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Rental Insurance Claim Refund, My Ethical Dilemma! What Would You Do?

The work on my rental property, the one with the burst pipe back in December, is finally done and the insurance claim settled. It was more work than I expected (you can read all about it in Dealing with a rental insurance claim) but the insurance company is finally sending me my refund. Rental insurance claim refund, my ethical dilemma! What would you do?

Rental Insurance Claim Refund:

Las Friday, the field adjuster sent me this email:

A cheque has been issued for $2,338.51 with respect to the hydro, rents and appliances.

We have covered 50 % of the $1,495 lease amount at a rate of 50% for a total of $1,495.  This is slightly more than the restoration period of 47 days, but trust that this will compensate them for the additional hydro. 

The cost of the appliances and related equipment has been covered in full.  We have applied $800 of the $1,000 deductible, crediting $200 for your time mitigating the loss.

Woo-hoo! Can you believe it, they actually paid $200 for my time!! Awesome! They also reimbursed over 50% of the rent!

As mentioned in a previous post, I did make a good business case originally when I asked them to consider reimbursing my tenants for half of the rent. But honestly, I never expected to get that much back!

Additional Useful Information:

My tenant really didn’t lose the use of half of the house. The basement was affected and they do use it as a bedroom, but there are still three bedrooms upstairs and only two tenants! Also the laminate floor was redone fairly quickly so they were able to start re-using the basement much earlier.

Since this all started, my tenant informed me they are planning to move out in the fall or by next spring at the latest. Her daughter is moving to Gatineau on the Quebec side, which is where my tenant used to live, so she wants to move back there.

My “Ethical” Dilemma:

The insurance is sending me the full cheque! And now am I thinking about the refund and wondering what I should do with it!

The claim was handled and processed by my insurance company for which I pay the premiums in full. I could potentially be out-of-pocket by $800, depending on what I do with the refund.

So here are my options:

  1. Process the refund as intended by the insurance.
    • Tenants; $1,495
    • Landlord: ($800)
  2. Recover the deductible amount and give my tenants the difference. Why should they “make” $1,495 for a slight inconvenience while I have to pay $800 out-of-pocket? Somewhere it doesn’t seem right either! This is a business after all.
    • Tenant $695
    • Landlord: $0
  3. Or split the “profit” in half with the tenant.
    • Tenant: $350 – It should cover the additional electrical expense of running the machines to dry the basement for several days (around $100) and a $250 credit towards the rent.
    • Landlord: $345 – It would be pure profit on an insurance claim!

I already gave the tenants a $200 credit in February so I will definitely deduct it from whatever I refund them. I am struggling with what is the right thing to do or the right business decision.

Does it make sense for me to even consider giving them the full $1,495 while I would be out-of-pocket by $800?

If they weren’t planning to move within the next year, the decision would be easier. I would do whatever is needed to make them happy, meaning I would give them the full refund. It would be cheaper than having a vacancy. But since I know they are moving out,  I am not clear on what I would accomplish by giving them the full refund!

I am leaning towards option “b” but part of me feels like it’s not really my money to keep! Damn ethics!

What do you think? Would it be unethical to only give them a portion of the rent refund or a smart business decision? What would you do?

20 thoughts on “Rental Insurance Claim Refund, My Ethical Dilemma! What Would You Do?

  1. I’m no landlord and don’t know the legality of all of this, but I would certainly not do option 1. I would definitely want to recoup my deductible. I’m personally leaning towards option 2, but since they are leaving soon-ish the third option seems like it might be the best option too. (I really am no help!)
    I don’t think any of these choices are unethical. Have you promised them anything? If so, I’d lean towards fulfilling that commitment.
    If you do option 3, you could look more kindly on them and consider returning more of the security deposit when they leave depending on the damage they did to the place.

    1. No I was careful not to promise anything because the insurance didn’t have to reimburse me anything on the rent. We don’t have security deposits in Ontario. Thanks for your input and thanks for stopping by:)

  2. I’m not sure about the legality involved here either. Let’s assume you have no legal obligation to them for anything and it’s purely an ethical question.

    The question I’d ask myself next is what it would take to keep them happy. Sure, they are leaving but I want to be a good landlord, not a slumlord. They had an inconvenience and in theory should be made whole. If the $200 already given to them seemed fair and made them happy, I’d keep the rest. If you think they are still annoyed, maybe give them some more back. You want them to feel valued. You want them to keep the place in good shape when they move out. You also don’t want to give them money just because you have it.

  3. Caroline, I tend to be a little on the greedy side, so take that into consideration. If you gave your tenants a credit for the inconvenience and you have not committed to anything more, coupled with them giving notice of leaving, I would keep it all for yourself. If they were a good long term tenant and you expected them to stay for the foreseeable future I would be much more generous to keep them happy. Tom

  4. Hi Caroline, tough question. I am not a landlord but if the $200 already given to them seemed fair and made them happy, I’d be inclined to keep the rest.

    1. Hi Angela, it looks like I should really find out about the legality of it. But someone told me it is no different than if you get reimbursed for a damaged car and decide not to fix it. There is nothing illegal about it even if the insurance company paid specifically to have it repaired, it is your choice.

  5. Hmm I think 2 or 3 sound pretty good! Though I don’t know the legality of it. I’m sure there’s a local tenancy branch for landlord consults in your province, but they are probably no help and would favour the tenant!

    Did you know that a tenant (even though they leave the home and leave junk there) is entitled for you as the landlord to keep their junk for 60 days in case they come back to claim it? (in B.C.)

    1. Thanks GenY, I may check on the legality before I make my decision.
      No I didn’t know but I am not surprised, we have so little rights as landlords!

  6. Agree with all the comments above. Find out if there’s any legality (it sounds like you may have determined there isn’t). Other then than, it’s really up to you. If you’re debating it, sounds like your either not comfortable with either keeping it all or giving it all. So maybe middle road.

  7. I would lean toward option 3 so the tenants would feel that they are valued by giving them a split of the profit on top of the $200 credit they got last much.

  8. I am not much of an expert in real estate. But, like others mentioned if I know them well enough I might share some. Legally I don’t think there is any obligation.

    1. So far from everything I was able to find out, it doesn’t look like I have any legal obligation to give them any of it! Thanks for dropping by:)

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