should take measures to reduce or avoid risks associated with these. Pollution coverage will generally cover Mold and Pollution claims. Costs for this generally start at about $5,000 for a single MHC.

Other coverage exclusions are not endemic and may be removed or avoided for some, but not all MHC owners. These include exclusions for: 

1. Animal/ dog bites 

2. Bodily injury to contractors on the premises 

3. Claims resulting from violations of Habitational Laws and Codes, and 

4. Absolute Assault and Battery (ex. Tenant raped while in the MHC) When you see these on a coverage offer, ask your agent if they can be removed. MHC’s that are in high liability areas, have a high concentration of rental homes, or are currently in need of repairs and improvement may be stuck with these exclusions. 

Excess / Umbrella Liability -This coverage picks up when the underlying general liability coverage limits are exhausted. Excess liability generally covers the same claims as the underlying general liability insurance, and not claims that aren’t. Due to the substantial risk of liability claims exceeding the $1,000,000 per occurrence limit typically provided by general liability insurance, some excess liability coverage is recommended for all but the smallest operations. 

Examples of claims with a high expectation of exceeding a $1,000,000 general liability coverage limit include claims alleging death, brain injuries, spinal cord injuries, and other permanent bodily injury. 

When evaluating what excess liability coverage limit you should purchase, consider the following factors: 

1. Amount of equity you have at risk 

2. Whether you are in a high-risk legal jurisdiction (ex. California, Illinois, New York, Louisiana), and 

3. Your lender’s insurance requirements Limits from $1m to $5m are typical for MHC owners. Higher limits are available for larger portfolio owners. 

Property Insurance – This protects your buildings, improvements such as above ground utility infrastructure, building contents, home inventory, and the property’s income. When your property is damaged due to a covered peril, this coverage is designed to repair or replace what was damaged or lost.  The broadest coverage forms are the “special” and “comprehensive” coverage forms that are favored by most MHC lenders. They cover all perils, except those excluded. The “Basic” coverage form offers less coverage. It only covers those perils specifically listed. Note that almost all commercial property coverage forms exclude flood and earthquake damage. Those coverages are purchased separately. 

There are two typical mistakes made by property owners when purchasing coverage. The first is undervaluing their buildings and property. Repair and replacement costs have risen 50% plus in the past four years. A single section Manufactured Home roof cost $8,000 to replace four years ago, and $12,000 plus to replace today. A modest new three bedroom, two bath single section manufactured home costs $65,000 to deliver and install. A basic wood frame site-built office building costs $200/ft plus to build in a low-cost area like Central Texas, and significantly higher in high-cost areas like the NE US or the West Coast. Using $300/ft as a base valuation measure is a reasonable starting point.

The second big mistake MHC owners make is failing to insure multiple improvements in their park. Fires and windstorms can destroy every power pedestal, utility pole, lift station, and sign in your MHC. Those large trash can like cannisters sitting atop power poles in your MHC may be owned by you, not the utility company. And many of those are valued over $200,000. Be sure to list on your property policy all the buildings and improvements you want insured. If they aren’t listed, they aren’t insured. Loss of income with extra expense coverage is critical for MHC owners. Your limit should be an amount equal to your annual revenue. If available, add the extended 180 days coverage. The base loss of income coverage lasts the shorter of 360 days or the time when the community re-opens or should reopen. The 180 days of extended coverage pays you the income you would have earned absent the catastrophe while you are making efforts to refill your tenant base. Extra Expense coverage can pay for the costs to remove tenant owned home and other storm debris that impedes reopening a road or home site

Workers Compensation Insurance – This is a necessity for those with W2 employees. It’s also excellent value as it includes unlimited coverage for employees on the job injury claims. Medical expenses, lost wages, and death benefits are included. A key additional advantage is that if you have workers compensation insurance, an injured employee’s only legal remedy is workers compensation benefits. Your operations become insulated for tremendously high employee bodily injury claims that may arise in regular civil court. Even MHC operators with no W2 employees will find a lowcost low payroll Workers Compensation policy valuable

Having one means that if a contractor sues claiming the legal status of an employee and wins, your workers compensation insurance protects you. In states such as Illinois and California where the legal definition of an employee is wide, and that of a contractor is slim, it’s particularly important. Other Key Insurance Coverages for MHC Operators to Consider 

Employment Practices Liability and Tenant Discrimination Insurance – This covers legal defense costs and indemnification arising from allegations by workers that they were compensated improperly (ex. Not paid overtime), sexually harassed, or treated unfairly due to their race, sex, sexual preference, disability, etc. If you purchase the “3rd party” coverage extension, the coverage extends to like claims against you by tenants. That’s great value! 

Cyber/Crime Insurance – This covers liability claims arising from online, email, and internet activity. It can also extend to losses associated with replacing virus damaged hardware and software as well as loss of income due to hacking induced business closures. Extortion claims by hackers who have locked down your operating system are a growing source of losses.  Theft of bank account funds by fraudsters is a huge issue for Real Estate owners who often have large uninsured cash balances. This coverage may be the best value insurance an MHC owner can buy. President of Mobile Insurance, an agency specializing in insurance for manufactured home communities and retailers. Mobile is a specialty MHC insurance provider that insures more MHC owners than any other agency. Named top commercial insurance agency by American Modern Insurance Group. Member of numerous insurance companies’ policy development and advisory teams. One of largest manufactured home specialty agencies in the country. 2009 - Present Kurt D. Kelley, J.D.